It is easy to overlook the financial crisis rocking Europe. To let it be eclipsed by other seemingly more pressing crises, such as the devastating weather striking the United States, the food crisis and the rocketing price of oil, the quake and nuclear crisis in Japan, or the violent and transformative uprisings that have swept through North Africa and the Middle East.
This would be a mistake.
Ultimately, Europe’s financial crisis will revolutionize Europe—and even the world!
It was almost exactly 12 months ago that Greece—laden with debt, its economy seizing—accepted a €110 billion bailout from the European Union. Led by EU heavyweight Germany, Greece’s European counterparts hoped the bailout would help Athens pay its bills, kick-start the economy and restore investor confidence in Greece. Most importantly, Europe’s leaders hoped to prevent the crisis from spreading to other heavily indebted eurozone economies. Within months, those hopes were dashed. Since May 2010, both Ireland and Portugal have been given bailouts, while other countries, including Spain, remain precarious.
On May 6, it became obvious that Europe’s financial crisis was nearing boiling point, again.
Once more the crisis centered on Greece. On April 27, the EU’s statistics agency, Eurostat, reported that Greece’s (Portugal’s too) 2010 budget deficit was higher than it had projected. Despite the 2010 bailout, and a host of austerity measures, Greece’s debt was actually mounting. As a percentage of gross domestic product, government debt is now at 140 percent. Meanwhile, the economy continues to contract, making it impossible to raise money by increasing taxes. With its economy in dire straits, Greece began to have trouble raising money on the global bond market, which compounded the problem further. Last week, interest on a 10-year government bond reached 16 percent. On Monday, ratings agency Standard & Poor’s downgraded the nation’s debt to “B”—two notches below junk status.
Long story short, the reality crystallized last week that despite last year’s bailout, Greece cannot pay its bills, and is on course for bankruptcy!
Greece’s problems have created quite the conundrum for Europe. As data emerged revealing the severity of Greece’s condition, Europe’s leaders knew that across the world investors would ask the obvious questions: If Greece defaults despite receiving help from the EU, is it possible the bailouts won’t work for Ireland and Portugal? If the bailouts aren’t working, then is the eurozone even a safe investment? Beyond the loss of investor confidence, a Greek default would come with tremendous economic cost to many European banks and governments, which have hundreds of billions tied up in Greece.
There’s also the political fallout should Greece default. Europe’s leaders know that Greece is Europe. In the eyes of the world, including the investors that finance European economies by purchasing European bonds, Athens is part of a larger political—and financial—union: the European Union. Should Greece default, it would call into question the economic and political viability of the entire EU. After all, what good is European unification if member states are allowed to go bankrupt?
Last Friday, we got a glimpse at how dire the situation has become.
Late in the day, Germany’s Der Spiegel, citing sources within the German government, reported that Greece was considering dumping the euro and exiting the eurozone. According to a source within the German government, Greece’s exit was to be the topic of discussion at a secret emergency meeting of European Commission leaders in Luxembourg last Friday night.
The article set off alarm bells around the world. Greek leaders immediately rejected the report, saying Greece had no intention of dumping the euro and leaving the eurozone. In Brussels, Guy Schuller, the spokesman for Jean-Claude Juncker, the man who presides over meetings between eurozone finance ministers, told reporters: “I totally deny that there is a meeting, these reports are totally wrong.”
Turns out, Schuller was lying.
He later admitted that he was told to say there was no meeting. We had “very good reason to lie,” he said. “We had Wall Street open at that point.” As it turns out, European officials not only met in a secret meeting last Friday, but this meeting was merely the latest of several emergency meetings. Of course, officials denied that they discussed Greece’s exit from the eurozone at the meeting. But after their earlier lie, who can trust them?
The mystery and deceit surrounding last Friday’s events ignited rage across Europe. Juncker—who has been quoted as saying, “When the going gets tough, you have to lie”—was labeled a “master of lies” by Austria’s Der Standard. Inside Germany, where resentment toward Greece is at an all-time high, tempers are hot. “Seldom have we seen politicians acting as irresponsibly as they did on Friday evening,” wrote the Süddeutsche Zeitung: “In Berlin, Brussels, Paris, Rome and Luxembourg, officials were silent, deceptive or just plain lied.”
Across Europe, people’s confidence in European leaders has been shaken. “Within a matter of hours [last Friday],” Germany’s Süddeutsche Zeitung continued, “the governments of the euro countries managed to fritter away the last remaining trust the people of Europe still have in the bailout action.” Many are now seriously questioning whether or not their leaders have the financial crisis under control. “Any reasonably interested European will now be asking, in astonishment or anger, just how dramatic the situation really is in Greece. Is the country on the verge of bankruptcy despite all the aid and statements to the contrary?”
Although we still don’t know if Germany has manufactured a way to push Greece from the eurozone, last Friday’s dramatic revelation reveals how extremely dire Greece’s financial crisis is. That some European officials even seem to be talking about the idea is noteworthy. In the short term, it appears Europe’s leaders will simply give Greece another bailout. The problem with this option, however, is that it will not solve the problem and will only kick the can down the road. Another option being discussed, especially by Germany, is the restructuring of Greece’s debt, which essentially means allowing Greece to default on some of its debts.
Whatever route this crisis takes, one thing is obvious: Europe’s financial problems have gotten worse, and this is forcing Europe, led by Germany, to consider increasingly dramatic solutions!
On Monday, Ian Traynor explored Germany’s central role in the ongoing eurozone crisis. In his article on guardian.co.uk, Traynor speculated that rumors of a Greek default or Greece quitting the eurozone were being spread by Germany to get Europe ready for a radical change. For weeks, he wrote, “top German officials have been leaking discreetly, planting controversial ideas in the public sphere only for the government to row back when the media went berserk.” He’s right: German politicians have been at the vanguard of the effort to impose harsh measures on Greece.
Watch Germany closely—whatever the solution eventually imposed on Greece, it will be created by Germany!
With Greece and the eurozone once again in the headlines, now is a good time to read editor in chief Gerald Flurry’s article “A Monumental Moment in European History!” from the February issue of the Trumpet. In it, Mr. Flurry warned us: “What is happening in Europe is not merely a game-changer—it’s a world changer!”
In the article, Mr. Flurry made statements that are truly electrifying in the context of what we are now seeing in Europe:
Watch closely. Germany will use this crisis to force Europe to unite more tightly. In the process, some eurozone countries will be forced out of the union. When that happens, the pundits will say European unification is dead, that the European Union has failed. Don’t listen to them!
More than likely, Europe’s financial crisis will get much worse. As this happens, and as some European nations potentially fall by the wayside, we should expect to hear many people announcing the end of the EU and the dream of European unification. When you hear these words, remember Mr. Flurry’s words: “Every country that leaves the EU puts us one step closer to seeing the German-led 10-nation European superstate.” ▪