Daily Archives: July 20, 2011

Europe faces a critical juncture on Thursday – one that may determine not only whether the euro will survive, but whether the global economy will be once again plunged into turmoil. To an economist what needs to be done is simple and clear: Greece’s debt has to be brought to a sustainable level. That can only be done by lowering the interest rate that Greece pays, lowering its indebtedness, and/or increasing gross domestic product.

The problem facing the Europe is not so much economic as political. It is easy to see what should be done. If it issues eurobonds – supported by the collective commitment of all the governments – and passes on the low interest to those in need – debts are manageable. Europe can access capital at low interest rates; after all, its collective debt to GDP ratio is actually better than that of the US. The resolution of this crisis is easily within grasp. It is not a matter of economics. It is only a matter of political will.

As Europe stands at the precipice, it is time to end brinkmanship and political squabbles. Read more

Eurozone leaders face a fundamental choice when they meet on Thursday. Either they declare, once again, that they stand ready to do “whatever is necessary” to overcome the eurozone crisis, or they actually do it. In the first case, markets are likely to step up to the next stage of their challenge to the European authorities. They will target larger countries, such as Italy and Spain, thus making the “whatever necessary” ever more costly and ever less credible. Alternatively, the eurozone leaders could show real leadership.

There is growing consensus that it will be difficult find a lasting solution to the eurozone crisis without the use of eurobonds, which would assert the euro currency in the global markets. The scheme, gathering increasing support in the European Parliament, would be aimed at strengthening fiscal discipline and increasing stability in the euro area through market mechanisms, ensuring that those member states that enjoy the highest credit standards would not suffer from higher interest rates.

A European vision, based on the creation of a European instrument, backed by a precise timetable, could be the best way to restore trust and stability in the eurozone. Read more