Euro Debt Crisis: Possibilities of Fall-out of Euro Zone

While every European technocrat is trying to protect the Eurozone from falling out like a castle of cards, the European sovereign debt crisis is becoming a global economic disaster.

Euro was introduced as a new hope for a united Europe with peace and prosperity but now the euro crisis is being described as a macro-economic weapon of mass destruction¹ . The PIIGS (Portugal, Ireland, Italy, Greece and Spain) are proving to be the Achilles heel of the European Union. However, almost all governments with a centralized fiscal policy suffer similar issues. The United States is already suffering a huge national debt crisis and the United Kingdom is trying to save itself by implementing austerity measures and India is suffering extreme inflation.

Euro Debt Crisis is Affecting Global Economy Severely

The global stock markets are tumbling down heavily because of the increasing fear of defaulting European nations² . The euro debt crisis is increasing as a contagious illness and recently, the contagious debt crisis reached Eastern Europe and Hungary was forced to ask help from the IMF³ .

Meanwhile, the global economic players are trying to persuade Eurozone to end the debt crisis as soon as possible so that they can avoid a double dip recession in the global market. As a result, Germany which is still considered as one of the most attractive investment hubs of the world⁴ is facing enormous political pressure.

The rift between France and Germany is increasing as France is now starting to succumb to the international pressure for allowing European Central Bank (ECB) to print more Euros out of the thin air to finance a bailout package for PIIGS and other defaulting states such as Hungary that recently asked for IMF help. The IMF and World Bank already have announced bailout packages for tumbling European countries⁵ and in August 2011, India also announced a bailout package of $ 2 Billion for the European countries⁶ .

Germany, the Lone Victim

While many European countries are suffering the burden of debt, Germany has emerged as one of the most financially stable countries with a positive economic outlook.

Instead of praising the economic balance maintained by the German government, the global political powers are now trying to paint Germany as the major villain behind the Euro Crisis. Germany has been blamed of trying to throw its weight whole around the EU to create a super-state⁷ .

Any idea towards a unified European Union with a centralized financial/monetary system under the European Central Bank or the newly proposed European Monetary Fund is a bad idea. However, can we blame Germany for all this mess?

I believe that Germany is being victimized by the same global political powers that unanimously supported the idea of World Bank and International Monetary Fund to help out all those poor nations suffering poverty and huge national debt. Now when Germany is demanding a similar institute to help PIIGS (Portugal, Ireland, Italy, Greece and Spain) along with other defaulting countries like Hungary, German technocrats are being blamed of trying to throttle the democracy⁸ .

Ludwig von Mises explained how debauched is the idea of International Monetary Fund and the World Bank⁹ , yet the United States, the United Kingdom and many other nations failed to understand the innate immorality of the IMF. IMF failed to offer any good for the world yet, the Keynesian economists never realized the failure of centralized banking¹⁰  .

The Eurozone is in fact a prototype of the dream of a world with single currency controlled by the central World Bank which as the Keynesian economists suggest is necessary for removing poverty and economic differences between developed and developing nations. The World Bank and the IMF both created a new misery which is known as the global debt crisis¹¹ and the Eurozone and the possible European Monetry Fund is creating the euro debt crisis.

I agree that German Chancellor Angela Merkel’s call for European Monetary Fund is extremely ridiculous however, the people opposing this call are the same who supported the creation of World Bank and IMF that resulted in global debt crisis¹² .

Why Germany is Against Printing Euros?

Almost whole international political powers are now forcing Germany to allow European Central Bank (ECB) to offer bailout packages for PIIGS and other defaulting countries. IMF has already announced monetary support for Portugal, Ireland, Italy and Spain and India which is a member of IMF and World Bank has issues $2 billion bailout package. Yet, Germany is against allowing ECB to offer any such bailout package to end the debt crisis. The reason is simple as was explained by Ludwig Von Mises, money is different from all other commodities. As we increase the quantity of currency, we create inflation and poverty. Germany is one of the most liberal countries of Europe that tries to offer maximum Individual ‘economic’ liberty. The UK, France and other nations on the other hand are a sad story of socialism.

Germany’s trade surplus stands at €15.3 billion (the UK’s trade deficit is £3.9 billion). Germany’s government is about to introduce tax cuts worth €6 billion, and recently discovered that this year’s tax intake would be €16.2 billion more than previously thought, So you can expect a higher degree of tax cuts. No other country in Europe offers such potential for economic liberty in current times¹³ . UK is suffering and its economy is ILL.

If Germany allows ECB to print Euros for providing a bailout package, the German citizens will have to face downright inflation that will reduce the value of their savings and will weaken their economic conditions. Almost all countries including China, India, the United States and the United Kingdom are suffering the chaotic effects of senseless bailout packages for defaulting companies in their market. Almost all politicians of the world know that bailout packages brings nothing good but inflation, price rise, poverty, further financial mismanaged and global debt crisis. Yet, all of them are pressurizing Germany to continue the same path of bailout packages.

In order to avoid the call of printing new Euros for bailing out PIIGS, Germany is forcing the idea of European Monetary Fund which will have the power to offer bailout and to take over financial policies of any member nation of European Union facing extreme debt crisis. While I consider this as a futile idea, I believe that the Euro zone is about to scramble. The only hope for Germany is to leave the euro zone and become independent of the financial responsibilities of defaulting Euro zone.

Is it Possible to Disintegrate Euro zone?

It’s not easy to leave Euro zone yet, Germany can take a chance of leaving Euro zone because of its huge surplus.

In case of Euro zone fallout, Germany will have the largest surplus to reduce the deficit Germany will incur after leaving Euro, so Germany will sustain economic crisis because of Euro fallout. German government may need to bail out its banks. But that will be better then bailing out banks of Portugal, Ireland, Italy, Greece, Spain (PIIGS) and now Hungary too.

On the other hand the PIIGS nations if left alone will have to peg their new currencies with euro in a ratio of 1:1 and that will keep their current debt intact. Hence, their situation is not going to get any better. Germany still has a valid economical chance to leave Euro but I don’t think they will be able to do so because of the lack of political power/will. At present UK is in deficit and Germany is in Surplus, yet Germany and France would try to force UK to accept Euro, it offers them more time to think for solution. But reality is there is no solution but a fall out and a chaos for a while.

UK National Debt Crisis

A number of British economic analysts suggest that it was a good decision for the UK government to not to accept Euro. Since UK has its own currency (Great Britain Pound), UK government and Bank of England have the power to print currency out of thin air to keep the market liquidity.

Britain is running a policy of fiscal deficit on the name of social welfare since a long time. The UK government is in habit of spending much more than what can be said as sane and government’s interference in the market is too much. Because of socialist mixed economy pattern of the United Kingdom, UK is now under a huge national debt¹⁴ . The United States is also suffering a huge national debt because of similar progressive social welfare policies.

Since the United Kingdom is already a member of European Union, it wouldn’t be too surprising if the UK government accepts the proposal of Germany and France to be a part of the mess especially if UK is provided some beneficial monetary compensation that may help the UK to reduce its own national debt and fiscal deficit.

On the other hand, Germany, France and other Euro zone nations will gain a little more time to think about a possible solution for the euro crisis. However, there hardly is a possible solution for Euro crisis and at the end; the European Union is bound to tumble.

The UK government itself isn’t in such a position to take a firm decision about joining the euro zone. British politicians are weak enough to take any stand and situations are so that either of the decisions (to accept Euro or to reject it) will be dangerous for UK.

Why Is Germany Being Criticized?

Germany is against the idea of providing bailout for the defaulting countries without firmly enforcing fiscal austerity over those nations.

Every other country of Europe and the rest of the world which is connected with World Bank and the IMF  which had an irrational dream of removing poverty by providing financial loans are strictly demanding a strong bailout package for Portugal, Ireland, Italy, Greece, Spain, Hungary and all other debt ridden countries.

However, the idea of bailouts and loans by International Monetary Fund and World Bank is a failure in itself because such loans and bailouts often results in increased poverty, corruption, inflation, price rise, fiscal mismanagement, and global debt crisis¹⁵ . Yet, these countries are forcing a bailout for defaulting euro zone countries to justify their own immoral and mismanaged fiscal policies of offering economic stimulus and bailout packages for defaulting economies and economic sector. Almost every nation provided a huge economic stimulus for the down-falling market in 2008. The consequences of all those stimulus and bailout are huge national debt along with high inflation rate on all those nations including India¹⁶ and China.

Such Bailouts may offer a short refuge for tumbling economies (PIIGS, Hungary etc) but it will also create a huge inflation problem that will reduce the economic liberty and the value of savings of all European citizens and the global debt crisis will take a bitter shape.

German government at present is seriously safeguarding economic Individual Liberty of Germans.

In order to defend the importance of IMF and World Bank, global powers including the USA, UK, China, and India are trying to force Germany to act fast for providing a bailout and Germany is resisting. As a result, the international media has started painting Germany as a villainous nation¹⁷ . The logic offered is quite weird. They say that Germany is the strongest economy of euro zone and hence it should help the defaulting economies.

General accusation is, Germany is making progress not because of its Liberalized economy and austerity, not because of the hard work and individual liberty of Germans but because Germany is robbing whole Euro Zone and hence Germany should now pay the bailout. This is the most bastardized argument, but remember, last month Obama announced warnings for Euro zone and said forcibly that Greek should be provided a bailout.

India is already performing its obligatory duties of offering bailout package for Euro zone. They say India is bound to do so because every nation of IMF has a responsibility to pay bailout for suffering countries. But the reality is; Indian bailout package is nothing more than a signatory force on Germany and France to offer greater part of bailout required¹⁸ .

Conclusion: Euro is certainly a macro-economic weapon of mass destruction and euro zone is bound to fail. Germany should realize the failure of IMF and World Bank and should avoid trying to implement economic reforms on other countries through forcible idea of European Monetary Fund. The only hope for Germany to survive against the foolhardiness of European and global economic powers which support bailout packages for failing economies is to leave the euro zone as soon as possible. Germany has economic power to sustain such situation and it will be better to bail out its own banks for German government rather than collecting bail out for banks of Greece, Spain, Portugal, Ireland, Italy (PIIGS), Hungary, and other possible defaulting European countries.

1. The euro is a macro-economic weapon of mass destruction which must be difused, Liam Halligan, 19 Nov. 2011, The Telegraph [↩]
2. Global economic fears and Euro Debt Crisis Knock Markets Down, 23rd Nov., 2011, The Economic Times [↩]
3. Hungary Turns to IMF as Stress mounts on Eastern Europe, Ambrose Evan Prischard, 21 Nov. 2011, the Telegrph [↩]
4. Europe will survive debt crisis, will not disintegrate: Kater, Ben Gracia, 23 Nov. 2011, Kuwait Times [↩]
5. IMF weighs risk of bailout for Italy and Spain, Alan Beattie, Aug 5, 2011, IrishTimes [↩]
6. India to give $2bn to fund bailouts in Europe, Aug 3, 2011, Times of India [↩]
7. The Coming European Superstate That Germany Plans To Cram Down The Throats Of The Rest Of Europe, The Economic Collapse [↩]
8. Not much democracy left in Europe, 22 Nov. 2011 [↩]
9. Does the World Need a World Bank?, Ludwig von Mises, Ludwig von Mises Institute [↩]
10. End the IMF, Henry Hazlitt, 11 Nov., 1963, Ludwig von Mises Institute [↩]
11. Global Debt and the Third World Development, Vincent Ferraro and Melissa Rosser, 1994 [↩]
12. Global Debt and the Third World Development, Vincent Ferraro and Melissa Rosser, 1994 [↩]
13. Germany: the Reluctant Superpower, Simon Winder, 19 Nov. 2011 [↩]
14. UK Debt Crisis, UK National Debt – how Britain owes over £900 billion, UK National Debt Clock [↩]
15. Global Debt and the Third World Development, Vincent Ferraro and Melissa Rosser, 1994 [↩]
16. Reason Behind Indian Inflation, 19 November, 2011, Rational Libertarian Corner [↩]
17. Why German Taxpayers Should Be Forced To Bail Out Italians And Greeks, Joe Weisenthal, 20 Nov. 2011, Business Insider [↩]
18. India to give $2bn to fund bailouts in Europe, Aug 3, 2011, Times of India [↩]