Vail Valley Voices: Euro crisis matters to U.S.
Vail, CO, Colorado
President Obama remarked shortly after Greece’s elections that the Eurozone crisis may impact his re-election efforts.
His argument is the issue may have an unintended spillover effect on America’s financial recovery. The U.S. and European economies are interconnected via trade, investment and other monetary sectors. Encouraging or disappointing news from either area can influence both monetary climates.
The president’s fiscal and foreign policy instruments are limited for influencing the Eurozone’s revival. What’s agonizing for Obama is that the worst phase of the crisis may yet occur. It’s contingent upon how the matter is resolved, especially in Italy, Spain, Portugal and Greece.
The chances are high that how their financial situations – and the Eurozone’s fate – are decided will also determine the EU’s strategic clout and future.
Resolving the continent’s worst economic crisis since World War II will not occur through a single solution. But this much seems clear:
• The instigators of the Eurozone crisis included poor policy oversight, enforcement and financial mismanagement.
• The countries most impacted by the Eurozone crisis are Greece, Italy, Spain and Portugal.
• Germany will set the terms of the Eurozone’s recovery.
• How the Eurozone crisis is resolved will strengthen or weaken the European Union’s strategic influence.
The the origins of the Eurozone crisis included inadequate policy enforcement measures, plus monetary practices similar to the instigators of the American Great Recession. The catalyst was the discovery of Greece’s financial mismanagement.
Various problems within the Eurozone were inevitable from its 1990 inception. Countries adopting the euro agreed to limit their borrowing to 3 percent. The policy was gradually abandoned, and consequently a precedent was established for the markets, especially in Italy, Spain and Portugal.
The climate encouraged low interest rates. Various companies and mortgage borrowers exploited the circumstances by pursuing high risk loans, particularly in the housing sector.
A lack of competitiveness from Italian and Spanish exports failed to augment revenue, and finally both circumstances unsuccessfully compensated for an increase in wages in both countries.
Germany avoided those predicaments by stabilizing wages and producing high quality and profitable exports.
The discovery of the breadth of Greece’s monetary administration issues was the initiator of the crisis. This compelled many of Europe’s businesses to re-examine their financial records. Their investigations revealed a plethora of monetary discrepancies – and the Eurozone crisis ensued.
The crisis is most acutely felt in Portugal, Spain, Italy and Greece. Many companies, especially in the housing market, laid off workers. That, coupled with consumers’ spending wariness, augmented the joblessness climate.
Italy’s unemployment rate is more than 9 percent, Portugal’s hovers around 14 percent, while Spain’s exceeds 24 percent.
The circumstances are exacerbated by the inability of numerous businesses and mortgage firms to expand their financial resources into the economy, since many are repaying their debts.
The solution to the Eurozone’s crisis will entail austerity measures, tax increases and increased oversight of the Eurozone members’ budgets. Germany will most likely determine the scope of all three.
Germany has Europe’s largest economy. It provides a third of the Eurozone’s revenue. Germans are wary of bailing out Italy, Spain, Portugal or Greece and eager to avoid repeating a similar financial crisis. The terms Berlin is discussing for addressing the problem are causing plenty of angst throughout the Eurozone.
The resolution of the crisis may have a residual effect on the European Union’s future. The EU may create a body to oversee its members’ domestic and foreign affairs if the Eurozone establishes a similar entity for budgetary processes.
Such a resulting organization may compel Washington, Beijing, Brasilia and other international actors to negotiate with Brussels directly instead of the EU’s individual members.
Europe’s strategic clout will strengthen under this scenario.
A settlement devoid of the above characteristics will maintain the EU’s current status quo. An opportunity for Europe to buttress its international position will cease if this transpires.
The central issue is national sovereignty. Many Europeans for decades have dreamed of some form of continentwide unity.
The solution – a policymaking body endowed with the power to override London, Paris, Athens, Warsaw and the other EU members’ policies – is the problem.
Serious doubt exists whether countries with hundreds of years of independence will renounce even a tiny amount of their freedom. The issue is central to addressing the Eurozone crisis.
Matthew Kennedy has a master’s degree in diplomatic studies from the University of Westminster in London. He’s lived in Europe, Asia and Russia. Comments or questions can be directed to email@example.com.