Will Countries Give up Sovereignty, for Bailouts?
For many, the future looks grim in Europe. Spain, Italy, Greece and Portugal are under crushing public debt. The nations are struggling to get out of an economic crisis, that has destabilized the Eurozone.
Greece, has received two bailouts, and is now ready for another boost to its economy. While the new government has promised to abide by the austerity plan, growing public frustration, could destroy the country.
Spain which once thrived on its real estate market, now sees an unemployment rate of 24%. It is looking for a bank bailout of upto a 100 billion euros. Italy looked to recover well, after the Mario Monti government took over. But things looks bleak, as mounting debt tells on the economy.
Germany, the Big Daddy of the Eurozone, now has to decide whether, austerity is the best way forward for the EU, or stimulating the economy is the right answer.
But how did the EU crisis begin? This devastating fiscal, roller coaster, that threatens to take down the global markets.
Abdullah Karatas, Head of US Fixed Income Credit Trading, Natixis explains, "At its core, there is a political element to this whole crisis. It's the fact that this construct that we now know-as the European Union and this entity we know as the EU, did not allow the countries on the periphery to borrow and spend more, than they otherwise could have."
The crisis in the Eurozone stemmed from the lack of a true, fiscal union. This allowed the countries to spend and borrow, without constraints and controls on their taxation.
"That's ultimately where the crisis blew up. Because there was a mismatch between the outflows and inflows. With the fiscal integration where it is, not just a monetary but a fiscal union- in theory they would be harmonized and in sync with each other. So you can't spend more than more than you can tax, " adds Karatas.
A control system imposed by the more powerful economies, like Germany and France, may lead to a sovereignty issue as well.
Karatas concurs, "There is a big question and issue of sovereignty. As the EU moves closer with monetary and fiscal integration., nations will be influenced by decisions of those, not from their own countries."
There are other problems like the inflexibility of the labor market. If a worker loses his job for example in France, it is very difficult for him to find work in Germany.
"In a lot of the European countries, one of the most serious structural issues is the lack of labor market flexibility. The rules in the labor market are very onerous, they put a big burden on the European economy,” says Karatas
So what will happen in Europe from this point onwards? Karatas says Europe will have a meaner and stronger economy coming out of this crisis.
Karatas says "These are the growth pangs. For the EU. But I think it will emerge a leaner, meaner and stronger entity, especially the countries that do remain within the European Union."
For now, the EU ministers meeting in Brussels will look to find common ground, as they bailout two economies. Only time will tell, if the EU debt crisis will destroy the union, or strengthen it.
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