SINGLE CURRENCY CRISIS

It was only last year that sceptics were forecasting the imminent collapse of the Eurozone. But then, thanks to unbelievable efforts by the European Union, the European Central Bank and the IMF and the adoption of the rigid anti-crisis programme proposed by Brussels, such a pessimistic outcome was avoided.

To prevent the collapse of the Greek economy, which by that time had become a real headache for the Eurozone, the majority of the EU countries agreed to allocate multi-billions of euros of credit to Athens. But this was not the first and not the only step taken to bail Athens out. In the past two years the EU countries, together with the IMF, have allocated nearly 150bn euros to support Greece. And according to the conditions of the agreement reached between Athens and the EU in March this year, debts of 100bn euros have rescued Greece and the amount of credit allocated has increased to 174bn euros. But at the same time Athens has been given conditions to tighten its budget-finance policy and reduce wages and pensions, as well as jobs, which has sparked an extremely negative reaction from the majority of the Greek population.

At the end of 2011 steps were also taken to ease the situation of EU countries like Ireland, Portugal, Italy and Spain, whose economies were also unable to withstand the challenges of the world financial crisis. At the time the ECB allocated cheap triennial loans to the countries in the Eurozone to the tune of 450bn euros to avoid another crisis of the credit-financial system. As a result of the turmoil caused by the pursuit of the banks in the Eurozone for these cheap (only 1% APR) credits, ultimately their volume amounted to 489bn euros. In the opinion of the initiators of this step, this measure was supposed to help resolve the problem of the credit market and encourage banks to offer credit. But even then most experts were doubtful that such a tactic would ease the crisis of state debts because the banks use the funds to acquire peripheral government bonds in large quantities instead of using credits to buy up the state debts of the Eurozone countries. It should be pointed out that German Chancellor Angela Merkel and the now ex-President of France Nicolas Sarkozy played a key role in forcing through such mechanisms to rescue the problem economies of the Eurozone countries. That is why the jokey nickname "Merkozy" was applied to these two politicians after they urged their EU counterparts to share part of their sovereignty for the sake of further survival and suggested imposing automatic sanctions against countries infringing European rules on budget deficit. This nickname also incorporated the sceptical attitude of the majority of experts to the anti-crisis plans adopted under pressure from the Merkel-Sarkozy tandem. The further development of events for the most part demonstrated the correctness of these experts. According to Eurostat figures, last year the state debt of the Eurozone countries had already reached 87.2% of the overall level of GDP, establishing a record for the time the single European currency has been in force. According to European legislation, the country's state debt should not exceed 60% of GDP. The permanent "leader" in this figure remains Greece, which had a debt of more than one-and-a-half times its own GDP (165.3%).

That is why today again all the efforts of the EU, the ECB and the IMF have been directed first and foremost towards rescuing the Greek economy. The acute problem of the Eurozone was also a subject of serious debate at the summit of G8 leaders in Camp David on 18-19 May this year. The heads of state and government of the G8 again reaffirmed that the main pocket of economic tension now lies in the Eurozone and is linked, first and foremost, with the situation in Greece, which continues to teeter on the brink of bankruptcy. At the same time, it was noted that measures to solve the crisis cannot be the same for each country. Such a statement clearly shows that the leaders of the G8 countries have virtually admitted the failure of the policy advocated for so long by German Chancellor Angela Merkel.

At the initiative of US President Barack Obama, the leading industrially developed countries intend to virtually reject belt-tightening and gamble on incentive, an expansive economic policy, economic growth and creating new jobs. The financial basis of this policy, first and foremost, should be the issuing of new European debt securities (Eurobonds), which is rigorously opposed by official Berlin.

In Washington they believe that this is the policy that will prevent Greece withdrawing from the Eurozone, followed by other countries who have faced serious economic problems and who do not approve the measures of rigid belt-tightening imposed on them mainly by Germany. At the same time, Washington, which is in favour of preserving the Eurozone and the EU, stated clearly that the Eurozone countries should not count on financial support from the US, whose economy is also going through difficult times. 

It is important to note that at Camp David the new French president, Francois Hollande, who came to power on a wave of broad dissatisfaction of economic policy, came out in the role of an ally of Barack Obama, who had proposed a new economic policy to rescue the Eurozone. And this means that Angela Merkel, who up to now has succeeded in forcing through her own plan for economic recovery, is being deprived of support from Paris, which until recently has been her loyal and strong ally. In other words, Berlin will henceforth have to defend its plan to solve the difficult situation in the Eurozone on its own. This was confirmed during the unofficial summit of heads of EU states and governments, held in Brussels on 23 May, which was a rehearsal for the forthcoming full-scale summit in June. Before the summit Francois Hollande ostentatiously held consultations with his leading ally Spanish Prime Minister Mariano Rajoy. At the summit Hollande and Merkel once again reaffirmed their different ideas of how to solve the problem. Although during the debate a short statement was compiled saying that the EU countries would like Greece to remain in the Eurozone and were prepared to support her, providing it fulfilled its commitments within the framework of the rigorous belt-tightening dictated by the EU, the ECB and the IMF. The French president was basically successful in bringing together a large group of leaders of EU countries calling for the introduction of the Eurobond. Rome and Madrid vigorously support the idea of issuing joint Eurobonds. Although Merkel, as before, rejects this idea, representatives of the German federal government do not rule something similar at the end of the anti-crisis process. 

The situation is being made even more complicated by the domestic political situation in Greece. The results of the parliamentary elections in Greece, which were held on 6 May, demonstrated the serious differences in Greek society. Only the coalition parties (ND and PASOK), which got into parliament, support the agreements with the creditors from the EU and the IMF. All the other parties, especially SYRIZA (Coalition of the Radical Left), which overcame the 3% barrier, are opposed to these agreements. All the consultations between Greek President Karolos Papoulias and the leaders of the three main parliamentary political parties to form a government have collapsed. Ultimately, a caretaker "technical" government, headed by Panagiotis Pikramenos, who was formerly chairman of the Greek State Council (the supreme administrative court) was formed. The present cabinet of ministers will operate until new parliamentary elections set for 17 June and will be seriously restricted in its powers. Among other things, ministers will not be able to adopt important political decisions without the consent of the party leaders. And its main purpose will be to prepare for repeat parliamentary elections.

Faced with this situation most experts doubt that Greece will be able to fulfil its commitments to international creditors to reduce the budget deficit and that it will be able to remain in the Eurozone. In the opinion of investors, this uncertainty is inherent in the election of a left-wing parliament which refuses to tighten its budget policy. Nevertheless, according to opinion polls taken in the second half of May, SYRIZA, which is against foreign help on draconian conditions, may get support from 28% of the electorate. Bearing in mind that the small parties are also showing solidarity with it, the chances of SYRIZA forming its own coalition are being sharply increased.

The European Union has already warned that a rejection of belt-tightening measures will virtually mean Greece's exclusion from the Eurozone, which its rescuers no longer believe to be a disaster. In the opinion of German Finance Minister Wolfgang Schaeuble, Greece's withdrawal from the currency union will not lead to the collapse of the euro. Patrick Honohan, a member of the ECB Council of Management from Ireland, and Olli Rehn, European Commissioner for Economic and Financial Affairs, also agree with him.

Meanwhile, there are signs of preparations behind the scenes for Greece's possible withdrawal from the euro. In particular, a powerful German financial institution is putting forward the idea of introducing a second currency parallel with the euro - the "geuro" - should opponents of the EU programme triumph at the elections on 17 June. These would be Greek government promissory notes but they could be sold and put in circulation. German bank officials believe that the "geuro", which is devalued against European currency, would strengthen Athens' budget policy. For his part, the leading American economist Nouriel Roubini believes that Greece either this or next year will have to declare a default and withdraw from the Eurozone, although this will cost Europe almost 300bn euros. He claims that Greece cannot break out of the vicious circle of financial insolvency, low competitiveness, external accounts deficit and deepening recession. And tough economic measures merely make the crisis worse. The Greek economy's competitiveness must be restored if it is to have the chance of settling its debts and competitiveness can only be strengthened if the euro is devalued. But Germany, which has a strong economy, and the ECB will not permit this. Therefore, the only solution is default and withdrawal from the euro.

But the problem is that Greece's voluntary withdrawal or its being forced out of the Eurozone is not a panacea for the economic crisis which has swept the countries of the single European currency. This move could have a "domino" effect. Today, there at least another four countries (Italy, Spain, Portugal and Ireland) which are experiencing serious difficulties. Measures are already being taken to rescue Portugal and Ireland, and Spain has turned to a session of the European group for similar help. But there are not enough resources to rescue everyone, especially as the most economically powerful and prosperous country - Germany - has an ambiguous attitude to rescue measures.

A new book by Thilo Sarrazin, a former member of the board of directors of the Bundesbank, about Angela Merkel's policy to rescue the Eurozone, recently went on sale in Germany. In his controversial book entitled "Europe Doesn't Need the Euro", the author claims that the initial reason for Germany's aid to the European countries was a sense of guilt for what the Nazis did: "In its actions to support the euro Berlin is guided by an opinion popular in Germany that we will be able to atone for our guilt for the Holocaust and the Second World War only when all our interests are devoted to the people of Europe and all our money ends up in their hands."

In his opinion, Germany has become a hostage to all those in the Eurozone who in the future may need help. Countries that are experiencing financial difficulties should not be helped. They should be excluded from the Eurozone and all the other members of the association should be given the freedom to determine their own monetary policy. This book, which virtually calls for the collapse of the Eurozone, caused an acutely negative reaction from existing and former representatives of the German authorities. And most probably because for them the single European currency space is more politically than economically motivated.

Over the last 10-15 years Germany has scrupulously, step by step, strengthened not only its economic but also its political influence in Europe. Although some European bureaucrats and experts claim that Greece's withdrawal from the Eurozone is not a disaster, the leading Azerbaijani geo-politician Ogtay Aliyev holds a diametrically opposite view. He claims that such a dangerous precedent could lead to the collapse of the Eurozone, which would ultimately seriously endanger the very preservation of the EU. Because without common economic interests and a single financial system and currency, a long-term political alliance between the states is impossible. That is precisely why the US is categorically opposed to Greece's or any other country's withdrawal from the Eurozone. Although to avert such a sad scenario they are proposing a quite different prescription to that offered by German Chancellor Angela Merkel.