The Euro Needs a Facelift

Written by Iqbal Ahmed, Guest Contributor | 16 June 2012

Did the Romans really fall, or just adapt into a different state of being? History suggests that a division of the Roman Empire into East and West caused its demise. The Eastern half is thought to be today’s modern Istanbul, while the Western half is today’s Italy. Because Rome is still standing in some form , history argues that the Roman Empire did not really fall. What would history say about the Euro?

The Patsy

The Euro's existential crisis has reached not just the nerve of Europe's economy but also the United States'. According to The Economist, “The damage it would do the world economy may well be the biggest risk to Barack Obama’s chance of re-election.”

Greece stands at the center of the Euro crisis. Whether it leaves the Eurozone or stays on continues to disdain the European leaders. If Greek left the Euro it would leave a huge debt burden for the current Euro members. If it stayed, Greece would face a challenge of dealing with its massive debt -- 161 percent of GDP -- and reviving its economy, most likely at the expense of the economic future of the Eurozone’s peripheral countries. Greece’s total debt stands at nearly $450 billion. France, Germany, U.S., and UK are among the leading countries that hold Greece’s debt.

But there is an irony in this whole crisis: Greece may have become a victim of the circumstances. Costas Simitis and Yannis Stournaras wrote in The Guardian, “Greece sparked the eurozone crisis but was not its cause. The cause lies in the fact that the eurozone is a fully fledged monetary union but an incomplete economic and fiscal union of member states with different structures: the more mature economies of the European north and the less mature ones of the European south.”

Their argument, however, does not absolve Greece from its own horrific fiscal problems that compounded the Euro crisis. Take for example, the tax structure of the country: it has been fraught with inefficiency and fraud. The Greeks hardly pay their taxes. Perhaps, they would be better off accepting the responsibility for their anarchic behavior and helping to rebuild their economic future. Christine Lagarde, International Monetary Fund’s (IMF) managing director, offered a hard choice to the Greeks – pay up or else.

According to another piece by The Guardian, “she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens … and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.”

Resuscitating the Euro

Whether the Euro leaves Greece or not, its survival is crucial to the overall restructuring of the European economy, including Greece.

First, Britain must mollify its stance against the Euro. The current crisis must have the Euro skeptics drowning in pints. “I told you so,” they would argue about the fall of Euro, and they have a valid point. By staying outside of the Eurozone, Britain has been able to better weather the economic crisis that battered the other European Union (EU) countries.

But it is hard to separate Britain from Europe. In fact, regardless of what the Euro skeptics say or predict, its future is “inextricably bound up with that of the continent.” Prominent British banks and exports depend on the European Union (EU) market, Britain’s single biggest export market. The European Central Bank (ECB), which oversees EU’s monetary policies, plays a significant role in UK’s financial market.

Saving the Euro would also require active participation of the EU to reform its fiscal and monetary policies. The philosophy of ECB must also change; it needs to be transparent and allow “oversight” of its banking system. Finally, European leaders are too focused on the economic calamity in the face of the Euro crisis. They must examine the political consequences of the crisis. Without protecting the sovereignty of the nation-states, Euro’s problem will likely to worsen.

Great Britain has a huge stake in the state of Euro because “Britain’s future – especially in this dangerous, increasingly protectionist world – still lies with Europe.” There has already been a shift in Britain’s political attitude towards saving the Euro. The British coalition government has become an “advocate” for the well-being of the EU. A shift in political and economic attitude of EU and Great Britain may not bring overnight relief to the Euro crisis. But it may save the Euro.

Hard Lesson

The Eurozone has no “formal” exit plan from its single currency, a major structural flaw. Further, it is unclear how EU might cope with the after-effects of a Greek departure, should it happen. Financial panic and loss of confidence will likely to affect the Eurozone’s peripheral countries deeply The Euro crisis is a wake-up call for EU to reform its banking system. The alarm has gone off and Europe cannot afford to go back to sleep. The history of the Euro must be rewritten.

Originally from Bangladesh, Iqbal Ahmed currently resides and works in the DC Metro area. He has written for International Policy Digest, Foreign Policy in Focus, Foreign Policy Journal, Centre for Research on Globalization, Eurasia Review, Global Politician, New Geography, and National Public Radio (NPR).

Photo by Images of Money (cc).