The drama continues… or does it?It seems as though it was a crisis that sometimes people ignore, as if it has been solved somehow, while it has not.
After all these Greek austerity and second bailout, ECB buying peripheral debts and other things, attention has been shifted away to other things.
But ultimately, the Eurozone is an unsustainable thing in its current form.
The only two options are either the Eurozone breaks up, or they have to move towards fiscal union.
But there are problems with both. The former option would need to chaos, while the latter one are politically difficult.
Before the Eurozone opt for either of the two choices, we are all stuck in the middle, and the on-going crisis will haunt us from time to time until the final resolution or huge bang.
The problem with break-up is obvious: that would be a chaos, a mayhem, apocalyptic, Armageddon… you name it. But fiscal union is politically difficult. In fact, we can see that it is politically very difficult even they are nowhere near a fiscal union. On 7 September, German’s court will be deciding on whether the country’s participation in the European Financial Stability Fund (EFSF) is legal, while in the German’s Parliament (Bundestag), the coalition of the Chancellor Angela Merkel has 23 members who plan to vote against bailing out other countries. This highlights how unpopular the bailout can be. On the other side, one can imagine that being bailed out is just as unpopular as bailing out, as these weaker countries are being forced into austerity, crushing people’s living standard. At the same time, the economic depression of these countries may get worse after austerity, which does not help its fiscal position.
Recently, we have seen some stress in the funding in the European banking system. The interbank market is somewhat frozen up, and some European banks seem to be unable to obtain US dollar funding. Although the European Central Bank and the Federal Reserve has the swap lines to provide unlimited US dollar funding to European banks, nothing is certain, and we still can’t rule out crisis. The main reason, I would say, is that because we can’t really believe the European politicians to do the right thing, as they have demonstrated time and again that they are way behind the curve.
This article originally appeared here: European Debt Crisis: Between Solving and Not Solving It
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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