No, the real problem is Italy. There’s virtually no way to save this bloated economy if it runs into its own imminent debt crisis; Italy is the eurozone’s third-largest economy, and even frugal Germany couldn’t ride in to save the day in this case. Italy also isn’t in as dire a situation as Cyprus’ banking sector was, but the political mess that is the country’s leadership hardly inspires confidence. If the problems that have already hit Greece and Cyprus spread to the Italian peninsula, Europe will be sunk.
It thus seems a great time for the eurozone to enact changes to its bailout program — but the fundamental nature of the EU makes this a tall order.
The problem with change
In nations such as Japan, the U.S., and the U.K., governments have the unpopular but valid option of printing money to solve financial messes. It’s still a haircut on average citizens if said printing leads to inflation, but it’s one less likely to stoke the masses into protests (or worse). After all, the number in the bank account doesn’t change.
But Cyprus, Greece, and Italy don’t have that option under the common currency of the eurozone. These countries are forced into relying on creditor nations within Europe, such as Germany, to solve their problems via bailouts.
Ask Angela Merkel how she feels about paying to save other countries. At a meeting of her parliamentary faction this week, the German chancellor was reportedly furious at Cyprus and its handling of the crisis. Merkel’s looking for re-election later in the year, and average Germans want no part of paying for Cyprus’ woes while Germany remains a beacon of financial responsibility in the eurozone.
Yet the lack of communication between nations that ostensibly are partners has created a toxic relationship between countries. Many average Cypriots point to Germany and Merkel as responsible for the deposit levy idea even though Cyprus’ government was the one to come up with it. Greeks similarly pin the blame of their flailing economy on Germany, the easy target that has demanded conservative austerity measures from hard-hit economies.
This trend will continue until the eurozone establishes some sort of stronger central control mechanism. Getting nations that don’t see eye-to-eye on policy to cooperate in this loose union has failed abysmally. Deploying measures such as the proposed bank levy will only kill the already-waning faith of average citizens in the eurozone’s strength.
Until that happens, the eurozone’s instability and debt nightmares will continue to shake investor confidence in Europe and beyond. Cyprus’ economy wasn’t enough to shake investors out of the recent highs the Dow Jones and other indices have climbed to, but any worsening or spreading of the crisis could lead to widespread concern. It’s imperative that the eurozone finds a common ground to restore solidarity between member nations and solidify its bailout controls in a way that won’t cripple the financial freedom of average Europeans.
The eurozone’s future is riding on it.
The article The Eurozone and the Need for Change originally appeared on Fool.com.
Fool contributor Dan Carroll and The Motley Fool have no position in any of the stocks mentioned.
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