Eurozone in Crisis: Beginning of the end

by Ulrike Herrmann

The monetary system is based on confidence, and that confidence has been shattered. The end of the monetary union is dawning — even if Greece remains in the Euro.

World history is being made: Whatever might happen in Greece during the next few days, it will transform the eurozone forever. The disintegration of the currency union has begun, even if Greece were to remain in the Euro.

The shut banks throughout Greece are a new symbol for the slow erosion of the eurozone. Every financial system is built on confidence, and that confidence is sapped.

The European Central Bank actually had no choice. It could not fail to ignore the fact that there was no way to reach an agreement between Greece and the leaders of the eurozone. As a consequence, the ECB had to cap the level of emergency loans to Greek banks.

It’s the European governments that are to blame for trying to impose a one-sided austerity regime on Greece. Their finance ministers have at no point advanced any proposal worthy of the name. In recent months both sides kept repeating they were „converging”, when in fact it was only Greece that was making concessions. The rest of the eurozone stubbornly refused to yield.

It’s quite likely that Greece will surrender in the end. Most voters want to stay in the eurozone, and they want to save their assets and deposits being frozen at Greek banks right now.

Busted from within

Yet even if Greece bows to the dictate, it is no „victory” for the other European finance ministers. Fear will continue to eat its way through the whole monetary union. Whenever a country runs into difficulties in the future, angst-ridden citizens will rush to empty their bank accounts in a panic reaction. Worse still: Since a country’s exit from the eurozone seems conceivable from now on, banks will factor the risk into their calculations of interest rates.

Currently Italian, Spanish and Portuguese companies are compelled to pay higher interest on credits than German companies, simply because their headquarters are in Italy, Spain or Portugal. This distorts competition — always in favour of Germany. The euro, while it still exists, is thus busted from within.

It may seem paradoxical, but the Greek crisis would have afforded an opportunity to make clear, once and for all, that the monetary union will hold together unconditionally. This would have allowed the union to consolidate. Europe’s leaders, however, are moving in a different direction. We are currently witnessing the beginning of the end.