Euro… do not cry for me

Published on The Malta Independent¸ issue 17th July 2011

We have been inundated with distressing news on the downgrading of some EU countries and the latest one about Ireland joining Portugal and Greece as the third euro-area nation to have its credit rating to below investment grade.

All this comes from a drop in market sentiment and of course mirrors the imbalances in each country’s budgets. Deficits have been plaguing the economies of the eurozone since the start of the global recession in 2008. Eurosceptics have expressed their fears for the leitmotif of the single currency. Yet nobody is crying for the resurrection of the currency brandishing a banner with gold stars on a blue background. Perhaps it is worth recalling Charles Dickens (Micawber in David Copperfield) who solemnly predicted: “Annual income twenty pounds¸ annual expenditure nineteen and six¸ result happiness. Annual income twenty pounds¸ annual expenditure twenty pounds ought and six¸ result misery”. And misery is the latest news for beleaguered workers in Greece¸ Portugal¸ Ireland. These face job losses and unprecedented austerity measures. Naturally¸ such bad news has percolated into the foreign currency scene with the euro weakening to a four-month low against the yen after Moody’s Investors Service reduced Ireland’s sovereign debt rating¸ adding to concern that the European debt crisis is deepening. Irish bonds dropped following the downgrade¸ which came after European finance ministers failed to present a solution to the contagion that’s threatening to spread to the pasta and pizza country and the other Club Med members. It is no exaggeration to state that Ireland’s downgrade will make it “more difficult” for St Patrick’s islanders to return to a surplus anytime soon. Moody asserted that while Ireland has shown a strong commitment to fiscal consolidation and has¸ to date¸ delivered on the terms of its bailout¸ there are fears that latent implementation risks remain significant.

History tells us that the euro currency was launched more than a decade ago amid much fanfare and hope. It is now supported by 17 disparate economies. Yes¸ the experiment was a bold one and every effort is made by the bureaucrats in Brussels to keep a tight rein on the euro countries to toe the line and adopt the Maastricht criteria. But the first ones to break the mould were France and Germany a few years back yet no punitive measures were taken. So who will come to rescue of the euro. Certainly not the British who shied away from adding to the pot of contributions for Greece. Yes¸ many blame Greece for its profligacy¸ alleged corruption¸ bloated civil service and low productivity. But the mystery thickens when one ponders how Greece¸ up to 2007¸ was sailing along merrily without any major problems (although its bonds funded by French and German banks have contributed to the myth that Athenians can continue to mortgage its €360 billion debt till the cows come home. Even mighty Zeus cannot clear the slate for them. A new rescue plan for Greece¸ currently in discussion by Europe’s policy-makers¸ is likely to cost twice as much as previously expected if it is agreed to. The framework for a new Greek deal emerged after two hectic days of EU finance ministers’ meeting in Brussels¸ with the stakes raised because of alar