Greece's woes - beginning of the end for the euro
By Alexander Chepakovich, CFA 2011-09-14The euro zone, and not just Greece and some other weaker countries of the monetary alliance, is in a great danger. The current financial and economic crisis has unmasked flaws in the single currency. The euro just does not have a solid foundation - it was built on the sand good intentions and hopes.
Greece, obviously, cannot pay out its debts. The country enjoyed a free ride for a number of years and spent well beyond its means. And why not, if there are wealthy 'parents' who should pay for wellbeing of the whole family. Germany, for one, benefited immensely from the introduction of the single currency and, from the point of view of the socialist Greece, should write blank checks to 'children' to keep the family happy. Portugal, Spain and even Ireland, and, possibly, Italy, have no scruples about overspending on the family's account. They could only do this because they knew that they would be bailed out of their financial troubles if those were to come. They know that money wasted on the bailout is a small price to pay for maintaining economic unity and relative stability in Europe.
If Greece and other 'children' would have kept their own currencies, there would be no need for bailouts: the countries themselves would have just printed enough money to pay its debts. The result would have been high inflation and high cost of borrowing in the future. But this is nothing new in Southern Europe. Now, however, being part of the eurozone, they just cannot get out of the trouble with the help of the money printing press, at least not until other members of this union agree to this.
There is a grave structural problem with the euro: the monetary union is not complemented by the political one. For the euro to be a true strong currency, the eurozone has to become a single country. Nothing less then this would suffice. European politicians got ahead of themselves when they clubbed together the currency union. The rush to make Europe to be United States' rival in every way will have dire consequences. Haste makes waste, and so does vanity.
In my opinion, the euro is doomed. European politicians are scared even to think about this. But they will have to. The eurozone is to become one country in every respect or the euro is out. Making one nation, in my opinion, would be very beneficial for Europe in the long run, but I do not think that the peoples of Europe are ready for this. Your may call it national identity or nationalism, but I just don't see it disappearing in the foreseeable future in this part of the world. We are just not ready, at least not yet, to measure everything by economic gain alone. So, if this alternative is ruled out, then the euro has to go. It might not disappear completely, at least not right away, but the eurozone is bound to become much smaller. It has to be scaled back to economically and politically justified size.