Eurozone Crisis, When will it End?

Government debt crisis continued to spread this month across Europe, with Italian debt yields approaching 6%. For the time being leaders have made sufficient in-roads to tackle the short term crisis, voting to make more funds available to Greece while both Greece and Italy have imposed new austerity measures.

However, Northern European leaders seem unable to take the drastic steps needed to truly avert a long term crisis. Germany is adamant that it wants a high Euro to keep inflation low. However, Germany is unwilling to consider transfers of money from the more successful European core to the periphery.

Nor does the German leader seem to want to consider removing the likes of Greece from the Euro. Germany, which suffered in the past with its high Deutsche Mark, has benefited massively from the Euro having a captive market of some 300 million people to sell German goods to without a currency barrier while still having a strong currency to keep commodity prices down and inflation low at home.

The last thing Germany wants is to reduce the size of this market. There seems only three ways the Eurozone can continue to work. Either the European periphery leaves or changes over its economy to a German style low inflation low growth model or Euro leaders come up with a means of transferring funds from successful regions to poorer ones. None of these options seem likely at the moment so we will no doubt continue to muddle along from crisis to crisis until markets force a decision one way or another.

 

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