Decline of Europe

Concern about the stability of the euro is the result of not only an economic but also a political crisis

Long-held doubts about Greece's ability to pay in a situation of high budget deficits, budget shortfalls and low economic growth eventually turned into the most serious test of all, with which the 16 eurozone countries ...

Long-standing doubts about Greece's ability to pay in the face of high budget deficits, budget shortfalls and low economic growth eventually turned into the most serious test of all that the 16 eurozone countries had to face in its 11 years of existence.

Concern about the health of the euro has spread from Greece to Portugal and from Spain to Italy and is not just a result of the debt crisis, rating agencies and volatile markets. There are also signs of a political crisis: the essence of today's problems is directly related to the very foundations of the European Union, control over the economic and fiscal policies of whose members remains the prerogative of individual states. In such a situation, it is difficult to exercise the political leadership needed to overcome the crisis.

Surely politicians will cope with the crisis, but its consequences for the economy, according to experts, may be severe. Jean-Paul Fituassi, professor of economics at the Institute for Political Studies in Paris, said European leaders are "handling the crisis very badly" and that their decisions are fueling speculative activity in the markets.

According to him, the ratio of total debt to gross national product in Greece is not worse than in Germany, and Greece has not defaulted, but European leaders have done too little to reassure market players and rating agencies.

It is clear to everyone that the European Union will not allow a default by Greece or any other European country, and that the eurozone will survive. Most likely, in order to provide the necessary guarantees and loans, European leaders and central banks will have to change the existing rules. But even when the consequences of the mistakes made by individual countries are removed, the construction of the Eurocurrency will still remain built on a weak foundation: sharp differences between the economies of countries that use a common currency and have a common treasury, but at the same time coordinate their fiscal policy poorly.

“The euro area is facing very serious problems,” said Simon Tilford, chief economist at the London-based Center for Reforming Europe. “The current situation poses the greatest danger for countries whose economies are less competitive compared to other members of the eurozone, and whose fiscal policy is weakened.”

The situation is complicated by the fact that the European Union is now going through a period of political change: new political leaders are entering the scene, the composition of the European Commission and the European Parliament is changing, in accordance with the coming into force of the Lisbon Treaty, new institutions of the President and the Minister of Foreign Affairs of the European Union are starting to work. New vacancies are gradually being filled, but it is still unclear whether individual members of the union and the union as a whole will be able to take decisive action before the crisis enters a new round.

In a sense, the situation now resembles a game in which the one with the strongest nerves wins: Greece is waiting for immediate help from partners, and they are in no hurry, waiting for Greece itself to use all the resources it has left to eliminate the consequences of its own irresponsible financial policy . In the meantime, the situation continues to deteriorate, and no one wants to discuss the deeper structural problems.

Greece, Italy, Portugal and Spain remain weak links in the European Union. Their economies are characterized by high budget deficits and weak prospects for economic growth, which is necessary for recovery.

The countries of southern Europe are, on average, poorer than their northern neighbors, and their economies are less competitive. This gap between North and South is due to geographical, cultural, religious and historical reasons.

“Markets are testing the euro with excitement,” Nicolas Veron, a research fellow at the Breugel Economics Research Institute in Brussels, said ironically. But at the same time, the markets are forcing the largest European economies, primarily Germany and France, to look for ways to save the sinking economy of Greece.

However, in the context of the ongoing reform of the political structure of Europe, it remains unclear who ultimately should make decisions.

“Who makes the decisions? asks Antonio Missoroli, scientific director of the Center for European Policy in Brussels, and answers himself: “No one yet, and it is possible that this situation will continue for some time.”

European politicians and analysts agree that the prospect of a default in one of the euro area countries is absolutely unacceptable: the country is not a private bank. Even involving the IMF in pulling the Greek economy out of the crisis seems too humiliating. More successful countries such as Germany are more likely to provide direct loans to Greece or loan guarantees.

“I'm sure Greece will be saved from bankruptcy,” says Missoroli. “But no one is in a hurry to openly declare this and alleviate the situation of the Greek government.”

It should be recognized that the situation when the European Union or one of its members limits the economic policy of a neighbor with its conditions has not yet had a precedent and is a political problem.

Jacques Mistral, an economist at France's Institute of International Affairs, said European Central Bank President Jean-Claude Trichet and the heads of government and finance ministries of Germany and France will make major decisions.

“If there is political will, solutions can be found,” Mistral is sure.

However, it cannot be said that the North is in a hurry to come to the aid of the South, which it does not trust. According to Simon Tilford, Greece is only the most striking example of a disease that is spreading throughout the eurozone.

“The economy of Portugal, the poorest country in the euro area, has been in a state of stagnation for years, confirming that EU membership is not a panacea,” Tilford said.

Spain's budget deficit is relatively small, but the country's economy is characterized by high unemployment and a weak banking system.

At the same time, Germany and the Netherlands are in no hurry to take measures to stimulate domestic demand, which could help weaker countries increase their exports.

Jean-Paul Fituassi and economists who share his views believe that the crisis has gone so far as a result of the inaction of European politicians. “We only see a lot of hype, but little action,” Fituassi said. - And this marking time is capable of burying the entire project. I don't think the euro is already under threat, but it's time for European Union leaders to stop dragging their feet."