Worst case scenario for euro approaches
13 September 2011
With Greece progressively sinking deeper and deeper into crisis amid doubts about the country’s ability to remain in the Eurozone, the European press worries about the national and continent-wide consequences of Greek default, which appears to be increasingly likely.
“What will be left of the Eurozone in a year’s time? the question may appear brutal and inappropriate” writes Jean-Marc Vittori in Les Echos, “but it is critically important in the light of the chaotic chain of events in recent weeks.” The French editorialist continues:
“that cockpit of monetary policy, which is the European Central Bank (ECB), has been shot through with disagreement to the point where it has clearly emerged among its directors. There is no denying that, in these troubled times, monetary policy has become a dangerous art. In printing banknotes to purchase massive quantities of sovereign bonds, the central banks are going against the principles which justified their independence; and the money that they are creating may one day feed inflation. Not surprisingly, given these conditions, the task of forging a consensus has become increasingly difficult both in the American Fed and in the ECB. But, until now, discussions have been held behind closed doors. In resigning from the ECB’s board of directors, Jürgen Stark has paved the way for a new era in which it may no longer be possible to reach common decisions on the fate of the single currency. […] The Germans are unhappy with at least two aspects current ECB policy: the purchase of sovereign bonds, mentioned above, and interest rates that are too low for their country, which is the only Eurozone state to come under inflationary pressure. There are two possible escape routes: the upward path towards the creation of a European federal state, or a descent towards the break-up of the Eurozone. Given the scale of the problems that have to be resolved, decisions will have to be made very quickly.”
De Volkskrant is highly sceptical about Greece’s ability to pay its debts. “The sale of public companies has served no purpose,” remarks the Amsterdam daily, which points out that “although Athens promised to privatise the equivalent of five billion euros in state property, hardly anything has come through.” Three months after it made a commitment to the troika (composed of representatives of the ECB, IMF, and European Commission) to privatise 1.3 billion euros worth of public assets before the end of September,
“the Greek government has executed very few of the promised reforms, leaving the EU and IMF confused. […] The only state property that has been sold is a small holding in a telephone company, worth 390 million euros. […] There have been several projects to sell the national lottery, which have all proved to be empty political posturing. In the end excuses were invented, and none of the deals were finalised.”
Spain is particularly worried about the reprecussions of the Greek crisis: "The possibility of Greece going bankrupt in October threatens Spain," headlines El Mundo. At a time when the risk premium on Spanish debt has crossed the alert threshold of 370 points "in spite of massive bond purchases made by the European Central Bank" (ECB), the daily argues that "the Greek crisis has created the need for an economic agreement that will have to be pushed through before the 20-N” (the early general elections in Spain, slated for the 20 November).
"The extreme vulnerability of this situation should force [Prime Minister José Luis] Zapatero to zealously implement the necessary reforms, but instead the leader of the government has led us into a labyrinth. In calling for a general election four months ahead of time, he has halted any progress. The enactment of key economic reforms has been neglected by his government, to the point where Europe, precisely because of this lack of effectiveness, was forced to insist that it approve changes to the consitution [to introduce the 'golden rule' for budgetary stability].” "The only possible option now is for Zapatero to retake control of the situation by quickly convening a meeting with [right-wing opposition leader Mariano] Rajoy and [socialist candidate Alfredo Pérez] Rubalcaba, so that they can accelerate the implementation of structural measures, like the modification of collective bargaining procedures and the introduction of more effective labour market reform, which the Spanish economy will need in the coming years."
Countries where the single currency has yet to be adopted, are worried that they may be sidelined in decisions in decisions about the future of the euro. “Poland wants to decide the the euro’s fate,” headlines Dziennik Gazeta Prawna, which reports on yesterday’s meeting of Polish, Czech, Hungarian, Romanian, Bulgarian, Lithuanian and Latvian representatives in Brussels who were trying to work out a “common position concerning the vision of tightening co-operation within the euro zone.” The Warsaw economic daily hints that at the EU summit in October and December a decision “on starting negotiations on changing the Lisbon Treaty and transforming the currency union into the fiscal one” will surely be taken.
“Poland is building a coalition of countries willing to adopt the euro and therefore demand the right to participate in the debate about the shape of the currency union. Warsaw doesn’t want decisions about its future to be made only in Berlin or Paris.”