For the next month, Johan Van Overtveldt, author of the new Agate B2 title The End of the Euro: The Uneasy Future of the European Union, will be blogging here twice weekly about the ongoing travails of the European monetary union as it deals with the Greek debt crisis and the wider unease affecting many European economies.
On Friday, November 4, Greek prime minister George Papandreou survived a vote of confidence in the Greek parliament with the thinnest of margins. It remains uncertain what might happen next in Greece: a reshuffle within the present Socialist government of socialists; a grand national coalition; or even new elections. Whatever the political outcome, the Greek economy remains in shambles. The country requires strict austerity, which it will only be able to survive economically and socially if external demand can partially fill the gap. It remains inevitable that Greece will have to exit from the Eurozone to create devaluation-driven economic growth.
Although Greece occupies a central place in all present discussions regarding the Eurozone, the problems originating in this small nation are not much more than a footnote to the real story of the crisis. Greece is one of the smallest economies of the Eurozone. Two other small economies, Portugal and Ireland, are also in very deep trouble, Portugal in particular. After these small countries, much bigger ones--like Spain and Italy—are also in significant trouble. At present, the Eurozone crisis involves hundreds of billions euros. When the big countries start failing, it will involve thousands of billions of euros.
The fact is that the European Monetary Union does not function well because of basic flaws in its construction. Two of these stand out: the lack of true political union, and insufficiently flexible and mobile labor markets. Even if you get the Greek problem out of the way—and the Portuguese, Irish, Spanish, and Italian problems--these two basic flaws preventing a durable, efficient monetary union will remain. And the European political leadership has demonstrated convincingly over the past two years that it is unable or unwilling to repair these flaws.