By Oleg K. Temple, June 2010.
To ensure that their markets remain upright and sprightly in the long-term, in the good old days, the EU countries came together and created sensible (albeit optimistic) fiscal rules that set the gyration boundaries for their rapidly unfurling economies. Government debt must always reside south of 60% of GDP at the end of the fiscal year and the annual government deficit must not eclipse 3% of total GDP. Shockingly, Finland and Luxembourg are the only two of the 16 Eurozone countries that have managed to rein in the rapacious crisis and adhere to both of these cardinal rules. Hence, the EU economy plummeted into disarray and the path to recovery is proving to be a slow and arduous one.
|When interpreting the data from various countries, it is important to keep in mind the relative co-relation between the size of the population, production capacity and the fiscal figures in these charts. Doubtlessly, Germany, UK and France are the key powerhouses of the EU, with Italy, Sweden, Spain, Netherlands and Belgium making up the remaining majority of Europe's economic muscle.|
|Our perspective shifts as we consider the members of the Eurozone in terms of GDP per capita. Luxembourg emerges as the small giant in this field, amazingly, dwarfing the mightiest of economies globally; of EU countries, Ireland, Austria and Denmark are also mostly in the top 10 countries world-wide according to the World Bank, CIA Fact Book and IMF. Of non-EU countries, Norway and Switzerland do consistently well in these fact lists.|
UK is the largest EU economy to have kept clear of the single currency; however, with a towering national debt at 68.1% of GDP and a glaring budget deficit at 11.5% of GDP, the United Kingdom would quite sorely fall short of the aforementioned economic criteria, if the UK were subject to the Eurozone rules. Presently, of the Eurozone countries, the Greek economy is most markedly in dire straits, bogged down with a crippling debt at 115.1% of GDP and a budget deficit of 13.6% of GDP. However, amongst the larger producer economies, Italy's debt, as a percentage of GDP overshadows even that of Greece, whereas Spain tips the scale with debt at 11.2% of GDP.
It is common knowledge that throughout the better part of the past two decades, the European Union has been locked in an economic tug-of-war with the United States for the title of The World's Predominant Economy. Thus far, each side has accounted for roughly 20% of the global GDP. A weak Euro spells trouble for the European economy as a whole, for three-quarters of EU's total not insignificant Gross Domestic Product is generated by the Eurozone. However, a sliver of hope remains in the data gathered by Eurostat, the statistical bureau of the EU: during the first quarter of 2010, a 0.2% growth in relation to the last three months of 2009 was observed across the 16 nations utilizing the Euro. It would appear that most of the countries have weathered the recession and are switching back to black ink, although stubborn pockets of recession still linger. Indeed, the recovery is erratic, proving not at all homogenous across the board – the immediate economic futures of Cyprus, the Republic of Ireland, Greece and Luxembourg remain murky for now.
However, the crisis has forced the countries most-affected to do some much-needed economic soul-searching in order as to adapt and improve their policies. Many have turned to admire Latvia's brave effort to keep its currency peg. LETA, The National News Agency reports that over the last six months, at various international events and when meeting other countries' leaders and finance ministers, the Latvian President Valdis Zatlers has basked in cordial praise and complements addressed to the president of the Bank of Latvia, the finance minister, and the Latvian people as a whole – on the discipline of Latvia's people, and on their ability to sustain the arduous economic policy implemented by the current government.
Latvian President Valdis Zatlers told Latvijas Avize that the finance minister of Greece, Mr. G. Papaconstantinou has expressed his desire to meet with the Latvian Minister of Finance, Einars Repse and the president of Bank of Latvia, Ilmars Rimsevics to learn more about Latvia's experience and shrewd contingency containment plan which has been successfully implemented during the crisis. On several occasions during his meeting with the Latvian President did the Greek Minister of Finance remark that Latvia's experience is "of urgent necessity for Greece", stating: "I need to take decisions, and I do not want to make mistakes. You are the success story, and so I want to learn from you."
On this arena, the Netherlands has proved to be most resilient economy with unemployment figures at just 4.1%. The Irish Republic, Portugal, Slovakia, Greece and France are all limping around with double-digits when it comes to joblessness. Whereas Spain – formally one of the most prolific employment engines of the EU – is down and out for the count with unemployment figures that have doubled since 2008. Most severely afflicted by this state of affairs is the Spanish youth, for whom the rate of unemployment has soared above 40%.
|So the question remains: will the Eurozone hold of fold from the pressure exerted by the depression? In my opinion it will weather this particular storm, not least because few (if any) of the 16 economies involved could potentially survive the process of unplugging from the Euro, reviving their old currency and the huge expense and confusion that procedure entails. However, when the clouds of uncertainty clear and the crisis subsides, I doubt that the laws governing the convergence will remain unchanged or that other countries will blindly hop onto the single-currency bandwagon without considering the pros and cons a couple more times. It is likewise doubtful that the UK or Sweden will opt to join the currency charade anytime soon, as the crisis has made it painfully obvious that the Euro's value is most definitely subject to change depending on geographic location and government policies.|