Mortimer B. Zuckerman
We may be looking at the possibility of a worldwide financial meltdown
Having due respect for the origins of democracy in ancient
The prime minister eventually backed down on the referendum, but still it is galling for the leaders of the eurozone countries. They have risked their own political fortunes in putting together the cash to fling another rope to indebted
The eurozone itself, launched on
The Europeans were not blind to the fact that their economies were more divergent than the economies of the American states. The hope was that weaker economies such as
It hasn't happened.
Hence, today, the
We are witnessing the perverse side effect of the single currency, the euro, in the context that
Ironically, the euro now impedes the ability of member nations to get back on their feet. Previously when European nations lost competitiveness, they let their currency depreciate, making their exports cheaper and their imports more expensive. Locked in the euro, they cannot do that. They can only hope to revive their competitiveness and establish a fiscal balance by reducing costs through cutting domestic pay and benefits.
And many European countries neither have the will nor are able to accept the economic disciplines that once were imposed in the currency market. As
European countries no longer have central banks to back their sovereign bonds.
After the last crisis, authorities set up the European Financial Stability Facility (EFSF), their version of a common treasury, as a lower-cost fundraising mechanism for cash-starved banks and countries. Unfortunately, as
The only issue now is where will the next bubble pop among the countries that massively overextended themselves during the boom years. If the credit risks on the balance sheets of banks morph into sovereign default risks,
As a result, the once unthinkable option of default on external obligations is now a shadow on people's minds in debtor countries. Defaults would save a huge proportion of yearly budget deficits consumed by soaring interest payments; public sector wages and other politically popular spending programs would be less vulnerable. But it's been unthinkable because the blow to confidence and trade would be enormous.
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