Eurozone crisis is as much political as economic

You can’t turn on the television or radio at the moment without endless news coverage of the problems in the Eurozone – the 17 countries that use the Euro as their currency. Greece, Portugal and Ireland have all been forced to seek bailouts due to their massive government debts while Italy and Spain remain perilously close to triggering a massive financial collapse of the entire Eurozone.

Their bond yields – the cost of government borrowing – are now nearing levels that would force them to seek help from the EU or IMF to meet their spending commitments. These fears and the potential for massive losses in European banks are very likely to push the Eurozone back into recession. There are many proposals for how to prevent calamity from the modest proposal of more fiscal union to the outlandish idea of the American Federal Reserve buying massive amounts of Eurozone government bonds. But why exactly has it gone so wrong? Was it flawed from the start? Or is it the result of errors by European politicians? The truth is that the euro might have worked if it had been backed by the right political institutions from the start. But their absence now means that it seems quite likely to suffer a disorderly collapse.
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