Europe’s fragile bonds

Wolfgang Munchau

Greece is heading for default. If France and Germany decline to help, the eurozone—and Europe—could face disaster

Riot police guard the National Bank of Greece, Athens. Violent protests against the government’s austerity measures have paralysed the city

The eurozone is based on three pillars: loopholes, fudges and lies. They made this crisis inevitable. The propensity to fudge now makes any real resolution all but impossible, even if it contains the problem.

The fudges and loopholes stretch back to the deals that created the euro in the early 1990s. The Maastricht Treaty, in force from 1st November 1993, committed signatories to the new currency, which came into existence on January 1999. The eurozone’s advocates made promises that were inconsistent, but irresistible. The Germans were promised that monetary union would not oblige them to pay their tax revenues to other countries, and that it would create a currency at least as strong as the Deutschmark. The French perceived the euro to be a tool to strengthen Europe’s global reach. For the Italians and the Spanish, the new currency offered permanently low interest rates. Given their deregulated banking systems it also brought sudden wealth by way of a housing bubble.

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