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article imageOp-Ed: Euromess Part Two — A two speed Eurozone, or not?

By Paul Wallis     Nov 10, 2011 in World
Sydney - The problem with the Eurozone is now starting to look very like a range of options for creating an upper and lower strata of European countries. France and Germany have been going to some lengths to deny they’re even thinking about it.
That’s not really too plausible. The Eurozone in its earlier forms was relatively efficient and stable. The problem is that some of the EC members are also ex Eastern Bloc countries, or countries with built-in economic issues. In this case, the lenders are as much to blame as the borrowers.
Greece, a comparatively small economy, is a case in point. Greece was on the receiving end of loans which were almost as bad as the murderous Third World loans which crippled so many countries for so long. The fact that these overloaded loans were piled on to an economy which couldn’t possibly pay for them was sheltered by the Euro-ness of the lending process.
The theory was that Europe was somehow invulnerable. That’s apparently not the case. Italy is now in the spotlight for the same reasons as Greece. Italian debt is no joke. Italy represents 20% of the EU economy. The domino effect (sorry, but for once it’s an apt analogy) is likely to go around the world. There’s not even a suggestion of bailing out Italy, and nobody has the money to do it.
Austerity may sound good, but it’s also likely to strangle economic activity. It’s quite true Italy has to get its loans under control, but whether this is the best approach is debatable. Italy has enough problems without this added mess. This is a country which isn’t exactly wealthy per capita below the movie star level. Taxation isn’t going to cover the debts.
Add to this the fact that Ireland and Portugal are also in the firing line, and that the eastern nations were virtually maimed by the GFC, and you don’t get a pretty picture of Europe, past or present. France and Germany are the powerhouses, and it’s becoming clear that realism is the preferred option. It’s not in their interests for Europe or the euro to go down the tube. That said, insulating core economies from the debt disease is hardly an unpredictable reaction.
The New York Times:
Markets also seemed panicked by rumors out of Brussels that France and Germany were even discussing the expulsion of some countries from the euro zone, a suggestion quickly denied by French government spokesmen. France and Germany are discussing possible treaty changes that would create more coordinated “economic governance” for countries that use the euro, including more central surveillance of national budgets and their financial estimates, clearer rules and sanctions for those countries that violate them.
That’s a denial? Looks more like a formula for prosecution.
Some people have suggested that the European Central Bank could organize a more equitable Euro bond option to spread the load. Good bonds in place of bonds which are looking increasingly like confetti would at least reassure the markets. So would a thoughtful, phased waiving at least some of these murderous European reruns of the old Third World debts, but it’s debatable if the banking sector or bond market could take that without anaesthetics or perhaps euthanasia.
Doing nothing is not an option. Another global crash could go on for decades, if enough capital is destroyed. A lack of constructive approaches to the Euro debts is the best possible way of guaranteeing the result of the Euromess is likely to be worse.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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