The Eurozone has certainly been getting a lot of attention the past few days. Numerous economists are now speculating what will happen to the Eurozone after the ECB’s announcement to implement Quantitative Easing. Brian Blackstone of the Wall Street Journal says the European Central Bannk will purchase 50,000,000 euros worth of bonds each month to help boost the economy. Needless to say, many economists have little optimism given the numerous failed attempts to stimulate the European economy. My fear is the QE will not effectively help larger problems that can emerge from within Greece.
Greek Elections will be held this upcoming Sunday, and signs are pointing that the Syriza Party will now emerge as the governing body. According to Yannis Palaiologos of the Wall Street Journal, Syriza’s policies are very left-winged and will raise the minimum wage, cut taxes for the poor, and rebirth collective bargaining in the industrial sector. The larger fear, however, is that the leaders will soon find no point in remaining inside the Union. Palaiologos explains:
“…There are enough people in Syriza who support the logic of “resistance” against Brussels and Berlin to make such a coalition a realistic possibility. If Greece’s new government does decide to go down that road, the country might well exit the eurozone.”
The coalition here is unification with the Anti-EU Greek Communist Party. If these two parties merge, the impact could be detrimental on the Euro. The editors of Bloomberg View claim, “Investors may be driven to short the bonds of Italy, Portugal or Spain — no matter how strong the economic or political arguments against their leaving the currency union — driving their borrowing costs to levels they can’t afford.” This clearly is not what economists want to hear on the brink of a QE plan.
My reasoning for worrying about Greece is perhaps the same as most people. Over the past few years, Greece has been notorious for upsetting member states for their high government deficits, which end up being the bourdon of stronger nations, such as Germany.
To further this cycle, Germany is also opposed to QE. In the article “No More Excuses for Draghi,” the editors of Bloomberg explain how Germany sees, “…QE as a ruse by which the richer members of the currency bloc will end up paying for the fiscal misadventures of their neighbors.” If this were the case, then Germany would be even more disheartened if Greece left. Essentially, it would be a big punch in the face after trying to help someone up after they fell.
Although QE is certainly a step forward in fixing the euro crisis, there certainly needs to be more unification to make things work. Being part of the EU, member-states must understand the risks and costs associated with the pact, even though the Great Recession was not anticipated to deplete the economy as badly as it did. Together, they must reach an understanding of how to bring themselves out of the recession as one governing body. As a result, Greece needs to hold themselves accountable and remain in the union, while Germany has to support it’s fellow member state through thick and thin. By not moving forward on a unified front, the EU will surely continue to plummet.