European Union seeks way to solve euro-crisis

As other countries follow in the footsteps of Greece’s economic collapse, world leaders seek a resolution

The European Union is caught in a seemingly inescapable economic quagmire, and at the root of it is the country of Greece.

After much debate and international economic scrutiny, European leaders agreed on another bailout of debt-ridden Greece. The first bailout, which occurred in May 2010, was predicated on an agreement which included austerity measures for the Greek government, according to a BBC article. However, austerity ended up killing economic growth in Greece. Social unrest followed suit, causing protests and government infighting.

Most of the responsibility for buying up Greece’s debt falls upon Germany, Europe’s strongest economy.

Germany has more government debt exposure to Greece than any other country in the Eurozone. German lawmakers voted by a large majority to authorize Angela Merkel, the German Chancellor, to negotiate an increase in the emergency bailout fund to $1.4 trillion, more than double the current $610 billion, according to a New York Times article, “Europe Agrees to Basics of Plan to Resolve Euro Crisis.”

However, in a move that shocked international economic leaders, the Greek Cabinet unanimously supported Prime Minister George Papandreou’s plan to call a referendum on the country’s financial crisis.

The decision was widely criticized, even within Greece’s own government. A referendum will push the decision back until at least early December, and many fear the instability within Greece cannot be sustained for that long, possibly causing the country to abandon the euro. Greece’s referendum appeal comes at a rather inopportune time, as the G-20 summit is scheduled to be held on Nov. 3 and the world’s economic leaders are eager to hear a definitive plan on how Europe intends to handle its financial woes.

To muddle matters further, at the Nov. 3 meeting Papandreou made a complete about-turn and announced that he had no plan to go through with the referendum. The result of this, according to a DailyMail.co.uk article by James Chapman and Graham Smith, is the fact that the unusual move simply pushed Papandreou’s opposition to hurriedly move to support the euro bailout.

As if matters could not get worse, Greece is not the only European country in trouble. Spain, Portugal and Italy – Europe’s third strongest economy – are also feared to be on the verge of economic meltdown, according to an article in the Toronto Sun.

With all of this uncertainty magnified by Greece’s impending referendum, many are looking outside of Europe for a solution to the crisis. Many look to China.

It seems like a reasonable option. China’s economy has grown by nine percent each year and currently holds a war chest of $3.2 trillion in foreign exchange reserves, according to BBC Beijing correspondent Damian Grammaticas in a BBC.co.uk article.

Despite some talk in Beijing concerning stepping in to help Portugal, Italy and Greece, China has done little in the way of action. The risks seem to outweigh the potential benefits. China invested less than one billion euro last year, which amounts to about one percent of Europe’s foreign investments, while Europe invests five times as much in China. Germany is the only European country involved in serious trade with China, according to the Grammaticas article, and Germany’s economy is already strong. China is wary, to say the least, to invest in Europe in the middle of an economic crisis.

“China can neither take up the role as savior to the Europeans, nor provide a ‘cure’ for the European malaise,” The state-run Xinhua news agency said.

The fact that China is truly being considered, even propositioned, to buy out Europe’s debt indicates that it may be time for Europe’s leaders to step back and evaluate the current state of the European Union.

If Europe’s southern periphery drops their use of the euro, banks across the world could take a major hit. Greece went on a virtual spending spree when it adopted the euro and the bailout it accepted only tightened the chains on its spending to the point where the fiscal blood supply of its people was cut off. Any solution to this crisis must be agreed upon by 17 different European governments and ratified by 17 parliaments, an incredibly sluggish process. Perhaps the economy must weather the storm, rather than defer to a repressive communist giant.