The European Commission (EC) itself has warned that the finances of half of the Eurozone’s sixteen economies are at risk of becoming ‘unsustainable’, essentially bankrupt. As shown in the Wall Street Journal graphic below, Spain, Ireland, Netherlands, Slovenia, Slovakia, and Greece are all teetering on the brink.
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While relatively better off European nations would prefer not to bail out their flailing neighbours, the problem with the euro currency union is that their fates are ultimately all tied together via the euro, even if politically they believe themselves to be separate countries. Thus an old criticism of the euro system is appearing more relevant than ever.
WSJ: They said a monetary union unsupplemented by a political union risked a fiscal free-for-all among governments, especially in a full-blown recession. The next year will be a good time to prove them wrong.
The focus in early 2010 will remain on Greece and its budget deficit at 12.7% of GDP, four times the EU limit. The Greek government is trying to hammer together a political consensus in parliament for a plan to bring down public spending without triggering more social unrest seen in the country’s streets at the close of 2009.
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