04th February 2012
Diplomatic Courier
Euro Zone in the Twilight Zone

The New Year began with pundits telling the same old story: the global economy is in crisis. Growth forecasts are being revised downwards for both developed and developing nations. The chieftains of world capital are now choosing to warn the rest of the world of an impending global economic catastrophe if solutions are not found quickly.

Europe and America’s financial and economic woes are long and deep - and of their own making. The resulting spasms reflect the accelerating decline of the traditional global financial network, as the power centres of world finance find themselves unable to keep up with the galloping changes in global economic realities.

The Euro area is deep in the economic danger zone. Its public debt rose to 88.4 percent of GDP in 2011. Its economy is forecasted to contract 0.5 percent in 2012 before returning to meagre growth of 0.8 percent in 2013. Indeed, the very future of the Euro - its crown jewel - is threatened as member-states face financial meltdowns created by fiscal and monetary overheating. Powerful lenders Germany and France are forced to rethink as the defaults expand. Italy, Spain, Ireland, Portugal and Greece have all moved from boom to bust, as the EU faces its worst recession in living memory. Greece badly needs to pay 14.5 billion Euros in debt redemption and get private creditors to write off over another 100 million Euros - all by March 20, 2012 - to be able to get a 130 billion Euro bailout needed to avoid going bust and setting off another global financial meltdown.

Meanwhile, worldwide unemployment is at unprecedented levels. Some 23 million are jobless across Europe, but Spain has 5 million seeking jobs, accounting for 23 percent of its national workforce, a quarter of the entire population and half of the entire youth labor force - the highest rate in the industrialized world. The International Labour Organization said at the opening of 2012 that with some 800 million workers earning less than US$2 per day and 40 million becoming unemployed annually worldwide, some 600 million paying jobs will be needed over the next ten years. But these jobs will need to be created mainly by a private sector already showing more signs of downsizing than expansion.

Eurozone lenders and international financial regulators are insisting that defaulting countries seeking bailouts implement austerity measures to guarantee lenders healthy rates of return. But the prescriptions are resulting in domestic social and political explosions that are causing even more pain. Greece, already under severe EU and IMF prescription austerities, has now rejected their latest demand that it accept an “external commissioner” to oversee its debt and recovery management, saying the idea of an imposed EU budget overlord would result in loss of its financial sovereignty.

Possibilities of arriving at solutions based on common approaches are diminishing as the 17 EU member-states differ more than they agree on the path to solutions, while the major lending states demand more austerity. Protectionist and populist tones are especially prevalent in France and the U.S., where presidential elections are approaching. Germany has become tight-fisted and London has joined Washington in telling the EU that it isn’t doing enough to help itself. Euro-skeptic Britain is also demanding umbrella guarantees for London’s financial sector if it is to back the bailout plans.