Europe: Currency crisis threatens the continent

“The stench of death” hangs around the euro, said Alan Fisher in AlJazeera.net. Just two weeks ago, leaders of the eurozone, the countries that use the euro common currency, “were patting themselves on the back” for creating the European Financial Stability Facility, a mechanism to help countries that find borrowing on the open markets too expensive. But now Italy is in trouble, and that fund “simply is not big enough” to bail out the world’s eighth-largest economy. This week, the European Central Bank announced that it would buy up some of the debts of struggling countries like Italy—and even that desperate act comes against the wishes of Germany.

“Europe may no longer be able to save itself,” said Robert J. Samuelson in The Washington Post. Too many eurozone countries are in too much debt. The standard prescription for overextended countries is austerity, a blend of spending cuts and tax increases. That can work for one or two countries, such as Greece and Ireland. But if most of Europe takes that route, growth will slow and a vicious cycle will emerge: Lower tax revenues make it harder to service debt, leading to higher interest rates and ever higher debt. Worse, such measures could lead to widespread social unrest. “This is the monster now stalking Europe.”

Eurozone governments “have a simple but painful choice to make,” said Bill Emmott in the London Times. Either they “take the tough-love route” and simply kick defaulters out of the currency union, or they “decide that in a common currency countries have to take collective responsibility for government debts issued in that currency.” That would mean issuing collectively guaranteed eurozone bonds and swapping them for increasingly suspect Greek, Irish, Portuguese, Spanish, and Italian bonds. Of course, that would leave German taxpayers underwriting the profligacy of Greeks and Italians—a tough sell in Germany.

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Something has to give, said Dirk Hoeren in the Berlin Bild. What we’re doing now, having the European Central Bank buy up the “junk bonds” of indebted eurozone countries, is completely backwards. The ECB was supposed to safeguard the euro’s stability; instead, it is safeguarding the survival of individual euro states that made bad decisions. “This can’t go on much longer!” No, it can’t, said the German Der Spiegel in an editorial. The central bank will eventually “lose its credibility” if it keeps buying bad debt. And “the longer the Western debt crises smolder on, the darker the outlook for the global economy.” As investors flee dollars and euros, other currencies, such as the Swiss franc and the Brazilian real, also suffer, because they have appreciated so much that exporters in those countries can’t sell their goods. “And so the world is at risk of sliding into a downward spiral.”