Middle-east Arab News Opinion | Asharq Al-awsat

The Euro…Fire Under the Ashes - ASHARQ AL-AWSAT English Archive
Select Page

For weeks now, the EU states and the states of the so-called Eurozone in particular have been facing a Greek drama that has shaken the Euro currency and has caused its value to decline vis-à-vis the US Dollar. Moreover, it has raised fears of the possibility of a European financial crisis. The gravity of the situation increased as the Greek financial and economic crisis shed light on other crises facing the Spanish and Portuguese economies, and perhaps also the Italian and Irish economies.

This crisis comes at a time when there are discussions all over the world and in the Gulf States in particular, about pegging [currencies] to the US Dollar, and in these discussions there were raised voices calling on [countries] to turn towards other currencies such as the Euro. The outcome of the experience that the Euro is facing in light of the Greek financial crisis and the way it is overcome will have direct implications on the current discussion about which of the international currencies people will turn to in the future, especially after the reputation of the US Dollar has been shaken due to the financial and economic crisis and the major US budget deficit, the [financial] obligations and pressures resulting from US military operations abroad from Iraq to Afghanistan and the repercussions of this on the US economy, and the emergence of China and India as key economic competitors.

There are real fears in today’s financial markets of the possibility that the Greek crisis will turn into a bigger one that will shake Europe and the Euro and impact the international economy that is still on the road to recovery from the effects of the [global] financial and economic crisis. Despite that the leaders of the Eurozone countries are fighting to contain the Greek crisis and prevent it from spreading to other countries, especially Spain and Portugal that are already facing similar problems to Greece, there is popular opposition, especially in Germany, to offering any financial aid to help Greece out of its crisis, based on the consideration that this might pave the way for requests from other European countries asking for urgent financial aid to help them fight their crises. An opinion poll published last week indicated that 71 percent of Germans are against offering financial donations to Greece to help it face its crisis, as German voters believe that their country is still recovering from the effects of the global financial and economic crisis and that giving financial aid to “southern European” countries will subject the German economy to a catastrophe that will hinder its recovery.

One of the attempts to reassure the international markets regarding the Euro’s situation and to not worry the people came from the European leadership [that issued] a vague text with the message that the European leaders are prepared to take “determined and coordinated measures” to protect the financial stability of the Eurozone states if need be. However this text failed to convince the financial markets, as the Euro witnessed a further decline in comparison to other major currencies, in particular the US Dollar. The Greek drama continued to unfold, which made the Greek Prime Minister George Papandreou make angry comments in which he criticised what he called a European lack of coordination and said that his country has become like “a guinea pig in a battle between Europe and the international financial markets.”

The reality of the situation is that Greece took actions that weakened its position and shook its credibility, as over approximately ten years it continued to present incorrect numbers and statistics about its economy in an attempt to conceal the magnitude of its debt and its budget deficit in order to delude the voters on the inside and avoid any foreign pressure from its partners because the European Union stipulates that member states must keep their budgetary deficit under 3 percent of the GDP. When the crisis erupted it came to light that Greece’s financial budgetary deficit was four times the EU limit and that public debt is over 300 billion Euros and that Greece may not be able to repay its debts. Even though nobody expects that Greece will go bankrupt like Iceland (because the Eurozone will not allow this to happen) the crisis could escalate in the coming weeks as the Euro will face bigger challenges. It is unlikely that the Greek drama will remain confined to Greece alone; Spain and Portugal might also become part of this volatile scene, which means that Europe and in fact the entire international economy, is at risk of another shock that will make the Euro lose an important round to the US Dollar in the current debate as to which international currency will dominate in the foreseeable future.

Osman Mirghani

Osman Mirghani

Osman Mirghani is Asharq Al-Awsat's former deputy editor and senior editor-at-large.

More Posts