Euro crisis: The European maze

 
Chancellor Merkel with aides in Bundestag, 10 May 12 The latest twists in Greece's meltdown are a headache for Ms Merkel

Europe is lost in a maze, unable to find an exit.

Voters have changed all calculations. The people have spoken and in increasing numbers are expressing impatience with austerity.

Francois Hollande's victory in France has sent tremors across Europe. He has challenged the German script for managing the crisis. Austerity first, in his view, is failing.

It is likely that his campaign message contributed to the success of anti-austerity parties in Greece. If voters in France were resisting further spending cuts why should voters in Greece not do the same?

Chancellor Angela Merkel looks increasingly isolated. Even voters in North-Rhine Westphalia, the most heavily-populated German state, rejected her party in favour of the Social Democrats (SPD), who promised to go easy on cutting debt.

Here's the bind: Europe chose to tackle its debt crisis not just by cutting deficits but by adopting a pact that limits spending in the future. The Germans see it as essential discipline for the survival of the single currency; others see it as a dangerous straitjacket.

What had not been envisaged was how swiftly economies would decline. By the end of 2012 the Greek economy will have shrunk by 20% in five years. Italy is mired in recession. Spain will see its economy decline by 1.8% this year and could well remain in recession next year. Almost certainly it won't reach its target for cutting its deficit.

France will struggle too.

The renowned economist Joseph Stiglitz called Europe's debt strategy "suicidal".

If austerity is leading Europe into deep recession - some are saying it is reminiscent of the 1930s - then what is to be done?

For borrowing more to stimulate the economies would only deepen the debt crisis.

Hence the search for a growth strategy - but structural reforms take time to deliver and Europe does not have time.

Which brings us back to Greece. Anti-austerity parties believe that Greece is slowly being strangled economically. They want the terms of their bailout deal renegotiated.

They also do not believe that the EU or Germany will allow them to exit the euro, with all its "incalculable consequences".

Crunch point

The official line in Brussels and Berlin is that there will be no renegotiation. But there are different messages out there. Some are saying that a Greek exit can be "managed" and that the risk of contagion has been reduced.

The game of bluff, however, is drawing to a close. The "show me" moment approaches.

Will the EU - under pressure from voters - bend and offer the Greeks an easier deal?

Or will Germany insist that promises made by governments must be kept?

Will Europe change course and accept that it is cutting spending too quickly and embark on a massive infrastructure-building programme?

For the truth is that Europe no longer has a convincing policy. Its current strategy is being openly challenged. The continent is drifting dangerously whilst there are daily protests.

There can rarely have been a more important meeting than that between the newly elected French President, Francois Hollande, and the German Chancellor tomorrow. Can they compromise or, at this critical juncture, will they form up on different sides?

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

More on This Story

Global Economy

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 317.

    DB@316
    What People "Want"

    How many vote 'considering all others & future', alongside 'own interests' & perhaps those of 'family & friends'?

    Of those with 'investment power', business or political, can any 'buck market', when 'account of wider concern' will raise suspicion of 'devious personal interest'?

    Unequal, cannot 'represent' each other, card-box to castle: not even if 'elected' so to do

  • rate this
    0

    Comment number 316.

    @315 But are the Greek people prepared to accept the consequences of rejecting the bailout?
    Judging by the election results, it seems to me they want the money and want to stay in the EZ, but don't want any strings attached, i.e. carry on as usual- not paying taxes, claiming benefits one isn't entitled to etc.

  • rate this
    0

    Comment number 315.

    The EU deliberately denied the Greek people a choice on the ‘bail-out’ when they deposed Papandreou for daring to propose a referendum. Therefore, the bail-out is democratically illegitimate and the Greek people are not morally obliged to stick to its terms.

    The Greek people have every right to continue to vote anti-bail-out. If they do, their new government should obey them, not the EU.

  • rate this
    +1

    Comment number 314.

    #300 Suilreua "...the barbaric practice of drinking milk with our tea..."



    Conveniently forgetting that barbaric Americans (disguised as Natives, i.e. much earlier immigrants to America from NE Siberia) dumped into the sea a big load of perfectly good pure English tea (strangely not grown in England, though), and on top of that - not yet heavily taxed.

    BARBARIANS!

  • rate this
    0

    Comment number 313.

    307Roger Smith

    The euro problem is like watching an ingrowing toenail turning into gangareen.
    __
    Do you have the YouTube link?

 

Comments 5 of 317

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.