At each stage of the crisis that continues to plague the nations that use the euro, opinions have flown from all sides of the ocean and the media. At the heart of the crisis is a country that cannot pay its debt, and a unique organization struggling to deal with the consequences of incomplete policy coordination.
The euro is the common currency of the member states of the European Union (EU) that are also members of the Economic and Monetary Union (EMU). All member states that have been admitted since the creation of the euro are obligated by treaty to join the EMU by meeting a series of criteria in three stages, the third of which is to adopt the euro as the national currency of the member state. Fifteen countries celebrated the birthday of the eurozone when, on January 1, 2002, euro notes and coins became legal tender. Though the currency had been in use electronically and minting of the euro had been ongoing for some time, the entrance of the euro as public and legal tender within the European Union – with the exception of the United Kingdom and Denmark – was a remarkable step for the organization. In the face of skepticism on the part of many economists, the euro has not been valued below $1.00 since late 2002. It peaked in mid-2008 at $1.59.
Despite the relative success of its currency, the EMU member states have never moved from a unitary monetary policy and single currency to a common fiscal policy. In practical terms, that means that each of the member states sets their own budget and is responsible for the consequences if – or, in the current situation, when – it is unable to pay its debts. The problem with this set-up is that if one member state goes bankrupt and is forced out of the EMU and the common currency that comes with it, it affects the value of the currency, other related economic relationships, and therefore the economies of the other member states. As evidenced by the current situation, a member doesn't even have to actually default for the markets to approach panic. Another consequence of the lack of coordination on fiscal policy is that the economically stronger member states have found themselves needing to provide significant assistance – in the billions of euros – to other members in danger of defaulting on their debt. This creates a political challenge for leaders such as Germany's Chancellor, Angela Merkel, in convincing their electorates that such support is warranted.
Greek Prime Minister George Papandreou attempted to help Chancellor Merkel at a meeting of the Federation of German Industry in Berlin on Tuesday, promising that the Greeks would find growth and prosperity "soon", even as Greece faces another round of potential strikes. He called for stricter regulations in the EMU, a long-term solution that would require the rewriting of treaties likely over years of negotiations, and the expansion of the European Financial Stability Facility, an emergency fund that might be a short-term fix but that Wolfgang Schaüble, the German finance minister, has ruled out expanding. Add to these challenges the Greek people, frustrated after three years of recession and strict austerity measures, and the fact that Chancellor Merkel may be attempting to use more political capital than she has in an already politically tense party and country, and you are left with the question: where are Greece and the euro headed, and is it the same place?
Seemingly countless reporters, talking heads, analysts, politicians, and neighborhood gossips have contributed to the swirl of opinions surrounding the eurozone crisis. From 'whatever makes the dollar stronger can't be that bad' to reasoned suggestions for jointly issued bonds and offers of support by countries as far away as Japan, the conversation has been as varied as its sources.
Those looking at the crisis from afar have, understandably, tended to focus on its impact on world markets. Within the eurozone there is a greater urgency to be seen in the writing of reporters in all languages, and in Germany in particular there has been an emphasis on the political toll the debate over a solution to the crisis is having on the governing coalition under Chancellor Merkel. For example, more than one German writer has pointed out over the past week that when a leader has to go outside of his or her own divided party to garner support for a position they are promoting, their political fortunes are usually next to come into question.
Though not many people, reporters or otherwise, possess the economic expertise and intricate understanding of the laws of the EMU to pose credible, workable solutions to the crisis, there are also more basic questions that we can ask. Is it a good idea for any country to tie its currency, and thus somewhat its economic fortunes, to another country? What might be the benefits or costs? Should there be a broadly accepted standard on sound fiscal policy? Do strong countries have a responsibility – moral, economical, self-interested, or otherwise perceived – to help other countries remain economically strong by helping to prevent a default? Post an answer to one – or all – of these questions in the comment section below or the discussion portion of World Report, and get the conversation started!