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The EU fails to contain the crisis
Image source: The telegraph
The Irish debt was downgraded to “junk” status by Moody’s on July 12, making Ireland the third country in the eurozone to receive such a grade. The downgrade follows last week’s similar action on Portugal by the same credit rating agency. The markets are convinced that the bailouts to Greece, Portugal and Ireland will not prevent defaults from occurring and these grades suggest that more bailouts need to be issued to these countries if that is to be prevented.
Adding to this downgrade the crisis spreads to Italy, whose 10-year government bond yields passed by 6% meaning that the cost of borrowing is rising to exorbitant levels. All this is the end-result of the unwillingness of European leaders to accept the crisis as a European crisis, as a crisis that is deeply rooted in the structural flaws of the euro and the EU architecture, that requires a single Europe-wide response to it, in order to contain it and to save the euro from collapsing.
The zero-growth austerity regime that has been adopted by almost all EU member-states and which has been imposed to the countries that have received bailouts, outlines the failure of European leaders to appreciate the degree of the impact the economic crisis would have on the single currency and indicates an inability to devise a long-term strategy in dealing with the crisis.
Amid this rapidly expanding contagion of the crisis that leads to economic collapse of the eurozone, the EU is trapped in its cumbersome bureaucracy and the lack of communication, coordination and willingness of its constituent members to respond to the events, in a swift, radical and decisive manner.
The rich countries of the euro have so far wished to avoid their responsibilities as the leaders of the single currency. They do not wish to accept that European countries are like climbers tied together, whereby if one falls, all are dragged down together. The rich countries of the European center/North must take the audacious decision to share the burdens of the crisis, otherwise their weaker partners in the periphery will cripple under the pressures of the markets.
They must abandon as quickly as possible their narrow egoist concerns and instead look at the broader picture, so as to appreciate the importance of assisting their partners in any way possible. The discussions that are now under way and the scenarios that are on the table suggesting “partial” default of Greece, will not prevent the crisis from spreading since if a country falls, others will follow too, leading to a vicious cycle to catastrophe.
A default is good for certain individual countries at this point (if of course the EU insists on its failing practices and does not take radical measures as I proposed in a previous article about the only way to save the euro). But for the EU as a whole this is by far the worst possible option as it will endanger the viability of the entire structure by triggering a chain effect.
I am afraid that European leaders have not grasped the importance of the events as those unfold in front of their eyes. It is as if they do not want to save that which required decades and a lot of effort to be built: a common European place for prosperity, peace, mutual understanding and cooperation.