Word: euros
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...what about the future of the euro? "I think it's quite possible we could see the euro gone in several years - or at least reduced to a currency only used by France, Germany and a few small nations keeping it alive," says Bob Hancké, an expert on European political economics at the London School of Economics. "The problem is that monetary union was never followed up by political union to coordinate budget and taxation practices and create euro-zone institutions and capacities to help member economies adapt to changes and turmoil. The result is member governments are left...
...rest of the euro-zone countries can come to the rescue. Indeed, these countries - led by France and Germany - have pledged twice this month to do what's necessary to see Greece through its deficit crisis and defend the common currency. If need be, officials say, that will include a financial bailout of Greece, providing the funds to allow Athens to make its debt payments as the government slashes spending and raises taxes, no matter how unpopular this may be with its taxpayers. (See "In Paris and Berlin, Fury Over a Greek Bailout...
...Permitting what will essentially become an existential assault on the euro by financial markets isn't something leaders are going to let happen - the political and economic consequences would simply be too grave," says a French government adviser who preferred to remain anonymous because of the sensitivity of the situation. "The pressure being applied by market speculation is making things harder, but far from impossible. The euro isn't going away...
However, Hancké describes a scenario in which continued market doubts could drive the value of Greek bonds to junk status, confounding outside efforts to bail Athens out and forcing Greece to simply abandon the euro before it drags the currency down to nothing. "Once that happens, markets then turn successively on indebted countries like Spain, Portugal, Italy and Ireland until they're driven out as well," Hancké explains. "At that point, even if a core of countries continue using the euro after so many others have left, the currency will have lost it's main original function...
Though worried about the underlying causes of the crisis - overspending by governments that led to spiraling budget deficits and public debts - Moreau Defarge believes member states will indeed take whatever efforts are required to save the euro. "There's nothing for any of them to go back to," he says. "This is the present and future they've chosen...