The European Union (EU) is now in a full-scale panic over how to arrange financial bailouts for its least capable members. Yet few officials within the 27-nation federation have pondered the possibility that the best arrangement may be no bailout – and no EU as well. The recent experience of Iceland, which isn’t a member (yet), could serve as a lesson for both Europe and the U.S.
One need only pick up a newspaper – almost any will do – to realize that financial conditions in Europe, our principal ancestral continent, are approaching a breaking point. The clearest manifestation of collapse is riot-torn Greece, on the cusp of secession (or expulsion) from the EU. Not far behind are Ireland, Italy, Portugal and Spain.
Germany, the de facto leader of the Brussels-based European Union, and especially its 17 countries using the euro currency (i.e., the “eurozone”), is an increasingly reluctant paymaster. Most Germans, led by Chancellor Angela Merkel, deeply resent being pressed into service as the ultimate backstop for troubled EU countries, only to be cast in the role of villain by those countries for insisting on fiscal austerity as a prerequisite for receiving aid. Germany argues, and rightly, that austerity is the price one should pay for forbearance of uncollectible loans. Yet paradoxically, European leaders, with few exceptions, want to continue the sorts of policies that have prompted austerity measures; witness the recent presidential election in France of avowed socialist Francois Hollande, sworn in this week, over the incumbent and more EU-friendly Nikolas Sarkozy.
The casualties are mounting. Last summer, German officials expressed fear that they might not be unable to rescue the Italian economy, even given a hypothetical tripling of a 440 billion-euro loan guarantee fund, the European Financial Stability Facility, created in 2010 as part of a larger 750 billion-euro (at present, 1 euro = $1.2707) package to stave off collapse among eurozone nations; the other 310 billion euro consisted of a new separate entity, the European Financial Stabilization Mechanism (60 billion euro), and an additional International Monetary Fund (IMF) pool of funds (250 billion euro). A combined roughly 165 billion euro already has been spent on bailouts for Ireland and Portugal. That doesn’t leave over much for Italy, whose public debt of 1.8 trillion euro represents about 120 percent of its Gross Domestic Product. Nor does it leave over much for Spain, where the unemployment rate reached 24.1 percent this March during which time the eurozone average was 10.9 percent.
Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Townhall.com Gold Partner organization dedicated to promoting ethics in American public life.
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