Eurozone Writes Off Greece, Focuses on Spain

In an effort to keep Greece from becoming the first major crack in what could become a Eurozone breakup, all attention has shifted to securing Spain’s economy as the looming Greek vote on June 17 casts a shadow on the 12-year-old monetary union.

The G7 group of industrialized nations announced yesterday that emergency talks on the crisis would commence today. After worldwide market losses that included the wiping away of all of the DOW Industrial’s 2012 gains, Japan’s Nikkei Index rebounded on the news of possible intervention, but leaders were quick to point out that a meeting is not action.

Meanwhile, India announced that it has prepared contingency plans for Greece’s departure from the Eurozone, as well as a complete collapse of the monetary union. As the third-largest Asian economy, the majority of Indian exports are sold in Europe, making preparation for a transcontinental catastrophe that much more important.

In a report in the Time of India today, one senior government official said the finance ministry and central bank were prepared to take monetary and fiscal measures, if necessary, in an attempt to insulate India from the shockwaves of a Eurozone collapse. This might include lowering interest rates, which are among the highest in the world, and lowering the amount of money that banks have to keep on deposit in the central bank.

Spain’s leaders are especially concerned, as no solid action has been taken to stymie a possible economic collapse caused by what some are terming a “bank run,” with tens of billions of Euros having already been shifted to Germany. And without ceding some sovereign power over budgetary matters, Germany, the Eurozone pay master, has insisted its banks will not provide assistance to Spain.

In fact, according to a report in Reuters today, Berlin is pressing many reluctant Eurozone partners, including close ally France, to agree to give up more fiscal sovereignty under a closer European fiscal union. If successful, some believe it could lead to a new German economic empire.

In a Reuters opinion piece, Felix Salmon explained a theory being purveyed that optimistically gives Europe three months to pull together a comprehensive package to save the monetary union—a package that is just as economically necessary for Germany as it is for Spain.

According to the theory, because of the mood in Berlin, Germany is likely to do what is necessary to preserve the euro—but nothing more. That would result in a Eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired people’s imagination, morphing it essentially into a German empire with the periphery as the hinterland.

And this is what many Greeks see as the two choices they have in the upcoming elections: maintain sovereign power but suffer further economic hardship by rejecting the European Union and moving back to the Drachma, or trade sovereign power for some economic security under the terms doled out by Berlin.

Greece certainly played a role in creating its current situation, as the government misstated its economic position to enter the union and gain access to cheap euros. But with their backs against the wall, a strong nationalist movement has erupted in the nation that was once the birthplace of Western civilization and democracy.

All of this, of course, comes as Europe in general deals with 11-percent unemployment and a growing tide of public unrest and as worldwide economic indicators slow. Some economists believe this could be the beginning of another recession. One hedge fund manager, John Burbank, is even betting on it.

“What was government stimulus is giving way to austerity, because balance sheets are now swollen with debt,” Burbank said today in a Bloomberg report. “We have reached the end of what governments can do. They ran up so much in deficits with so little to show from it. It won’t be repeated. What happens the next three years is highly deflationary, we are stuck with even more debt, a bigger slowdown and we didn’t fix anything.”

This fear of a larger, additional worldwide recession has already begun to sink in as investors sought shelter for their money away from markets. However, no one will know exactly what the effects might be until there are resolutions in Spain and Greece.


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Posted in Economy.