The Euro Has Ripped Europe Apart
The euro has not brought Europe closer – it has ripped it apart
By Sean O’Grady
Saturday, 18 June 2011
The scale of Greece’s problem is simply stated: her national debt will approach 160 per cent of GDP on current trends. Here in the UK we are supposed to be in crisis because that ratio is heading for about 75 per cent.
Unless the Greek economy grows at an astonishing rate, the interest on that debt simply cannot be paid out of any conceivable tax take, while the spending cuts and austerity packages are conspiring to push the economy into depression (though official figures, viewed with some suspicion, suggest the Greek economy is managing to grow, despite everything).
In terms of timing, the end could come very rapidly. The IMF’s acting managing director, John Lipsky, has threatened the eurozone (in reality that means Germany) with no further instalment of the soft existing agreed loan to Greece unless Germany guarantees it and the Greeks start to behave.
For a caretaker leader, Mr Lipsky is taking a surprisingly tough and decisive line in this crisis. Even with that threat gone there is no guarantee that the fresh loan now being discussed – a further €100bn on top of the €110bn settled last May – will actually happen. Beyond that, in 2013, the eurozone is supposed to bring in new rules about what happens when a country goes bust, requiring private bondholders to suffer losses they are not now. Again, though, the EU’s leaders are yet to settle the principles, let alone the detail of this.
Beneath all this is a simple, brutal truth. Greece, like the other peripheral distressed economies, is an uncompetitive economy. She got into this mess because she joined the euro and was suddenly able to borrow at low “German” rates of interest. She consumed more than she produced and ran up enormous government debts.