Below is an interview with Harvard Professor, Niall Ferguson points out that, a long term problem was setting up “monetary union without any of the other institutions of a federal state” which “is proving to be a disastrously unstable combination.“
At present, the unemployment rates, growth rates and trade positions are diverging rather than converging undermining the stability of the Euro.
“According to the IMF, GDP will contract this year by 4.7 percent in Greece, 3.3 percent in Portugal, 1.9 percent in Italy, and 1.8 percent in Spain.
The unemployment rate in Spain is 24 percent, in Greece 22 percent, and in Portugal 14 percent.
Public debt exceeds 100 percent of GDP in Greece, Ireland, Italy, and Portugal. These countries’ long-term interest rates are four or more times higher than Germany’s.”
Yesterday, the former Prime Minister Gordon Brown warned that larger EU states like France, Spain and Italy are more vulnerable to higher interest rates, and a significant loss of confidence, if Greece goes.
Even if Germany did stump up cash to bail out Southern Europe, these states still face significant difficulties paying for imported goods, and servicing government debts not just now, but in the future. Yet these same governments have conflicting pressures from voters to revive stagnant economies, to cut dole queues, to stabilise prices, to limit tax increases; yet they need to convince lenders that debts and interest on loans can be paid.
There is no ideal solution to the Euro’s problems but you should try to consider what might happen to growth, to employment, to prices, to trade and economic stability not just in Europe but beyond.
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