Teaching Comparative Government and Politics

Sunday, January 25, 2009

EU economics

Rebecca Small, who teaches in Herndon, Virginia, pointed out Sunday's New York Times article on the problems of the euro.

It offers a good chance to give students another aspect of the EU to discuss, debate, and analyze.

Once a Boon, Euro Now Burdens Some Nations

"The adoption of the euro just a decade ago was meant to pull Europe together economically and politically, ending the sometimes furious battles over who could devalue their currency the fastest and beggar their neighbor.



"For the Continent, the currency signaled the potential to one day rival the United States. For its poorer countries, winning admission to the euro zone was a point of pride, showing that they had tamed their budget deficits and set their financial houses in order.

"Now, in the middle of the worst economic downturn since the euro’s birth, a new view is emerging — especially as the creditworthiness of Greece, Spain and Portugal, one after the other, has been downgraded. The view is that the balm of euro membership allowed these countries to gloss over serious economic problems that have now roared to the fore...

"While sharing a currency with some of the mightiest economies in the world helped Europe’s poorer nations share in the wealth, a boon during boom times, in hard times the rules of membership are keeping them from doing what countries normally do to ride out economic storms, including enormous spending.

"So Germany, France and the Scandinavian countries are mounting billion-dollar stimulus plans and erecting fences to protect their banks. But the peripheral economies are being left to twist in the market winds.

"With the need for stimulus to deal with the severe downturn, these countries find themselves caught in an awful policy bind: credit is available, but only at punitive rates; and further borrowing not only breaks with European Commission dictates but raises broader questions about their solvency.

"Bond and currency speculators have demonstrated that they intend to punish countries with dubious economic prospects, just as they have punished banks...

"Few experts expect Greece or the other Mediterranean countries to run out of money or leave the euro. But the widening gap between the interest rate that Greece and larger economies like Germany have to pay to borrow reveals the first cracks in what so far has been a fairly solid fortress Europe..."

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