The original idea behind the creation of the Eurozone some ten years ago was to help cement the bond between member nations not just economically but politically too. And although the concept has met with a measure of success, particularly as far as doing away with foreign currency exchanges goes, it must be said that the euro has created cracks in the infrastructure of the European economy. European debts have dragged in all those countries in the EC and beyond, not just those within the Eurozone. The situation with Greece has brought that home in a big way. The woes of the Greek debt situation may be just the tip of the iceberg, as others countries such as Portugal, Italy, Spain and Ireland may need to ask for assistance from the International Monetary Fund (IMF) as well as loans from their European neighbors. In theory, having one central European Bank, one interest rate, and one currency – the Euro – would bring about more unity and give strength to those involved in it, as this Superstate would reflect the situation in the US, where a federal government would oversee the various states. But, even though the individual states within the US have their own tax raising powers, and the Federal reserve determines the bank interest rate for the whole country, that is where the similarity ends. The problem is that the national differences are what makes the concept of one economy in Europe an impossible dream. Whereas at one time governments would have the ability to put up interest rates to tackle inflation, traditionally one of their first lines of attack, those in the Eurozone can no longer do that. Individual nations come under the interest rate decided by the European bank. The trouble is the “one size fits all” system doesn’t work in this case. European governments have put so much money into their own economies to prop up the banks and kickstart their recoveries that there is precious little left in the pot. One of the key means to resolving the debt problems is for governments to reducing outgoings which often brings resentment from their citizens. There is so much fear and resentment in Germany that they are being asked to take on the major burden of rescuing Greece. If Greek government bonds collapse then it would badly hit banks in other countries in Europe, and the results could be catastrophic. With debts in the $trillions even the IMF wouldn’t be able to prop up the economies of the worst of the nations, among which could possibly even include the UK.
