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Euro Crisis: Is the Break-up of the Euro Zone Next?

Euro Crisis: Is the Break-up of the Euro Zone Next?

Italy’s borrowing costs rose to a record-high 7.25 percent on Wednesday. Prime Minister Silvio Berlusconi’s pledge that he will resign after austerity measures are passed by the Italian Parliament have not been enough to stem investors’ fears: The 7 percent level is the point at which Ireland, Portugal and Greece all had to seek bailouts. But Italy, which has Europe’s third largest economy and is the fourth largest borrower in the world, is seen as both too large to default and to bail out. US stock indexes fell as investors sought to rid themselves of Italian government bonds and reports are emerging from Brussels that Germany and France have started preliminary talks about a break-up of the euro zone.

Italy’s $2.6 trillion (1.9 trillion euros) of debt is greater than than of Greece, Spain, Portugal and Ireland altogether. Last week, Finnish Prime Minister Jyrki Katainen had said that “It’s hard to see that Europe would have the resources to take a country the size of Italy into the bailout program.” The European Financial Stability Facility (EFSF), the EU’s bailout fund, has 440 billion euros but only 270 billions will remain after commitments to Italy, Portugal and Greece are subtracted. Italy will then have to seek assistance from the International Monetary Fund; IMF fiscal monitors will soon be visiting Rome and European Union Economic and Monetary Affairs Commissioner Olli Rehn has said that he will have “very specific questions” regarding Italy’s economic pledges by this weekend.

The IMF itself has $391 billion but, as the European debt crisis drags on, Managing Director Christine Lagarde yesterday spoke of a potential “lost decade” for the world economy.

Italian President Giorgio Napolitano sought to boost confidence by saying that Berlusconi will step down soon. Political uncertainty — some say chaos — remains in Greece where negotiations to appoint a new Prime Minister to succeed George Papandreou have deadlocked. Papandreou delivered a resignation speech on state-run NET TV but has yet to formally resign. The leader of the political party LAOS George Karatzaferis abandoned the talks  after Papandreou, opposition leader Antonis Samaras and Greek President Karolos Papoulias squabbled over who will be the new Prime Minister. Samaras has also reportedly balked at signing a written commitment about Greece meeting fiscal targets; EU leaders have demanded this letter before delivering the next tranche of 8 billion euros of aid to Greece.

German Chancellor Angela Merkel described the debt crisis as having become “unpleasant” and said that euro zone members needed to start talking about plans for closer integration. Senior EU leaders in Paris, Berlin and Brussels are reported to have spoken about one or more countries leaving the eurozone; those that remain in the “core” will be called to have deeper economic integration, especially on matters of tax and fiscal policy. Merkel also said that it is “ time for a breakthrough to a new Europe.”

But the call for a “two-speed Europe,” including euro zone members and others, is indeed a sign of how “the euro, which was meant to unite the Continent after the Soviet collapse and promote more federalism, is now pulling the European Union apart, both within the euro zone and between the euro zone and the others.”

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20 comments

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9:30AM PST on Nov 11, 2011

The US ratings agencies have been trying for years to destabilize the EU & destroy the union & the euro by 'self-fulfilling' prophecy. The US does NOT want a strong, powerful Europe - someone to stand up to its hegemony, invasions, occupations & state-sponsored terrorism around the world to enrich its Robber Barons & War Profiteers like Haliburton et al.

The EU is already more respected around the world for its human rights work than the US. The Euro is one of the strongest currencies in the world. IT was originally meant to be about par with the USDollar but is costs near $1.40 for one Euro now, & has been much worse. The British Pound is also weak against the Euro.

The US, ironically, has the highest debt to GDP ratio in the world - far higher than poor Greece, whose economy is in tatters, largely due to the fact that 40% of it is 'black', or untaxed. Several US states, including California, have much worse debt ratios than any country in the EU.

The EU has strict policy about not allowing any country to have more than 3% debt. Greece fudged their figures when they joined the EuroZone. It may not be a bad idea for at least Greece, maybe Italy, to go back to their old currency until they can get their economic act together, then rejoin later. The Euro has been a wonderful thing in uniting Europe & making travel between countries so easy. Long may it reign!

9:47PM PST on Nov 10, 2011

Bookmarked for further reading. Thank you.

4:59PM PST on Nov 10, 2011

I am reminded of the Chinese curse "May you live in interesting times". With the current economy here in Europe it looks like a bumpy road ahead. :-(

4:34PM PST on Nov 10, 2011

The Central European Bank along with our own Federal Reserve has not helped them get better.

11:15AM PST on Nov 10, 2011

Let it go and break up the central banks or let them fail too.

10:36AM PST on Nov 10, 2011

These idiots want us all to believe there is not anything that can be done. As I see it this is all moving along like some grand plan. My point being is that if Italy is going to have problems with the over seven percent interest rate, and it is going to cause global recession, then is it not better to reduce the interest rate to something Italy can manage. Who is in control of the rate? Exactly the same people who are saying this stuff, IMF, and all. I think they want these failures to occur, for what reason, I don't know. If people, us, ordinary people die, starve, loose everything, THEY DON'T CARE, as long as they have thier billions.

9:57AM PST on Nov 10, 2011

Historically, over growth and over extension of countries caused ultimate collapse. However, with so MANY countries growing so quickly, the GLOBAL economy is in danger of collapse, too. In history, after collapses, these countries were usually overrun with barbarians... I wonder what WE are facing?

9:42AM PST on Nov 10, 2011

Establishing the EURO Zone was long and hard in achieving establishment and implementation with deep heavy discussions over concerns on every aspect from all sides, and from just about everywhere else around the globe, at its very conception. And one of the key topic concerns in discussions were about its' continued success. So, now we are at that door step. Hum? Its' collapse, should it come to that, will indeed most likely have irreversible repercussions globally. So ask yourselves, isn't worth saving?

9:03AM PST on Nov 10, 2011

William, if your goal is to weaken your country and have them become totally dependant on govt, Obama is doing a wonderful job.

And Thom, we pretty much don't care what happens with the EU. Socialism does not work. Never has.

9:01AM PST on Nov 10, 2011

The Eurozone will break apart. It was a mere 12 years ago that the Euro was created and the expansion of the Eurozone has been pushed too far too fast. If Italy defaults, what does that say about the big two, France and Germany? Can they keep everything together for the entire zone?

In the US, Republican governors WANT to succeed from the Union, to break the US apart. They willfully pass laws that go against Federal laws. Immigration laws are being pushed that will close borders everywhere, and that will deport immigrants back to their own countries. There is a growing feeling of isolationism, or isolated nationalism, that can be seen everywhere. Yes, many Greeks WANT to go back to the drachma. And that feeling isn't confined to the Greeks.

The global economy needs to be shut down. Let locals regroup. Right now the big corporations run everything. Shell Oil has DESTROYED the Niger Delta. BP came close to destroying the Gulf of Mexico. We FORCE monocrop agriculture on Third World countries for our own tastes, coffee, chocolate, etc. without regards for their needs. We displace locals in order to grab as much natural resources as possible without ANY consideration for those displaced.

A true global economy requires equality among all parties, and right now there is huge inequality that creates immense suffering and death.

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Kristina Chew Kristina Chew teaches ancient Greek, Latin and Classics at Saint Peter's University in New Jersey.... more
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