Eurozone debt situation

October 24th, 2011

SchmidtThe following opinion piece was written by international relations professor Vivien Schmidt, a long-time EU watcher. She is also the author of Policy Change and Discourse in Europe.

 

 

 

As the eurozone crisis rolls on, with world finance ministers urging swift action, eurozone countries seemingly dither. But there may be a method behind the madness.

The banks need to be in the best shape possible before a likely restructuring of Greek debt. Moreover, the eurozone countries themselves need to work behind the scenes politically both with one another, to agree on the compromises necessary for deeper economic and fiscal integration, and in their own countries, to ensure that they have the support of their own governing coalitions.

The danger with the dithering is not only that the markets will lose patience but that national publics will grow increasingly negative about the bailouts and loan guarantees.

In Southern Europe, public opposition comes more from the left, as citizens question the punitive austerity measures that seem to dampen any possibility of growth and, therefore, the paying off of debts even as they cut into welfare entitlements and public services. In Northern Europe and Slovakia, the oppostion comes more from the right, as citizens question why their savings should go to pay for ‘profligate’ Southerners.

The problem, then, is that EU leaders need not only to come to agreement among themselves quickly but that that agreement has to satisfy both global markets and national citizens. A tall order indeed.

But if EU leaders don’t succeed, the failure will affect not only Europe but also America. This is not only because U.S. and European financial systems are closely interconnected, such that a run on the eurozone countries’ debt obligations would have major repercussions in the U.S., but also because their economies are so intertwined that recession is the one is likely to produce recession in the other.

 

Contact Schmidt at 617-358-1092; vschmidt@bu.edu


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