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Is the Euro Doomed?

February 22, 2010
An animation of the enlargement of the Europea...
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The European Union is struggling in this failing economy.  Greece’s financial woes have highlighted the differences among the countries that comprise the European Union, but these are no real surprise.  The European Union had chosen the Euro as a form of universal currency in an attempt to give the participating countries stability.  But, when the countries don’t share the same rates of taxation and fiscal policy, and a huge worldwide economic crash throws everyone off kilter, the differences in the European Union’s financial policies are highlighted.

Apparently there is talk about the European Union bailing out Greece’s failing economy, which has caused protests among other countries for whom the recession has not been as harsh.  Blame is assigned to Greece, but the real issue is trying to unify a currency without a uniform financial policy.  Even in America, citizens are still terribly angry about the economic bail-outs of big corporations, sparking rates of unhappiness with current governmental employees at an all-time high of 80% rate of dissatisfaction with elected officials, and we are all in the same country.  Imagine the type of outcry that emerges when other countries are called in to bail out Greece.  The result is not pretty.

Of course, not much is pretty in this recession, and the strength of the Euro sounds very good in a stable market, because the concept of sharing what is perceived to be small amounts of risk is an abstract one.  Now that the risk is huge and financial resources are scarce it’s hard to get that “all-for-one” mentality going strong.  And what happens if they bail out Greece to save the Euro?  Then are all those politicians going to hit the American level of dissatisfaction ratings of 80%?   Will the governments save Greece, and then according to analysts, the Euro but then doom themselves politically and end their careers?  It’s happened time and again here in the States.  Or, what if Greece is just one country in line of the majority?  What if there simply isn’t enough to go around to stabilize the Euro?

The rest of the euro-zone countries can come to the rescue. Indeed, these countries – led by France and Germany – have pledged twice this month to do what’s necessary to see Greece through its deficit crisis and defend the common currency. If need be, officials say, that will include a financial bailout of Greece, providing the funds to allow Athens to make its debt payments as the government slashes spending and raises taxes, no matter how unpopular this may be with its taxpayers. (See “In Paris and Berlin, Fury Over a Greek Bailout.”)

“Permitting what will essentially become an existential assault on the euro by financial markets isn’t something leaders are going to let happen – the political and economic consequences would simply be too grave,” says a French government adviser who preferred to remain anonymous because of the sensitivity of the situation. “The pressure being applied by market speculation is making things harder, but far from impossible. The euro isn’t going away.”

However, HanckÉ describes a scenario in which continued market doubts could drive the value of Greek bonds to junk status, confounding outside efforts to bail Athens out and forcing Greece to simply abandon the euro before it drags the currency down to nothing. “Once that happens, markets then turn successively on indebted countries like Spain, Portugal, Italy and Ireland until they’re driven out as well,” HanckÉ explains. “At that point, even if a core of countries continue using the euro after so many others have left, the currency will have lost it’s main original function as being the means by which greater European integration and common governance is attained.

Then there is the issue that perhaps Greece will be “saved” financially but governed in essence by the rest of the European Union in its buy-in to save the economy.  Many American companies have found themselves in this uncomfortable position as they took government bail-out funds but then didn’t want the government overseeing their business operations.  Will Greece lose it’s independence if the UK supports their economic structure with strings attached?  We all know there is no such thing as a free ride, and Greece isn’t asking for one.

In some ways this is playing out eerily like USA’s original divided stance of a confederacy vs. a union, and we had a horrible civil war to settle that one, which is still seen as one of the darkest points in our country’s history or one of a new beginning, depending on which side of the Mason-Dixon line you call home.  This concept of unity comes at a price, and it can be an incredibly high price.   Careful, Careful, Greece.  Speaking from experience here in the U.S., this may be about much more than just the money…

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