Euro paean? An exalted currency
Italy's newly-appointed prime minister says it is too early to determine how his country will cope with more anti-crisis measures, but is warning people to prepare for sacrifices.
Some parties want Mario Monti to depart once economic reforms are passed. But the former EU chief says leaving early would undermine market confidence, and wants to stay until the next scheduled election in 2013.
Meanwhile, the clock is ticking for Greece, with the new prime minister heading up a 15-week coalition.
Lucas Papademos faces a confidence vote on Wednesday, and says securing the next bailout is the priority and that his country must stick with the euro.
It was supposed to bring peace and prosperity for all, and for a while it did, but now the euro is costing people their jobs, their pensions and even their democratic rights.
From the beginning the flaws were there for everyone to see. The skeptics said economies of the likes of Italy and Greece were just too different from Germany and Finland to be regulated by one system.
But optimism and idealism carried the day and a new currency was born.
It was strong and stable and was regulated in ways a German central banker might approve.
But therein lay the seeds of the problem. Greece, Italy, Portugal and Spain now had their hands on a strong currency and could borrow against it. And unlike before the interest rates they would have to pay would be much less, so they could borrow much more.
Which is what they did.
Italy currently has a debt-to-GDP ratio of around 125 per cent. Greece’s is more than 160 per cent. That is a bit like someone with an income of $20,000 owing $32,000 on their credit card. They will go bankrupt. The banks will not lend them any more money, the flat screen TV will be repossessed and it will be a diet of cabbage and potatoes. In the worst case the house will go.
It is similar for a country, but instead, public sector pay is cut and thousands are forced out of their jobs.
Before the euro, Greece and Italy always had the possibility of devaluing their currency when times were bad. This had the effect of lowering total debt and of conferring a competitive advantage as products, services and labor become cheaper and this stimulated economic growth. It also made people poorer as the money in their pockets was worth less. But crucially, it did not result in mass redundancies, especially not imposed by a foreign power.
Under a hard currency like the euro, this option is no longer available to the indebted nations. So instead they must cut, and because they remain uncompetitive they cannot grow – the worst of both worlds.