Developments have been occurring rapidly in the ongoing crisis in the European Monetary Union since my last update. First,
Spain asked the
European Union for and received a bailout of its banks. However, the move undermined confidence in
the ability of the Kingdom to repay its sovereign debt, which, along with the
ongoing debt crisis in Greece, caused its borrowing costs to spike, as did the
Italian Republic’s, despite the reforms that both the Spanish and Italians have
successfully implemented and the progress they have made in reducing debt,
despite their anemic growth. In the
latest example, the Italian parliament approved a controversial labor reform
law, according to ANSA, that gave businesses more flexibility in firing
workers, although the measure was diluted.
It was proposed by Prime Minister Mario Monti as critically necessary
for Italian fiscal and economic health.
The two Southern European states demanded that the more fiscally responsible Germans and other Northern Europeans agree that the European Central Bank make available loans to ease Spanish and Italian borrowing costs. They argued that because of their good behavior, they did not deserve to pay higher interest rates, unlike
Greece, which is in worse fiscal
condition and has not met its commitments.
Investors in sovereign debt have demanded high interest rates for bonds
issued by the two states as a premium for higher perceived risk as the crisis
continues. The loans would not represent
an embarrassing bailout – with the usual heavy oversight – because Spain
have complied fully with all the demands of the Europeans to improve their
fiscal condition. The Germans have
acceded to the demands, as long as the Spanish and Italian governments
continued to reform, as Spain
and Italy, with their large
economies, are recognized as the European Union’s firewalls against the
contagion of debt from Greece
and others. There will also be some consideration given to Ireland for a similar
Meanwhile, the second parliamentary elections in
averted the crisis, for now, of a Greek exit from the Euro. Although the far-leftists who had done well
in the first election had promised to keep Greece in the Eurozone, their demand
to renegotiate the Greek bailout by the European Union was recognized as what
would have been a breach of the terms of the deal that would have resulted in a
Greek default on debt and subsequent exit from the Monetary Union. The conservatives, who had backed the bailout
and its necessary harsh conditions of austerity, won a plurality and were able
to from a new government with the third-place socialists, the same two parties
who were previously in a coalition government before the last election. The victory was achieved despite the deep
five-year recession and the record of overspending and budgetary dishonesty of
both parties that had resulted in the crisis in the first place, as well as the
unpopularity of the austerity measures.
Nevertheless, by the time the new government was formed, it had become apparent that new terms of the bailout would have to be negotiated, such as an extension of the length of the term in order to reduce the Hellenic Republic’s borrowing costs, as well as other measures, such as some tax cuts and increases in pay in order to ease the pain of the recession and spur economic growth, which, in turn, would improve Greece’s fiscal health. As a result, the withdrawal of funds from Greek banks has reversed and Greeks have begun to file tax returns more than before. The European Union is open to modifying the deal, but only if
its austerity program to reduce its debt.
The elections and formation of a
government have reassured the markets somewhat because of the aversion of a
disorderly Greek exit from the single currency, but the future of Greece in the
Eurozone remains unresolved not only until the bailout is renegotiated, but
also whether or not the Greek government is successful in reducing its
The more liberal Europeans have argued for greater European integration to resolve the crisis, while the more conservative Europeans have resisted paying the debts of their profligate spending neighbors, as I have posted previously. What is remarkable is how the left argues for more integration – “more
Europe” – even as the
grand project of European integration has been revealed as the reason the
crisis has worsened and become continentalized.
To them, there was never enough European integration in the first place,
as the problems were only caused by mistakes in establishing the union. It reminds me of liberal Americans who argue
that the trillions of dollars spent on poverty alleviation efforts that have
been exposed as catastrophic failures were simply not enough and that far more
is needed. To the left, it is never
enough. It will be, however, when the
money runs out.