The Greek deficit that is shaking the eurozone is creating a renewed wave of angst in the political and financial world. Up to a point where more than just a few wonder whether the eurozone could possibly collapse.
Not long ago, however, the euro was seen as the life-belt that saved the European economy from financial meltdown. At the time, the collapse of Iceland’s economy was shown as the paramount proof that Europeans were right to have the euro. In just a few months Iceland officially announced its candidacy to the EU, and even the British were carefully mumbling about the benefits of the euro.
Today, the crisis is here again but the situation is reversed. Once the bad boys, the markets are no longer the ones to be blamed for the new crisis. National governments have shown they can be as selfish as traders and do as much harm to honest savers. Irresponsible budgetary management in Greece has led to a general crisis in confidence and makes everybody wonder about the effectiveness and the meaning of the euro. If the Stability Pact is not able to curb the budgetary deficits in the eurozone, how can the euro be trusted as a common currency?
In the past France and Germany fought for more flexibility within the Stability Pact and proclaimed that increased deficits should be allowed to support growth in a time of crisis. Today, the same countries are now shouting from the rooftops that better control of deficits is essential. In other words, the Stability Pact should be strengthened.
But for the time being, EU ministers are taking short-term measures. Not to better control their deficits, but to better control the market: new rules for hedge funds, short sellers, rating agencies, global transaction tax… At some point however improved long-term economic governance will have to be discussed, together with the revolving question of choosing between stability and growth. Stay tuned…