Eurozone dithering threatens disaster
Published 25/09/2011 | 05:00
HOW do you turn one of the world's leading currencies into funny money? Gather 17 eurozone finance ministers into one room and try to get them to agree on anything.
As the eurozone's mishandling of the twin sovereign debt and banking crises deteriorates from the merely incompetent to the criminally reckless, we are now poised on the precipice of what has the potential to become the most serious global financial crisis since 1931.
With Europe's leaders either unwilling or unable to reach an agreement on what needs to be done, what had been a purely regional problem is now threatening the health of the global economy.
Even US Treasury Secretary Tim Geithner's trip to last weekend's meeting of eurozone finance ministers proved insufficient to persuade them to reach agreement.
After almost two years of doggedly refusing to agree, matters are finally coming to a head.
With Greek finance minister Evangelos Venizelos reported to be preparing plans for a debt default that would see his country unilaterally impose a 50 per cent "haircut" on bondholders, events look set to overtake Europe's do-nothing leaders.
If, as seems likely, Greece defaults, can the crisis be contained?
Maybe, maybe not. While the impact of an orderly Greek default could certainly have been contained if it had been allowed to happen when that country's problems first came to light in November 2009, things have since moved on.
With Ireland and Portugal also having had to be bailed out, and the markets now questioning the solvency of Italy and Spain, the eurozone crisis has spun dangerously out of control.
It is now clear that saving the euro will involve a degree of fiscal integration upon which Europe's leaders have so far been unable to agree.
This would involve not just the issue of eurobonds guaranteed by all 17 eurozone countries but also the creation of a pan-European treasury with the power to dictate public spending and taxation levels at national level.
Would the eurozone surplus countries, basically Germany, be prepared to bear the cost of issuing eurobonds?
Would the deficit countries such as ourselves, the Greeks, Portuguese, Spaniards and Italians be prepared to accept the loss of sovereignty resulting from fiscal integration of the eurozone?
While one can always hope, the omens aren't encouraging.
What is clear is that, after almost two years, the status quo of extend and pretend is no longer an option.
If Europe's leaders stick to their current path disaster looms.
They must either opt for full fiscal integration or else admit that the single currency was an ill-thought out, badly-constructed project and pull the plug before it causes even more damage.
Sunday Indo Business