I have been saying it all along. The Eurozone is struggling with a fundamental weakness. It all boils down to a very simple saying, “You can’t have your cake and eat it too.” You can’t have all the benefits and none of the disadvantages of a monetary union.
A monetary union only makes sense if all the nations involved have the same fiscal policy and, most importantly, the political discipline and will to carry that policy out. Otherwise, everybody has to give up a large chunk of their fiscal sovereignty to a central financial policy body. That is not going to happen anytime soon. Too many members of the EU would like to hang on to their political sovereignty.
There is really not much of a line dividing political sovereignty and economic sovereignty. Now that Greece’s anti-bailout party, Syriza, have made their position known and have championed it in Germany only to get rebuffed, the writing is on the wall. It is not like there is much space for Greece to maneuver. In a matter of weeks, it is facing a debt default.
I strongly suspect that the market has already factored this in. Greece, in the big scheme of things, is a relatively small economy. However, backers and holders of the euro should think twice about the Eurozone altogether. The Greek drama is really the Eurozone dilemma written in small print. Whatever financial issues Greece is facing, larger economies like Italy and Spain are also facing.
If the Greek issue isn’t resolved in a convincingly bold and positive way, it may set a precedent for larger European economies. Put it this way. If Italy goes the way of Greece, the European Union cannot bail Italy out. That will effectively destroy the dream of European monetary union. This is not a far-fetched idea. Mediterranean European countries are in a relatively weak and vulnerable financial position. It only takes a long drawn-out recession to bring these economies to their knees.
