The World Is Flat: Outsourcing the Eurozone Crisis
Seth, Divya, Harvard International Review
With every passing week, the state of the Eurozone crisis grows more and more desperate. Recent discussions converged on the establishment of a three-pronged attack on the debt crisis: the acceptance of a fifty percent loss by banks holding Greek debt, a requirement for banks to raise capital to protect against future losses, and most importantly, increasing the monetary value of the Eurozone bailout fund to one trillion Euros. While the agreement bolstered the belief of many shareholders in the capacity of the European Union and associated parties to manage the crisis, it also raised questions regarding the acquisition of funds. Rumor has it that the Eurozone is sending emergency flares into the sky, hoping to catch the attention of emerging world powers. Will the BRIGS (Brazil, Russia, India, China, South Africa) come to the rescue of the PIGS (Portugal, Italy, Greece, Spain)?
Since its founding in 1992, the Euro has yet to face a monster as combustible as the current debt crisis. Greece adopted the Euro in 2002, and itwasnotuntil 2008 that the European Union used funds to stimulate the region's economy, following the global financial crisis. It was in 2009 that the economic situation in the European region became serious. European Union requirements state that member nations that use the Euro must restrict their deficits to three percent of GDP. As early as April 2009, the European Union charged France, Spain, the Irish Republic, and Greece to work towards reducing their budget deficits. According to the Report on Greek Government Deficit and Debt Statistics by the European Commission, a deficit of five percent of GDP was reported in April 2009; however, information emerged that there had been weaknesses in the calculation of this number due to modification of the data, and by October 2009, the "true" Greek deficit was released at 7.7 percent of GDP. At the same time, public outrage over government spending and corruption ousted the Greek government, and swept the Socialist party (led by George Papandreou) into power amidst promises of economic reform and control. Just two months later, Greece announced that its debt had reached a fat three hundred billion Euros.
The year 2010 featured a series of hair-raising debt figures from a range of European nations. In response to austerity measures designed to reign in their burgeoning debt, Greeks in Athens and other Greek cosmopolitan centers flooded the streets, protesting measures such as a one-third increase in excise taxes on fuel and an increase in the retirement age to sixty-five years of age. Amidst repeated claims by Papandreou that Greece was not in need of a bailout, it grew apparent that emergency loans and safety nets alone would not be able to catch the plummeting Greek economy. In response, the European Union, in partnership with the IMF, agreed on 110 billion Euro bailout of Greece, and a smaller, 85 billion Euro bailout of the Irish Republic.
In early 2011, the European Stability Mechanism was established, a permanent bailout fund worth about 500 billion Euros. The establishment of the mechanism is meant to quarantine decaying economies from infecting other Eurozone economies. Early after its inception, the fund was to bailout Portugal and also provided a second bailout to Greece. In September, the frazzled "troika"- the name given to the triumvirate of the European Commission, European Central Bank, and the IMF - convened to discuss the logistics of appropriating further bailout funds to Greece and dismissed the growing fear that Greece would become the first nation forced to leave the European Union. Yet even as the next batch of bailout funds was delivered to Greece in October, there was a fearful understanding that this would ultimately not resolve the sovereign debt crisis. President of the European Commission, Jose Manuel Barroso summed up the struggles and the seriousness of the matter in his passionate declaration that "this is going to be a baptism of fire for a whole generation. …