The drama in London this week meant that the Euro-zone crisis received relatively little coverage or commentary. It's big news – and what happens next could be even bigger.

Kept at home by an annoying flu, I spent much of this week following the live coverage of the British election and its fall-out.

For a considerable length of time, I stared at the front door of 10 Downing Street, as the BBC waited for Gordon Brown to emerge for the second of his resignation speeches. Every minute, the Guardian's brilliant live-blog would update automatically with the latest news on who had been spotted wearing a purple tie, sightings of moving vans outside the back of Gordon Brown's, or prognostications from psephologists.

The wall-to-wall coverage was fascinating and fun. But the London drama meant that the Euro-zone crisis received relatively little coverage or commentary in English language media. The crisis and stunning rescue plan are huge news, and it's still far from clear what will happen next.

Among its other merits – most notably creating a ‘single market' – the adoption of the Euro was supposed to offer a form of protection for weaker countries. Individual currencies could easily be buffeted around, but packaged together, the Euro would stand firm.

This seemed to be the market sentiment even when the financial turmoil started back in 2007. But now the Euro is far from stable, and even after a massive rescue package was announced, there still seems to be a real possibility that the currency could end up broken apart.

It all came about because Greece's debt crisis seemed to provide a wake-up for the markets. All of a sudden, they realised that the problems of Greece – or other Euro nations laden with debt – could spread. The Euro fell sharply, and continued to do so while Germany dithered over bailing out Greece.

As a result, it certainly seems unlikely that the Euro-zone will expand in the near-future. Countries that the Euro-zone might want to join up won't have a bar of it. Nations that it is not so sure about – like, for instance, Poland – must be balking at the experience of near-bankrupt Greece and its bail-out.

Greece was forced to agree to harsh cutbacks in order to receive its bail-out package - tougher conditions than those that non-Euro currency states Hungary and Romania had to agree to in order to get IMF bail-outs. Crucially, as part of the Euro, Greece can't just let its own currency drop, like Hungary and Romania could, but instead faces years of austerity measures, along with interest that is considered high for a bail-out repayment.

Little wonder that Poland has suddenly decided that adopting the Euro is no longer a "priority", and is something that it can "come back to... later".

Then there's Estonia, which would still rather like to join up -- but is finding that the big players of Europe have been spooked by their experiences with Greece and would rather it just went away.

The massive 750bn Euro currency protection plan announced this week is a staggeringly bold way to prop up the Euro, in part by trying to scare off currency speculators who had been making the whole situation worse.

But in the longer-term, the main proposal being talked about to protect the euro from collapsing hardly seems like a winner. European Commissioner Olli Rehn is trying to force euro-zone members to grant other members a say in their budgetary planning. The idea of more EU 'supervision' is designed to avoid a recurrence of the problems seen in Greece.

But EU oversight and interference into budget policy and taxation, would cause an uproar in many nations. In France and Italy, the idea has won few friends. (In most nations, it seems to me, the EU is treated as an irrelevant oddity that is tolerated because it is seen to produce little more than amusing speeches that are even better when put to music).

With that option not appearing to be a goer, hopes for the Euro really rest on the ‘deficit countries' – Portugal, Greece, Spain – and on whether their politicians really have the political power to institute the financial discipline at home that they have promised to other EU members. (It's worth noting, as this New York Times interactive map highlights, that Portugal, Greece and Spain are far from the only Euro members with problems with credit and debt).

The promises made at the time of the bail-out have gone a long way toward easing everyone's immediate concerns. But if those promises are not met – and if the EU can't have more oversight into the fiscal policies of member nations – it's still conceivable that the stronger nations could opt for a smaller, more robust currency union.

For now, the leaders of Euro-zone nations are talking confidently. But perhaps it's a good thing for them that we all spent the week staring at the front doorknob of 10 Downing Street, instead of thinking too much about the obstacles they face.

Comments (4)

by Tim Watkin on May 14, 2010
Tim Watkin

I'm prompted to think of the paper-talk a decade ago when I was living in the UK... There was more energy then around the idea that the United States of Europe would emerge; that the nation state was a fading concept; that the EU at one level and the Saxonies and Andalucias at the other extreme would be where decisions would be made and national governments would wither in between. But it seems the independent nation state is a more rugged idea than folk then thought.

And I think I'm kinda happy about that.

Interesting you mention speculators as well, David. Be it property, currency, whatever they are the parasites that take so much and give so little... What can be done about them?

by David Young on May 18, 2010
David Young

The Euro-zone's definitely looking pretty dysfunctional right now, and more so since I wrote this.

'Speculators' get a lot of flak, but I think that sometimes these days the term 'speculation' is used by politicians as a bogey-man, when the correct term might be 'market behavior that isn't favorable to my interests'. We seldom seem to hear that speculation does have some benefits, not just for the speculators.

In regards to your question: if your starting point is that 'speculation' needs to be stopped, I'm not sure there's any obvious way to do that.

One option is a Tobin tax.

Some countries have tried banning certain trades on certain markets.

The Euro-zone put its hopes on the '750 billion Euro Bazooka' described above.

And, most creatively, Hugo Chavez is calling for people to tell use his Twitter account to tell on 'currency speculators' -- in this case, people exchanging currency on the black market online, rather than via what seems to be a very draconian exchange system.

by Tim Watkin on May 19, 2010
Tim Watkin

There's been some talk about regulating currency speculators more strictly, hasn't there? Hmmm... maybe I'm just thinking of the Tobin tax. Gordon Brown was a fan, as is Sarkozy and I think even Merkel.

From memory, Sarkozy has said he'll push the idea - a tax on currency transactions across border, the vast majority of which are speculative - when France chairs the G20 next year. Here's hoping... Just seems to me that the downsides of such speculations out-weigh the positives.

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