Eurozone crisis: voters rebel against bailouts

Could the European Union end up as a club with two sorts of membership: one for the richer countries and one for the poor?

'It's going to end in tears. Two tiers.'

This is the joke doing the rounds in Brussels, home of the European Union bureaucracy. Not only is this joke not very funny. It refers to a very serious problem – a debt crisis that is making economic and political waves across Europe and could force a redesign of the EU.

Rich nations in the EU are in rebellion against bailing out the indebted ones, threatening a move to a 'two-tier' or 'two-speed' Europe, with an elite group of rich nations on one side, using the Euro, and the others reduced to secondary status.

When the Euro was set up in 1999, there were strict rules about which economies could join: only low-debt, low-deficit and low-inflation nations, with interest rates close to the EU average. 11 countries became founder members, but only after some fudging of the rules because they were unrealistic even in boom times.

And here's the problem: since the banking crash of 2008 and the worldwide recession that followed it, some countries in Europe have been crippled by massive debt levels and huge deficits: in first Greece, then Ireland and now Portugal, there has been a desperate attempt to stop the entire nation going bust, with radical spending cuts, tax rises and an infusion of money from the rest of the EU.

Ever since, a political row has been brewing. The richer nations, mainly Germany and France – or rather their voters – have become deeply unhappy about the bailouts.

Why should we pay for the excessive borrowing of smaller, less robust economies, they ask?

The crisis has made the fundamental differences between the stronger and weaker economies more obvious, and could even pull the Eurozone apart – hence the 'two-tier' joke.

Continental shift?
This week the problem for the indebted 'peripheral' countries became even worse, as the international ratings agencies (which rank nations and corporations for creditworthiness) downgraded Portugal and Greece again.

This makes it much more expensive – ruinously so – for them to borrow money. Which they have to do in order to pay interest on their existing debts. And so the vicious circle continues…

Meanwhile, voters in an important region of Germany punished the party of Angela Merkel, Germany's current political leader, for her role in the bailouts, booting out her CDU party for the first time in 58 years.

So political pressure from ordinary citizens in the richer half of Europe, combined with the worst economic crisis since the 1930s, could bring decades of EU integration to an end.

You Decide

  1. Should the UK join the European single currency?
  2. During the boom, the banks lent too much to governments and to consumers. When some of them went bust in 2008, they were nationalised, making government debts even worse. Why did governments decide to rescue the banks?

Activities

  1. Can you name all 17 countries in the Eurozone? Which EU countries remain outside the Eurozone? And which other European countries also use the single currency but are outside the EU?
  2. Imagine you are a German opposition politician: would you attack Angela Merkel's government for giving more and more money for EU bailouts? Or stand up for the European ideal?

Some People Say...

“Europe should really be just one country.”

What do you think?

Q & A

Wait a minute, you're telling me Ireland has practically gone bust?
That's right. And it's still making news headlines because the debts get worse all the time. Portugal has more recently hit the skids, and Greece, the first country to look as if it might become uncreditworthy, is not yet out of danger. Spain has so far just escaped what is known as 'contagion'.
Are these the 'peripheral' countries?
Yes. It can sound a bit rude and dismissive, but actually it's more of a geographical description.
How did we get into this mess?
Yoking most of the nations of Europe into adopting a single currency, the Euro, is the most ambitious European project since the formation of the European Community at the end of the 1960s. Some argue it was flawed from the start. Others say the latest financial crisis has opened up this dividing line – and blame the banks.

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