The Euro Time Bomb
The Eurozone’s “Zero Hour” may come in July, as the Greek crisis collapsed share prices of leading European and world companies and depressed the oil market. Analysts predict a big shock for the EU and the Eurozone. Some experts believe it to be “the point of no return” for the EU, and the gloomiest scenario, according to the more pessimistic analysts, wouldn’t just be the departure of some members of the Eurozone; it could even lead to the collapse of the EU. However, most experts still believe that the Eurozone will survive, and that the euro will keep its status as one of the world’s reserve currencies. When the international rating agency Fitch downgraded Greece‘s credit rating from “B” to “CCC”, that was only confirmation of panic in world financial markets. On 18 May, the Asian markets recorded their largest drop in value since September of last year. Trading at American, European, and Russian venues reflected this, as investors are concerned not only about political instability in Greece, but also about a growing “domino effect” throughout Europe. Moody’s lowered the ratings of 16 Spanish banks, and prior to that, some 26 Italian financial institutions received the same “stigma”.
Opinions differ markedly over the need to kick Greece out of the Eurozone, not only in Greece (“the catalyst of the crisis”), but beyond it, as well. However, some analysts believe that within the first year after such a hypothetical departure, two-thirds of European banks might suffer losses. Furthermore, only further EU emergency measures to change the mechanisms of functioning of the Eurozone could keep the markets from total collapse. In addition, experts suggest that we await the outcome of new elections in Greece . David Murrin, the CEO of Emergent Asset Management, the author of Breach of History, described a rather gloomy view of prospects for the Eurozone, saying, “In general, it has no economic future, and, perhaps, none in political terms as well. I believe that the Eurozone will eventually collapse. The whole idea of ’Europe’ is simply not feasible. I base my opinion on the fact that, for countries or empires, the usual basis of the social order is broad demographics. When we contend with negative demographics, it’s a problem. If it grows unchecked, the system must ultimately collapse. Maybe, several major countries might remain in the Eurozone, but they’ll toss some others out. I think it’s too late to do something to avoid a crisis”. If you give it a little thought, Mr Murrina’s words become clear… if the one of the principal predicaments in Europe is the demographic situation, one of the current problems is uncontrolled immigration.
However, not all observers share his pessimism. French economist Jean-Marc Trûèl offered another view, saying, “The EU hasn’t yet exhausted all the means to deal with the crisis. Most likely, the Eurozone will survive. It’ll include the largest countries in the current Eurozone, along with Italy and Spain. Probably, there’ll be some problems with Greece, as technical default’s likely, but the Eurozone will survive. Until now, the emphasis was on the restoration of private bank accounts. Now, officials and politicians are aware that this wasn’t enough. In the medium term, we must stimulate growth, but in the short run, its’ necessary to introduce new financial instruments and hold them through the Central Bank. Then, the European Central Bank would itself lend to countries in need”. M Trûèl believed that the new French government could play a major role in addressing the crisis in Europe, emphasising that François Hollande, the new French President, suggested a way out to stimulate European economic growth. It became clear after Hollande’s meeting with Bundeskanzlerin Angela Merkel that Berlin gave some support to Paris’ new ideas.
Western experts emphasise that Russia has an interest in preserving and strengthening the Eurozone (and the euro itself). In general, they’re right. The fever that gripped the EU had a negative impact on oil prices, Russian shares prices, and the exchange rate of the rouble. Russian expert Aleksandr Laputin said, “However difficult this time may be for Russia and for Europe, it’s only temporary. I’m sure that the Eurozone will survive… even if we assume that it’ll kick Greece out. Don’t forget that when we speak of Greece, we’re only talking about two percent of the total European GDP. As matter of fact, Athens has to either declare default, zeroing out its debts, or, withdraw from the Eurozone, and quickly introduce their own currency. A fast introduction of a new currency is practically impossible. A Greek default would lead to no more money from the EU or from private investors for several years. Therefore, to kick Greece out of the Eurozone or to allow Greece to default are imprudent actions, I don’t consider this option as being very probable”.
Meanwhile, the IMF, one of the major lenders to Greece, remains calm. They’re waiting for the results of the 17 June elections, and “looking forward to contacts with the government, once it’s formed”. What’ll happen with Athens and the Eurozone… will it be a financial collapse or a slow revival? We hope that it’s the second option… in fact, the consequences of a “European meltdown” would shake up the entire global financial system. We remain optimistic.
18 May 2012
Voice of Russia World Service