Thursday 19 Jul 2018 | 06:16 | SYDNEY
Thursday 19 Jul 2018 | 06:16 | SYDNEY

Eurozone: Time to panic?


Sam Roggeveen


2 June 2011 15:59

In two recent Interpreter columns, Stephen Grenville has warned of the gravity of Europe's financial problems.

If Stephen's use of the phrase 'slow-motion avalanche' did not tip you off to Europe's dilemma, and if you were not persuaded by his argument that the joint currency faces an 'existential crisis', then perhaps nothing will move you. Or maybe you just need to read Martin Wolf's latest column:

Debt restructuring looks inevitable. Yet it is also easy to see why it would be a nightmare, particularly if...the ECB would refuse to lend against the debt of defaulting states. In the absence of ECB support, banks would collapse. Governments would surely have to freeze bank accounts and redenominate debt in a new currency. A run from the public and private debts of every other fragile country would ensue. That would drive these countries towards a similar catastrophe. The eurozone would then unravel. The alternative would be a politically explosive operation to recycle fleeing outflows via public sector inflows...

...The eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does.

Photo by Flickr user Phil Romans.