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NYP: Euro trash-ed - Socialism's benefit burden may break the EU

By MICHAEL GRAY
Last Updated: 6:17 AM, May 23, 2010
Posted: 1:12 AM, May 23, 2010
Comments: 1 | More Print

Just six months ago the euro was considered the shining beacon on the hill.

OPEC considered pricing its crude in euros instead of the dollar. Europeans were flocking to Manhattan buying extra suitcases on the street to haul back all the cheap trinkets they bought.

Fast-forward to last week and the story of the embattled eurozone currency is better called "Acropolis Now." And the fear is that the contagion could cause a global double dip.

The socialist experiment of the seven-year-old European Union with all its public benefits is now seen as bordering on the unsustainable.

The real-world economic test of bringing first-, second- and third-world countries together under a common currency in order to lift the have-nots appears to have had the undesirous opposite effect.

These bloated budgets need to be reined in by the same governments that financed all these public safety nets from projected future revenue growth. Trouble is, there is no growth and the bills are all coming due.

Although the dollar is benefiting from the angst, US exports might suffer greatly from the strengthening greenback.

"The crisis is not over," NYU economics professor Nouriel Roubini said in an interview with BBC radio broadcast last week. "What we're facing right now in the eurozone is a second stage of a typical financial crisis."

Europeans and Greeks individually will not go quietly into the night to pay off these debts, as demonstrated by continuing rioting in the streets of Athens.

Roubini also questions whether European finance ministers and parliaments have the intestinal fortitude to administer the necessary budget cuts to fund the growing debt.

"There's a question mark whether we can be confident the government is going to be strong enough to do the fiscal austerity," Roubini said.

European banks and Wall Street hold much of the debt. So bailing out Greece also helped German banks, which provided lender financing for German manufacturers selling into the EU.

Greek government officials stated last week that they may go after Goldman Sachs for its deal-making on Greece deficits.

Greek Prime Minister George Papandreou says he has not ruled out legal action against Wall Street investment banks, which he says bear "great responsibility" for his country's debt crisis.

Despite German lawmakers on Friday agreeing to fund the $1 trillion rescue plan for the eurozone, the structural economic changes will need far longer to implement.

European Union finance ministers on Friday pledged to stiffen sanctions on high-deficit countries -- Portugal, Italy, Ireland, Greece and Spain -- and ruled out setting up a mechanism to manage state defaults, saying no euro country will be allowed to renege on its debts.

But will that pledge hold water? The original EU charter said there would be no bailouts of member states.

Former Fed Chairman Paul Volcker said he's concerned that the eurozone could break up over the Greek fiscal crisis.

"You have the great problem of a potential disintegration of the euro," Volcker said in a speech last week. "The essential element of discipline in economic policy and in fiscal policy that was hoped for has so far not been rewarded in some countries."

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Comments (1)

Peter Verkooijen
05/23/2010 10:49 AM

"The socialist experiment of the seven-year-old European Union with all its public benefits is now seen as bordering on the unsustainable."

This misses the point. The European Union does not have its own economic or social policy. The EU does not have public benefits. The member states have. The welfare programs in the member states have been around since the 1920-30s and had become unsustainable by the 1990s. Enter the European Union. Unification was supposed to keep "the European model" alive, against growing public opposition after the collapse of the Soviet Union. The dreaded "neoliberalism" was on the rise - liberal as in capitalism, the original meaning of the term! The point of the euro was to eventually force unification in economic and social policy as well. That's the point we have arrived at now. Everything is going according to plan...

Short version, it is not a seven-year old socialist experiment, this has been building for a century, has always been unsustainable and is ongoing. It will be a slow slide into a mix of feudalism and totalitarianism, just like here in Obamaland.


Read more: http://www.nypost.com/p/news/business/euro_trash_ed_E0hYsdN6BnXD3VYMTxQ4lN#ixzz0om2zNCQL