EU Summit Is 'Make Or Break' For The Euro
Sky News 2011, 11:51, Thursday 21 July 2011
The Eurozone sovereign debt crisis which has been playing out since the end of 2009
has reached its end game.
Politicians must decide how much EMU (European Monetary Union) is worth and whether they are committed to saving it and Thursday's emergency summit could prove to be a make or break opportunity, not only for EMU, but also for the euro.
The crisis that started in Greece almost two years ago has already eaten its way through Ireland (Berlin:
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news) and Portugal.
More recently, signs of contagion have appeared in the government bond markets of Italy and even in France.
As the crisis threatens to engulf the whole of EMU, the stakes have become ever higher and potentially more difficult to fix.
Contagion has been facilitated by the fact that previous attempts to staunch the wounds have been insufficient.
A year ago, it was hoped that the first Greek bail-out plan could be the end of the crisis.
It is clear that this view was woefully optimistic.
The inherent weakness of EMU is that, up until very recently, neither the system itself nor the markets provided any clear disincentive for governments to manage their fiscal positions prudently.
Greece may have been the worst offender but it was the failure of various governments in a host of European countries to strengthen their budgetary positions during the fat pre-recessionary years of growth that laid the groundwork for the present crisis.
The budgetary austerity that has been forced on Portugal, Ireland, Greece, Spain and now Italy has been the inevitable reaction to the crisis.
At every point of the crisis, politicians have shown themselves only to be able to react to each phase rather than take pro-active steps to protect EMU.
The reason for this is that politicians have to answer to their electorates and, in certain parts of Europe (Chicago Options:
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news) , voters have lost enthusiasm to see their taxes potentially transferred to foreign shores.
This lack of enthusiasm overlooks the benefits that the sovereign debt crisis has brought to some nations.
The fall in the value of the euro in the first half of last year has no doubt been a boon to EMU exporters.
It is fair to say that German growth in recent quarters has been supported by its association with Greece.
Voters and politicians must now take a stance on whether EMU and the euro in its current form are worth saving.
The solution will no doubt mean greater intra-regional fiscal reassurances to support those countries that need to implement painful budgetary reforms.
If politicians pull it off, EMU could become the system that its creators envisaged - one in which fiscal discipline will allow enable the smooth running of monetary union.
If politicians fail to restore confidence in EMU, the system could be pulled apart.