Gravity of Debt Crisis Casts Shadow on World Economic Forum in Davos
The World Economic Forum kicks off today in Davos, where the main question on everyone’s minds is whether the euro zone will ever get out of its debt crisis in one piece.
With Greece on the brink of default, some business leaders, economists, and policymakers believe a breakup of the euro is still in the cards. Billionaire George Soros went so far as to predict that Greece will be out by the end of this year.
Still, most believe that the 17-nation euro zone will remain in tact, but that does not mean it will be restored to fighting form. Greece could still default as soon as March, the spreads on Italian and Spanish debt could widen further, or the region’s one remaining economic powerhouse, Germany, could find itself in a recession.
German Chancellor Angela Merkel and other European politicians have taken steps to repair some of the damage done by rampant spending, namely setting up bailout funds and pushing through legislation that would establish greater fiscal federalism among the euro’s 17 member states.
The European Central Bank has won praise in Davos for stepping in to provide easier financing for the Continent’s troubled banks and supporting lower interest rates among troubled countries, but that’s where the admiration stops.
In Davos, where Merkel delivered a keynote speech this afternoon, leaders are being taken to task for debilitating austerity programs that have crippled economies like Greece and that most observers in Davos today fear will keep Europe’s single-currency bloc in a state of near-stagnation for the better half of a decade.
The euro zone is facing record-high unemployment, massive deficits, a widening divide between the economics and productivity of the wealthy north and the profligate south — all supporting expectations for a lost decade.
How perfect that matters of such import should be discussed in the thin air of Davos, Switzerland, the highest city in all of Europe, where the breathtaking views are matched by the bitter cold.
It is there that Merkel suggested the European Union and the United States pursue a free trade deal to grow industry. It is there that Merkel said “we guarantee the euro.”
But it is also there in that small town tucked away in the Swiss Alps that she batted away appeals from the International Monetary Fund and others to increase the size of the fund created to help weaker euro-zone nations struggling under the heavy burden of too much government debt.
Merkel’s conservatism has led actions taken by the euro, forcing states to institute deep austerity measures in order to secure the funds to survive, promoting a fiscal compact that would sap sovereignty from countries with the greatest economic hardships. Her positions, her suggestions and objections, along with those of the many other leaders meeting in Davos this week, are of great importance, and will determine the path down which the euro zone will lead the rest of the world, a path from which there may be no turning back.
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