What happens if the euro fails
The EU's financial mess could have profound ramifications. It's time for America to start paying attention
BOSTON — The once bright dream of the common European currency looks increasingly bleak this week as fears escalate that that the 17-nation euro zone won’t survive in its current form long enough to celebrate the 13th anniversary of the euro’s debut on January 1, 1999.
Most Americans, awash in their own fears of renewed recession, unyieldingly high unemployment, and unprecedented political dysfunction in Washington have little emotional room left to worry about their Atlantic partners.
But the ties of history and our intertwined economies strongly suggest that worry America must. If Europe falters and fragments, an economic tsunami will hit our shores at precisely the worst possible moment for the United States.
Stock markets fell steeply last week in both Europe and the United States on renewed worries that the continent’s sovereign debt problems cannot be contained and will swamp one or more of the big euro zone banks. And this week is beginning with steep new declines in European stock markets. Germany’s DAX is off 15 percent in the past month alone, a stunning drop.
As it has been for more than a year, Greece is at the center of the storm as the country continues to struggle to meet commitments to its European partners to cut budget deficits and the national debt. Greek Prime Minister George Papandreou has promised to meet new budget-cutting goals despite his country’s declining economy and persistent street protests. Greece’s finance minister said over the weekend that the country’s economy would contract by more than 5 percent this year, a punishing decline for the Greek people.
Can the euro be saved? At this moment, it’s very hard to be optimistic and Greece may have no choice but to return to its old currency, the drachma, as enormously painful as that step would be.
Europe’s problems, not unlike our own in America, include enormous debt in the weaker countries, slowing growth in the stronger nations, and credible fears that some European banks may fail because they are overweight in ownership of sovereign debt of other euro zone nations, especially Greek bonds.
Perhaps most important of all, there is mounting public anger and frustration over the impact of the debt crisis. Citizens of Greece, Ireland, Spain and other countries are seeing their economies and their living standards decline. Citizens of the wealthier nations are angry about the need to underwrite costly bailouts for problems they did not create.
Hailed as a bold new step toward the creation of a United States of Europe, the euro started life with great promise and opened strongly against the U.S. dollar at its birth in January 1999. Then, one euro was worth $1.18. Five years later, on September 12, 2006, the euro was worth $1.27; and last week it closed at $1.37. Not so bad for a currency threatened by huge debts throughout the euro zone.
Eleven countries signed up for the euro at its birth. Notably, Britain, Sweden and Denmark chose to keep their own currencies. Looking back today, it seems clear that they made wise decisions. Greece wanted to join the euro zone in 1999 but, in an ironic prophecy of what was to come many years later, it initially failed to meet the financial criteria.
Today, there are 17 nations in the euro zone from Austria to Spain, from Finland to Ireland, from the Netherlands to Cyprus. Three small states — Vatican City, San Marino, and Monaco — have agreements with the European Union to use the common currency but are not formally part of the euro zone; and Kosovo and Montenegro adopted the euro without agreement. It’s a stunningly diverse group of countries by culture, history, language and economic wealth — 308 million people in all, almost exactly the same size as the United States.
It’s easy to forget that nearly all of the euro zone countries are quite wealthy when measured by gross domestic product (GDP) with Luxembourg at the top at $109,000 per person, the Netherlands at $47,000, and Germany at $41,000. Even much maligned Greece’s GDP per person is $27,000 and Portugal’s is $22,000, according to 2010 figures from the International Monetary Fund (IMF).
The only real hope for a long-term solution is for Europe to adopt the United States model with true fiscal consolidation. What the 17 euro zone nations lack is a central financial authority with the power to set national budgets and to impose taxes. Yet such far-reaching change will be enormously difficult to achieve in a Europe divided in so many ways.
Christine LaGarde, head of the IMF, argues that “credible, medium-term fiscal consolidation” among the euro zone countries combined with “aggressive” ways to support short-term economic growth is the path out of the current crisis. But any change that gave some central authority the power to set national budgets and impose taxes would require approval by the parliaments of each of the 17 euro zone nations and it would probably also have to go to the voters in each country. It is almost inconceivable that such approval could be achieved.
We can only pray that new short-term measures by European leaders will forestall a Greek default and prevent a global banking crisis. But the best days of the euro appear to be behind us.
Egypt erupts again
Anger over Egypt's surprising election results has spilled into the streets. It's now anyone's guess who will win
The revolutionary youth of Egypt return to Tahrir to protest the outcome of the Egyptian presidential election, Cairo, Egypt, Monday May 28, 2012. (Credit: AP Photo/Fredrik Persson) CAIRO, Egypt — Egyptian protesters set fire last night to the campaign headquarters of Ahmed Shafiq, the controversial presidential contender, following the official announcement of Egypt’s first round of presidential elections in Cairo.
Hundreds of demonstrators took to Cairo’s iconic Tahrir Square to rally against Shafiq, a member and unabashed supporter of the regime of former President Hosni Mubarak, toppled last year following a wave of popular protests. At least eight people were arrested, but no injuries or deaths were reported.
Disneyland: Japan’s gay pioneers
A recent ceremony at Tokyo Disneyland highlights how far the country still needs to go for gay rights
(Credit: Cindy Hughes via Shutterstock) TOKYO, Japan — In one respect, the decision by Tokyo Disneyland to allow a gay couple to hold their “wedding” at the theme park is a sign of progress in a country that has, until recently, largely ignored the issue of same-sex unions.
But some campaigners have argued that leaving it to Mickey Mouse to give his blessing to Koyuki Higashi and her partner, Hiroko Masuhara — in a strictly symbolic ceremony — is also a mark of how far Japan has to go before it affords the same rights to the lesbian, gay, bisexual and transgender (LGBT) community as it does to heterosexual couples.
Egypt’s women rise up
As the country chooses a president, female rights advocates target the ruling military and the rise of Islamism
An Egyptian woman walks past defaced posters of Egyptian presidential candidate Ahmed Shafiq in Cairo, Egypt, Wednesday, May 16, 2012. (Credit: AP Photo/Manu Brabo) Omran, a self-described feminist and human rights activist, was there attempting to legally represent the protesters, including 26 female detainees — one as young as 14-years old — all accused by the military prosecution of attacking military personnel.
Continue Reading CloseEuro bonds to the rescue?
France's new president, Francois Hollande, believes he's found a solution to the euro crisis -- but others disagree
In this May 15, 2012 file photo, German Chancellor Angela Merkel, left, talks to new French President Francois Hollande in Berlin. (Credit: AP Photo/Markus Schreiber, File) BRUSSELS – French President Francois Hollande thinks he’s found a solution to the euro zone crisis: the name’s Bonds. Euro bonds.
Unfortunately, Angela Merkel’s still playing Dr. No.
At a euro zone summit on Wednesday, the new French leader plans to revive proposals for bonds that would be jointly issued by euro zone countries to spread national debt burdens across the whole currency bloc.
Did slaves catch your seafood?
Thailand, a major source of fish imported to the US, depends on forced labor for its product
(Credit: Alena Brozova via Shutterstock) PREY VENG, Cambodia, and SAMUT SAKHON, Thailand — In the sun-baked flatlands of Cambodia, where dust stings the eyes and chokes the pores, there is a tiny clapboard house on cement stilts. It is home to three generations of runaway slaves.
The man of the house, Sokha, recently returned after nearly two years in captivity. His home is just as he left it: barren with a few dirty pillows passing for furniture. Slivers of daylight glow through cracks in the walls. The family’s most valuable possession, a sow, waddles and snorts beneath the elevated floorboards.
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