February 22, 2010 at 4:00 pm Leave a comment

In case you haven’t been following the situation in Europe, you might want to start paying attention. Greece is in crisis. Although we are generally consumed by our own economic problems, those in Greece are far worse. Like the rest of the world, virtually all of Europe is suffering through the same recession that we are, with many places facing very similar symptoms – such as a real estate crash. In any event, Greece is no longer able to pay its bills; although partially out of the control of the Greek Government, the deficits have nonetheless run afoul of Eurozone regulations. And while Greece will survive this crisis one way or the other, the Euro may not.

The common currency was introduced a decade ago as a way to foster even better economic relationships across the continent and move it further towards a European Superstate which many dubbed the “United States of Europe” – a new global superpower with the potential to surpass the USA as the globe’s most important economy. The problem, however, was the economic unification of strong and shaky economies alike with only minimal political unification. Despite recent treaties and the existence of a “European Government”, the fact remains that England, France, Ireland, Spain, Portugal, Germany, Belgium, Italy, Greece, and all the other Euro nations are governed largely independently – a fact which isn’t going to change anytime soon.

So, in the end, you are left with different countries, different economic policies, all trying to operate under a currency they have limited influence on. Perhaps the best example I found to explain why this is so problematic is one I cannot track down again, so I’ll have to describe it to the best of my memory:

Think about the 50 US states, all of which operate under the US dollar, as independent nations, without shared tax revenue or a common federal government. Now think about the terrible condition of some state economies like Michigan, Florida, or California. Thats about the picture Europe has right now. But unlike in the United States, where the federal government or other states could step in to fill the gaps when crisis hits, Greece is largely on its own. Worse, it cannot devalue its currency or take other actions which are generally used in times of economic crisis to right the ship. 

In other words, Greece is essentially the economy of a state with the government of a nation. None of the options now are attractive; Greece could be ejected from the EU or the Eurozone, Greece could be bailed out by the other nations, Greece could give up control of its own economic and fiscal policies, or Greece could be allowed to fail as its doing. In any case, the economic power of the Euro decreases substantially.

There is now a broad consensus that the Euro as a continent-wide currency is dead: that, at best, it will become restricted to stronger economies like France and Germany, and, at worst, may be abolished.


Entry filed under: World. Tags: , , .

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