Why The Eurozone Crisis Can’t Be Resolved!
The Eurozone crisis has dragged on for years now and we seem to be bouncing from one country to another to try and rescue it. Today for example Greece has voted in its second round of elections on what was supposed to be a vote of whether Greece will stay in the Euro but has also been reported as a vote on the survival of the Euro. Lets finally be honest about things though!
The truth is we are only back where we were months ago but in a worse position! Just a few months ago Greece’s government had agreed to tough austerity measures and the people seemed to be against them but getting on with it. Yes today Greece’s people seem to have voted for austerity but only on the basis that the terms of the austerity will likely be watered down by Germany. So we are actually in a worse position now than we were a few months ago because Greece is going to some extent, be let off the austerity hook and on top of that Spanish banks have had to be bailed out which will eventually lead to a Spanish and then Italian bailout!
So why is the Eurozone crisis still with us after years of desperate attempts to try and solve it? It’s because it can’t be solved!
The Eurozone as a whole is so indebted that it is beyond repair. Europe can only raise enough money to attempt to sort the problem out in one of three ways, all of which are flawed.
I know this is slightly different to raising money, more like saving it, but the outcome of this method of solving the Eurozone crisis is still the same.
Austerity will never solve the Eurozone crisis because the more cuts that are made, the less money governments will receive in tax from its citizens because they’re all unemployed! It also pays out in unemployment benefits so what you save in public spending you lose in taxes & benefit payments. This might not be true for slightly indebted nations but for the levels of debt the Eurozone has it’s certainly true.
Austerity will not work!
Many Eurozone leaders have been plugging Eurobonds as a way to solve the Eurozone crisis due to the lower interest rates it may offer. Be honest with yourself now, if you had credit card debt of £/$ 50,000 at a rate of 7%, would reducing that interest rate payable to 5% honestly solve your problems? Especially if you have seen your income (tax income for governments) slashed? The truth is that it only delays the problem if it does anything at all.
Borrowing will not work!
Many Euro leaders have asked the ECB to play a bigger role in resolving the Eurozone crisis. In doing this they are asking for one thing, the ECB to print money! If the ECB were to print money on the scale that would be needed to resolve the Eurozone crisis the effects would make the hyperinflation of post war Germany look like good times! You could kiss goodbye to any savings or investments you may have as they would be made worthless by inflation!
Printing money will not solve the problem!
Eurozone leaders need a source of finance that already exists within the financial system, is not borrowed and will not kill off the economy it’s trying to save. In my mind this doesn’t exist, what’s your view? You can comment below.