Will Greece default? Or will the debt be restructured? What will then happen to Portugal, Ireland, Spain, Italy etc.? Does the structure of the eurozone create its own special problems on top of the declining world economy?
In searching for answers I have found the analysis of blogger Protesilaos Stavrou (Critical views on current affairs) helpful. Although the following does not directly address the wider problem of the ailing world economy he does make a strong case that there is a problem with the euro itself which makes things worse:
European leaders created a monetary union, a single currency, without a coordinated fiscal policy (a fiscal union), thus leaving the euro open to serious shocks that would hit directly at this systemic flaw. This is the reason why the once two-speed eurozone has become two-tier, since national economies grew unequally, as the economies of the more efficient countries of European center were concentrating the surpluses of the eurozone, while the periphery was left with debt and the illusion of prosperity that came from the once cheap loans. That is the reason why we say that the surpluses of the North (Center) are the deficits of the South (Periphery).
Failing to address the structural flaws of the euro, means failing to see the real problem, which is basically what happens today, since all European officials speak of the “Greek”, “Irish”, “Portuguese” crises, as if those are not related anyhow to the way that the single currency functions. That kind of approach, is made manifest in the bailout packages that are given to these countries, which do not aim at preventing defaults and bringing national economies back on track, but at buying precious time for German and French banks, who hold around 30% of their respective countries GDP in government bonds of the European South, so as to avoid a more generalized crisis. The bailouts are thus a means of indirectly financing German and French banks and minimizing loses.
These practices will not solve the problem. All they will do is accumulate more problems that go beyond the scope of economics into social and political spheres that will at some point erupt with unpleasant consequences for the EU architecture. For as long as the systemic flaws of the single currency are not touched upon, there will be no viable solution to the eurozone’s debt crisis
- Systemic flaws of the Euro are the root of the debt crisis
Here are direct links to some of his key blogs:
update: July 6: An overview of the four dimensions of the Greek Crisis
June 28: Ad hoc measures can not save the EU
update: May 30: About the “change” the Indignant want
May 16: What if Greece goes bankrupt?
update: April 7: The Greek Odious Debt and its Essential Lies