Image source: http://business.financialpost.com/2013/04/01/why-austerity-has-failed-the-eurozone

 

The Greek drama for the Euro Zone crisis is reaching its peak, ultimately at different points—and they say when you do so, the inevitable direction is to go downhill. Can the EU particularly Greece, Portugal, Italy, Ireland and Spain take much more? In the almost five years of pain which have passed, many political and economic analysts have mentioned still that the future isn’t looking any better for Europe and as a result, some opinions have raised the question time and again, “Is it the Euro’s last stand?” Clearly, a choice has to be made over the government of euro over the government of the people. 

Research had mentioned that the sovereign debt crisis that broke out in Greece was born out of the risky integration of peripheral countries in the Eurozone wherein critics of the euro (which was launched in 1999) voiced that the monetary union was in reality, only half a union and thus susceptible to failure. Its 11 original members retained their taxing, spending and borrowing powers at the cost of surrendering their national currencies and control over monetary policy to the European Central Bank (ECB). In relation to the probable causes of the Eurozone crisis are the institutional mechanisms,surrounding the euro. Aside from these, the euro problem was also seen to be coming from a crisis of financialization.The monetary union’s structure has a flaw which is concealed so deeply within it– the “unresolved conflict between the needs of the euro and the independence of its members” (Schuman, 2011). Even with the European Central Bank (ECB) controlling the monetary policy of the euro zone members, no overarching political figure or authority among the members, the individual states within the zone were free to take off to any economic directions thus tearing the monetary union apart. Years after the EU was founded, there were relatively two euro zones- one was composed of healthy competitive economies in the north, while the other was composed of slow-growth, indebted, uncompetitive countries in the south. The euro has instead produced a dichotomy and not greater integration among Europe’s economies but whatever it takes, Europe has claimed that it will stand united behind the euro, for “if the monetary union were to disintegrate, the EU itself would be under severe threat. They’ll do whatever is necessary to save it.”—Richard Portes, Economist, London Business School (report by Time, 2010)

Looking for salvation in desperation

How did the EU and the other international organizations such as the IMF respond to the economic insecurity brought about by the sovereign-debt crisis in Greece? Bailouts, rescue deals, austerity measures, name it. These terms, all synonymous to a degree are proliferating in many researches, articles or studies about the Eurozone crisis. The crisis which had shocked the world is still here and it serves as a threat not only to the existence of the EU but to the global economy as well. Even with the rescue packages that the EU and the International Monetary Fund has provided to save Greece from contaminating the other Eurozone members, the contagion was barely contained. Portugal came in next in pleading for the ‘cure’, Ireland followed. On the other side of the coin, Germany who is Greece’s biggest creditor is certainly not playing the game of nice. Liberal economist Joseph Stiglitz (January, 2012) however, is warning European governments that imposing the fiscal austerity plans is equal to signing a mutual ‘suicide pact’. These austerity measures according to him would only collapse their economies further.

The bailout packages provided by the EU and the IMF only provided a respite for a few months but this certainly didn’t resolve the issue yet. Predictions that some countries would have to declare insolvency had come true. Insolvent countries would have to come up with a new plan and the suggestion of debt restructuring has entered the scene. For this [inevitable] debt restructuring to work, the IMF has to have the deft technical management and politicians would need to find the political courage to do so.

Politically speaking, the euro zone crisis has definitely affected the national politics in most EU member states according to Goldhammer. He felt the 2012 French presidential election, which pitted Socialist Francois Hollande against the incumbent Nicolas Sarkozy illustrated more global political instability. The French election, according to Goldhammer, was not about right versus left but about adapters versus resisters (to globalization, the euro, and even the European Union itself). With Hollande taking up the presidential spot, he affirmed in his victory speech that“Austerity can no longer be inevitable!” –ignoring the caveat that these austerity measures are detrimental to the euro zone economies as proven by the recent report made by the  International Federation of Red Cross and Red Crescent Societies. In this report, they specifically mentioned that the long term ill-effects of such austerity measures are in the offing.

From a theoretical perspective, the euro zone crisis can be looked at as stemming from a structural imbalance.George Ross meanwhile mentioned that the “Eurozone mess is attributable to problems of EU Inter-Governmentalism (multi-lateralism) or power battles between EU nations of varying sizes.” The Eurozone crisis therefore, was contained by the EU and the IMF albeit temporarily and thus, the new challenge is raised for the European Union, the IMF and the other institutions such as ECB and others. Speaking of the European Central Bank’s role in all of this, it is now being evaluated as well by economic historians such as Nicholas Crafts of Warwick University. He mentions in his paper that salvaging the euro is more likely to be a “Pyhrric victory”—survival is not enough.

In the final analysis, the sight of survival though assured is quite in fact, filled with uncertainty. Such juxtaposition describes the crisis up to this point as chronic and worse, as a terminal case. The gap between the “two euro zones” would only continue to widen if no further steps are taken, with “Grexit” and other break-up options not out of the question—acts being considered out of desperation.