The Eurozone Crisis Continues…
A black cloud still looms over Europe and yet any economic agreement seems like an unlikely task among the European leaders to save the EU from this debt crisis. A series of negative events hasn’t helped with the confidence in Europe either. Economic integration is a fundamental part of the Eurozone but we have witnessed the obliteration of the economies of Greece, Ireland, Portugal, Spain and Italy. Last week, the Bank of England governor Mervyn King told a committee of MPs that growth didn’t seem likely in the Eurozone. He predicted that the Eurozone would shrink both in the first quarter and in the first quarter of 2012.
The Organisation for Economic Cooperation and Development (OECD) has reduced the global growth forecast and even predicted a possible second recession for both the EU and the UK. The OCED went further, stating that a negative event like Italy or Spain defaulting in the Eurozone could even cause a global shrinkage. The pressure to tackle this debt crisis mounts on European Council President, Herman Van Rompuy and European President Jose Manual Barroso as to why they have not acted faster to save Europe from this black cloud. Eurozone finance ministers are expected to meet on Tuesday to adopt a €440 billion rescue package for Europe. This is much needed, as Italy is the latest country to see their economy suffer. The debt crisis will be a challenging time for new Italian Prime Minister, Mario Monti; the IMF is expected in Rome in the next few days, as pressure mounts for outside intervention to be the saviour for Italy from this debt crisis. However, tensions have risen from Germany, who oppose an extended role for the European Central Bank, which could see Italy without the financial assistance it so desperately needs.
Italy is the third biggest economy in the Eurozone but has a debt of €1.8 trillion which is far too much for a bail out by the European Union. A default would trigger a financial crisis which could damage the euro currency. A new fiscal union has been pushed forward by Germany and France. They are proposing deeper integration, as well as greater solidarity and discipline among the 27 EU member states to ensure a strong defence mechanism against the financial crisis. Germany Chancellor, Angela Merkel commented, “We are working for treaty change, we want to avoid a split between euro and non-euro countries.” She told the Bundastag that this fiscal union is necessary to resolve the debt crisis in Europe. In effect, create closer integration to create powers to veto national budgets that break the agreed rules.
French President Nicolas Sarkozy said last week, “The euro crisis can all but eliminate Europe as a world leader without immediate, far-reaching and fundamental changes.” France has supported Germany in a new treaty to promote more discipline among the members state that use the euro as their common currency. The notion of France as a protectionist country has shown, as many French electorates are sceptical in handing sovereignty to the EU and supporting Germany. Sarkozy has promised that the French will not hand their sovereignty away and has rejected the notion that national budgets will be regulated in Brussels. It is still unclear, how this new budgetary discipline will be installed in the Eurozone and how countries not in the Eurozone will be regulated in this new phase in European integration.
We will see either a new treaty formed in Europe or a change in the current treaty, so that stricter penalties are imposed for EU members state. A two-day European Union crisis summit is expected to begin, but whether a consensus on any greater form of fiscal union is achieved remains unclear; as such it will be a testing time for those countries wishing to protect their sovereignty.
I agree, with Angela Merkel’s comment that “We have started a new phase in European integration.” The negative events which have taken place in Europe has changed the face of the European Union for good.