Greek Debt Crisis Prompts Fears of EU Disintegration!
- It is a matter of when Greece will default and collapse the house of cards called the Eurozone via the falling dominoes of PIIGS. The industrialized world’s economy is over burdened by insurmountable debts. A global monetary crisis is brewing. The UKP, JPY, Euro and USD are toast!
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Greek debt crisis prompts fears of EU disintegration
by Toby Helm, guardian.co.uk
… As EU officials from 27 countries milled around the giant Justus Lipsius building, the venue of a summit dominated by the dire economic plight of Greece and the resulting existential threat to the euro and the EU itself, the contrast in mood could not have been starker from the heyday of integration that Schwaiger had known.
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The talk was no longer of high ideals and “more Europe”, but of mere survival for the European project. Where they used to talk of “ever closer union” in the commission press conferences, the phrase i s now rarely, if ever, heard except when referring to history. José Manuel Barroso, the pragmatic European commission president, set his sights at this summit on “stability” for the foreseeable future, meaning the EU will do well to steady the ship in the face of Greece’s financial implosion and possible exit from the single currency. Never mind any new European dreams.
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In the run-up to the euro’s launch, painful battles were fought between France and Germany to establish a stability pact to ensure members of the currency zone observed fiscal discipline. Euro countries, it was agreed, would have to have debt-to-GDP ratios of no more than 60% and deficit-to-GDP ratios of no more than 3%. “It was about Germany getting a stable euro, a euro like the deutschmark,” observed a German official. But when the original 11 countries were admitted in 1999, no fewer than six were allowed in with debt levels well over the required level. The rules were waived as long as their debts and deficits were moving in the right direction.
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In the case of Belgium and Italy, their debt was nearer 100% of GDP than 60% – but in they went. The same leniency was shown when Greece joined in 2001, with a debt ratio heading towards double the level required. “We might have been a little too relaxed with Greece,” said Richard Corbett, a former Labour MEP who now works as an adviser for Van Rompuy. Within a few years, France and Germany were also busting the stability pact rules.
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Twelve years on from the birth of the euro, as the EU prepares to lend more billions to Greece after an initial €110bn failed to do the trick, serious figures in the European debate now believe the euro’s crisis could cause the entire EU project to implode. Sir Stephen Wall, Britain’s ambassador to Brussels under John Major and Tony Blair – and no kneejerk Eurosceptic – declared recently that the EU was “on the way out”. He added: “After all, very few institutions last for ever.” A decade ago he could never have predicted he would say such a thing.
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On Wednesday, the Greek parliament will vote on a new package of austerity cuts and sweeping economic reforms. If the vote is in favour, the EU will press ahead with its next bailout. No one is sure, however, whether pumping in more EU money will be enough to prevent Athens from defaulting on its massive debts. The fear is that it will not be, and that a Greek default will cause Portugal, Ireland and even Spain to do the same. The effects of that would be appalling, destroying the credit of banks across Europe and further afield that are exposed to Greek debt, wrecking their ability to lend, and landing the default insurance market across the globe with untold costs. The nightmare scenario is another economic crisis on the scale of 2008.
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But still the idea – increasingly entertained by economists – that it could all end with Greece being forced out of the euro is not one anyone in Brussels will readily accept. “Greece leaving would just make matters worse, as the Greek currency would devalue, while its debt would remain in euros,” said Corbett. “And people would take fright and move their money out of the country.”
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