Ex Greek Finance Minister Warns “Europe’s North-South Divide Has Become A Time Bomb”

As the eurozone debt crisis has steadily widened the divide between Europe’s stronger northern economies and the weaker, more debt-laden economies in the south (with France a kind of no man’s land economy in between), one question is on everyone’s mind: Can Europe’s monetary union indeed, the European Union itself survive? Europe’s southern economies owe their deteriorating circumstances largely to excessive austerity and the absence of measures to compensate for demand losses.

But Europe’s stronger economies have resisted pressure to undertake more expansionary fiscal policies, which would lift demand for its weaker economies’ exports.

While these policies or lack thereof have impeded recovery in the southern countries, they have yielded reasonable growth and very low unemployment rates for the northern economies.

One scenario is that the economic and political crisis in the southern countries spreads, inciting fears in Germany that the country faces a long-term threat.

This could drive Germany to withdraw from the eurozone and form a smaller currency union with other northern countries.

Of course, such a move would carry considerable political costs in Germany, where many taxpayers recoil at the notion of assuming the debts of the fiscally profligate southern countries, without considering how much Germany would benefit from a stable and dynamic monetary union.



Categories: Business

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