The Euro crisis is beginning

As the Euro celebrates its tenth anniversary, Vaclav Klaus, the President of the Czech Republic, says:

“The question is whether the eurozone countries and their citizens have cause to celebrate. The answer is uncertain, given the zone’s sluggish economic growth, great growth differences among countries and large differences in inflation, even though a single currency should have one rate.

In 1998 the eurozone was first of all a political project and it was generally believed that its economic underpinnings would be created at a later stage. A homogeneous economic entity was to be created, held together by a common currency.

These hopes have not been fulfilled so far. I am not surprised. European politicians expected the euro to speed up economic growth in Europe, which lagged behind the rest of the world, but the currency’s adoption resulted in a further slowdown.”
FT, 11 Jun 2008

A few days ago I said that Spain and Ireland had little reason to cheer as the Euro approached ten. But, now even the sitting President of the Czech Republic is making the same claims. This is a very big deal. Europe is unraveling at the wrong moment. With the Irish also about to possibly say no to the Lisbon treaty, unity in the EU is being put to the test.

related post: The case against the Euro

Europe’s big test: why the euro will not help, The Financial Times, 11 Jun 2008
Ireland ‘could reject EU treaty’, The Telegraph, 6 Jun 2008

  1. Matt says

    So, will the crisis begin soon? I’m growing impatient!

  2. Euro Crisis says

    There is a big difference between a liquidity problem and a solvency problem. When a company or a country has enough assets to cover its liabilities but they have a problem raising the money they need to pay off the loan they have a liquidity problem. But when an entity has more debt than it can serve than it has a solvency problem and in that case more debt and loans will only dig it into a bigger hole. Greece has a liquidity problem since it has much more debt than the economy can serve. Germany and the Euro are perhaps will to give them loan in attractive interest rates but unless they are willing to consistently transfer money from the core of Europe to the weak countries those countries are doomed.
    If German politicians think they can convince there citizens to fund Greece’s recklessness throw transfer payments all I have to say to them is GOOD LUCK!

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