Crisis puts eurozone's future at risk
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Last week may well have marked the beginning of the end of the eurozone. Not only was Greece’s sovereign debt downgraded to junk status but other countries in the eurozone, most notably Portugal and Spain, started suffering from contagion.
This followed weeks of on-and-off negotiations involving the Greek authorities, other eurozone governments and, more recently, the International Monetary Fund. Each time, a solution seemed to have been found, only for the problems to re-emerge later on in an even more virulent form.
Greece’s crisis emerged as far back as late 2009. Yet rather than acting decisively to find a solution, the prevarication of the European authorities has exacerbated the problem and allowed it to spread.
The eurozone - ostensibly a coherent economic bloc of developed nations - is left with one of its member states classified by Standard & Poor’s as an emerging economy. There are also widening spreads between the yields on German debt and those of the weaker eurozone member states.
None of this would be happening if the eurozone was acting as it should. The idea of a monetary bloc is that member states should move more or less in line with each other. Yields on Greek debt should be in line with those of Germany or France. (article continues below)
The conspicuous failure of the eurozone to meet this objective calls the existence of its currency into question. That is why the euro has plummeted at several points during the crisis.
Numerous culprits have been blamed for the Greek and subsequent eurozone turmoil. Almost inevitably in the current environment many held speculators responsible. Others blamed credit rating agencies for being too ready to downgrade countries - whereas they were ostensibly too reluctant to downgrade banks back in 2008.
Other targets included the German authorities for prevaricating, the German people for being too greedy and the laxness of the Greek authorities.
Whoever is responsible, the eurozone authorities have a fundamental challenge to overcome. How do they correct imbalances within their bloc when internal currency realignment is impossible and interest rates are supposed to be uniform?
If they cannot solve the problem, the eurozone’s days are probably numbered.
