Greece crisis: What now for the euro project?

A euro coin on a map of Greece Economists suggest this could be a defining moment in the future of the single currency

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The single European currency is facing its biggest crisis since it was launched more than a decade ago.

The severe debt problems facing one of its members, Greece, have intensified the debate about the future of the euro, which binds together 17 members with some very different economic policies.

Will it survive, and if it does, what changes might have to be made to the currency pact?

While interest rates are set at a European level, taxes and spending are decided nationally.

Some have called for tough action by governments to make member economies more alike - so-called convergence.

Others say that eventually the eurozone will need to resemble more closely the US, with richer countries sometimes paying the bills of poorer ones through fiscal transfers.

Prof Costas Lapavitsas

Senior lecturer in economics, University of London

Where next for the euro?

  • Convergence? Eurozone economies would become more alike as weaker states are forced to become more competitive, reducing the risk of future crisis
  • Fiscal union? Eurozone countries would make more joint-decisions on tax and spending and issue debt guaranteed by all countries
  • Breakup? The weaker, more indebted countries would split from the fast growing 'core', potentially leaving two new joint currencies.

"The euro doesn't have very much of a future at all. The current structure of the eurozone is clearly untenable and unsustainable.

The crisis of the periphery countries [such as Greece and Portugal] is a reflection of the deep inadequacies of the eurozone.

The euro has a homogenous monetary policy, a fragmented fiscal policy and a fragmented banking system. From an economic standpoint this is a nonsense.

Core countries are not willing to countenance fiscal transfers or put up with problematic banks on the periphery.

This is not an alliance of partners. There is no solidarity within the union. I think that the weak members of the periphery would most probably have to exit."

Vicky Pryce

Vicky Pryce Vicky Pryce says the euro project depends on helping Greece

Senior managing director of economics at FTI Consulting and former UK government adviser

"I think that if Greece doesn't get the help it needs, then the whole euro project is gone.

It would show that there is a flaw in the system. There isn't a mechanism that anyone thought of putting in place for a situation of the type we have in Greece.

They say a single currency works well in the US. Well it works in the US for different reasons: there are fiscal transfers and there is movement of labour.

To survive, it's going to have to go to a closer fiscal union. Budgets will have to be agreed across Europe. But it might still unravel at the end."

Professor Alfredo Pastor

A crane over a building The collapse of the Spanish construction industry has left Spain with very high unemployment

Professor of Economics at the IESE business school at Barcelona's University of Navarra. Formerly Spanish secretary of state for the economy and a chief economist at the World Bank

"My opinion is that the euro will survive.

The long-term question is whether the peripheral economies will be able to have real economic convergence with the more advanced core economies.

I don't feel we have the answer to that.

Everyone more or less knew that something like this could happen. My feeling is that the euro will be sustained."

Professor Iain Begg

Iain Begg Iain Begg says eurozone countries will probably borrow collectively

Professorial research fellow, the European Institute of the London School of Economics. Currently researching EU economic policy, governance and policy co-ordination under European Monetary Union

"There is no question that the euro will survive.

Indeed, a possible paradox is that the euro crisis is accelerating the deepening of euro governance.

Fiscal transfers in the sense of German taxpayers directly paying for Greek public services is not about to happen.

But a likely - and obvious - way forward is for collective borrowing by the euro countries - sometimes called euro bonds.

It is a probable next development, despite reservations in a number of quarters."

Daniel Gros

A Greek riot police officer running Protests in Greece may limit its government's ability to implement austerity measures

Director, Centre for European Policy Studies

"The euro is likely to survive - very likely. But one piece, Greece, might fall off, and actually it would strengthen the euro if it did.

The Greeks have to make their own policy choices, which would determine whether they stay or not.

The project should be able to continue as it is. You could continue with the monetary union [single currency] without fiscal union if you organise now an orderly default for Greece so the 'no bail-out' rule remains."

Raoul Ruparel

Economist at Open Europe, an independent think tank campaigning for reform of the EU

Start Quote

The stronger countries would leave”

End Quote Raoul Ruparel Open Europe

"The massive internal devaluation needed to restore the competitiveness of the peripheral countries doesn't seem to be working.

Trying to turn Greece into Germany is never going to work.

In the long run you need to at least consider the possibility that the eurozone will break up, and you need to plan for it because if it happens in a disorderly manner it's going to be horrible for everyone.

I think the stronger countries would leave because it would be easier for them to go."

Holger Schmieding

European Stability Mechanism

From 2013, this will provide a permanent lending facility for countries who are unable to pay their debts

The new mechanism will raise money to lend to countries in trouble

It is backed by the European Commission and International Monetary Fund

Former economist at Merrill Lynch/Bank of America, now chief economist at Berenberg Bank

"The euro will survive. The risk that France and Germany will divorce and return to separate currencies is significantly smaller than the risk that England and Scotland will divorce and introduce national currencies.

Europe is, as we speak, strengthening its consensus against contagion by raising the borrowing capacity and by preparing the permanent European Stability Mechanism from 2013."

George Magnus

George Magnus in a green shirt Economist George Magnus warns austerity could 'crucify' Greece

Senior Economic Adviser, UBS Investment Bank

"If Greece passes the austerity package I think the crisis will go away, for a while.

This is the end of the road for Greece in terms of austerity.

That puts the swingometer back towards the creditors to find some form of debt relief. The austerity alone is going to crucify Greece.

The next phase will really be about whether the Europeans decide to integrate or disintegrate.

In the short term it means one innovation, the euro bond, which basically means my debt is your debt.

Eventually it might mean a European treasury. It is going to demand huge political will."

Professor Bradford De Long

A women demands to be let into a bank The Argentine debt crisis caused a run on the banks

Professor of Economics, Berkeley, University of California

"The key problem from our perspective is the same as the key problem that Argentina faced in the 1990s.

Regional governments, or in this case national governments, could undertake debts that had to be met by the community as a whole.

The provinces in Argentina could spend and the national government had to rescue them if they needed them to pay, as is happening in Europe now.

The euro can survive in the long run only with a) more centralised financial regulation and b) less national financial autonomy."

Professor Charles Wyplosz

Professor of economics at the Graduate Institute in Geneva, specialises in monetary integration, monetary policy and financial crisis

"Like any complicated construction, it's an imperfect construction.

It's a step in a grand scheme leading to further political and economic integration in Europe - but this is a step that has to be measured in generations, not in years.

They will need to improve monetary union so it doesn't get to be mismanaged as it has been mismanaged."


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  • rate this

    Comment number 1.

    When the Euro project went live in 1998/99, nobody in the City believed it would last more than a few months, let alone ten years (lucky debt-boom!).

    I wrote the conversion software for a major investment bank, and it had to include an "Undo" function.

    It was a political experiment that got out of hand and by the time it is over, will have managed to destroy far more wealth than it ever created.


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