The Future of the Euro Moment of Truth for Europe's Common Currency
Greece's financial difficulties have exposed numerous weaknesses which threaten Europe's common currency. Now, policy makers and economic experts are trying to find ways to stabilize the euro. SPIEGEL ONLINE takes a look at the proposals.
French Economics Minister Christine Lagarde seems to be itching for a fight. At the beginning of the week, she triggered indignation in Berlin when she blasted Germany's trade surplus in an interview with the Financial Times. The fact that Germany exports more than it consumes domestically hurts the country's European neighbors, Lagarde griped.
On Wednesday, she added more fuel to the fire. Speaking to the French radio station RTL, she said that when an economic union such as the euro zone faces difficulties, "everyone" should contribute to the solution. Countries with a deficit, she said, ought to reduce it, while those with a trade surplus cannot "stand on only one leg." "For instance, perhaps Germany could reduce its taxes a little to stimulate domestic spending," the minister suggested.
Germany's Christian Democratic Chancellor Angela Merkel reacted coolly. "We will not give up our strengths in those areas where we are strong," she said in German parliament on Wednesday. The chancellor may have shown recent interest in the long-shunned concept of a "common economic government" for Europe. But she would like it to be pegged to Europe's economic success stories, not those countries which are lagging behind.
But it is precisely the less competitive countries that pose the biggest problem for the euro zone. The disastrous budget situation in Greece has highlighted the common currency's weaknesses in recent weeks and similar situations in Spain, Ireland, Italy or Portugal could aggravate the situation even further.
Critics warn that the euro zone is about to face a crucial test. Since the introduction of the common currency, they argue, the countries within the zone have grown further and further apart instead of growing together into a single economic zone, partly because there are no longer any currency fluctuations to offset competitive discrepancies.
The community now consists of countries like Germany and Finland on the one side, with large current account surpluses, and countries like Greece and Portugal on the other, with massive deficits. The latter, unable to keep up with the continent's powerhouse economies, lived on credit for years, partly as a result of low interest rates.
The logical conclusion would be a common economic policy for the entire EU. But this is an idea that meets with fierce resistance, since hardly any country is willing to relinquish control over its own budgetary and industrial policies.
So what can the community do to avert crises like the one that happened in Greece in the future? What should happen in the event of the worst-case scenarios become reality? SPIEGEL ONLINE clears up the most important questions surrounding the future of the Euro.
- Part 1: Moment of Truth for Europe's Common Currency
- Part 2: Is Europe Laying the Foundation for a Common EU Economic Government?
- Part 3: How Can the EU Stability Pact Be Made More Robust?
- Part 4: What Should the EU Financial Constitution Look Like?
- Part 5: Could a European Monetary Fund Help in an Emergency?
- Part 6: How Likely Is an EMF?