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Dan White: Greek tragedy is about to become a full-blown eurozone catastrophe

The worsening Greek crisis has exposed the potentially fatal flaws that lie at the heart of the euro. Unless these problems are addressed, then the future of the single currency is at risk.

As the Greek crisis drags on, it is becoming ever clearer that this isn't merely a local matter.

As the euro loses more and more of its value on the foreign exchanges it is becoming apparent that this is about something much, much bigger.

That something could well turn out to be the euro itself.

In the run-up to the creation of the euro many observers, including yours truly, wondered if was possible to unite the currencies of 12, since increased to 16, countries without also merging their treasuries and taxation systems. The euro is unique in being a currency without a state.

Whenever something like this has been tried before, the gold standard in the early 20th-century, the Latin currency union which reigned over a large chunk of mainland Europe in the second half of the 19th-century, the end result has invariably been that it collapsed with much recrimination.

This is because when the going gets tough, the stronger members of the currency union are under no obligation to assist their weaker brethren.

This is exactly what is happening with the euro at the moment.

Compare this to what happens in genuine federations such as the United States or Canada. With a common national treasury and taxation system, weaker states and provinces are partially compensated through increased social welfare payments and other forms of financial assistance.

Unfortunately, without a common treasury or taxation system, the weaker eurozone economies can't rely on such transfers. This is despite the so-called PIIGSs, Portugal, Ireland, Italy, Greece and Spain, losing between 20 and 40pc of their competitiveness against Germany since the formation of the euro at the start of 1999.

This means that, regardless of the many transgressions committed by the Greeks, this problem extends much further than just one country. All of the peripheral eurozone economies, including Ireland, are in the firing line.

So, even if some sort of a one-off solution can be cobbled together for the Greeks, any respite from the current crisis is likely to be purely temporary. Sooner rather than later the markets will turn their attention to one of the other PIIGSs, most likely Spain or Portugal. The eurozone now resembles nothing so much as someone trying to ride a bike. We must go forwards -- if we try to stand still we'll fall over.

In other words, the status quo is not an option. Some means must be found of resolving the structural flaws that lie at the heart of the single currency.

Otherwise the eurozone will eventually be ripped apart by the recurring crises which will be the inevitable consequence of not addressing these issues.

So, will eurozone leaders agree to the creation of the common treasury and taxation systems necessary for the project to survive? I have my doubts. Already the Germans are objecting, not entirely unreasonably, to the prospect of bailing out the Greeks.

German newspapers have pointed out that Greek workers are objecting to plans to raise that country's retirement age from 61 to 63 when the Germans are already forced to retire at 67.

As the eurozone's problems deepen such squabbles will almost certainly become much more common.

These disagreements will also make it virtually impossible to implement the far-reaching reforms necessary to save the euro. So if you think the recent eurozone instability was bad, fasten your seatbelt, we ain't seen nothing yet.


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