It seems likely that Greece will leave the eurozone. But what will this mean for the rest of Europe?
Suddenly, there are a lot of Sick Men of Europe. Greece is in intensive care; Spain's waiting for a bed to become available; the drips that Portugal and Ireland are on don't seem to be doing much good; and while the condition of Italy seems to have stabilised a little, France is developing a bit of a cough; and the Netherlands are feeling a bit peaky. It's all a bit like a pan-European edition of Casualty.
And, just to make the episode more interesting, while almost everyone agrees on the underlying causes of the disease, the doctors can't agree on the treatment. This is partly because of the varying states of the patients, but also because the doctors themselves have their own agendas and interests. Some swear by this drug, others by another, and all are afraid of getting too involved with the critical cases in case they get infected. Time, then, for as calm a case conference as we can manage.
What are the sick suffering from?
A surfeit of debt, which, because of the credit crunch, and fears of default in the markets, is costing far more than it once did to service – plus overborrowing in the years of easy credit, a too-rapid expansion of public sectors, and, in the case of Ireland and Spain especially, an implosion of property prices. Greece now owes 160 per cent of its GDP, Ireland 110 per cent, Portugal 107 per cent and France 89 per cent. And, as economies contract, inefficient tax collection means these countries have even less cash.
What are the symptoms?
Of the euro's 17 members, seven are in recession: Ireland, Greece, Spain, Italy, Cyprus, the Netherlands, Portugal and Slovenia. Germany, meanwhile, had 0.5 per cent growth in 2012's first quarter, mainly due to a big rise in exports. Under pressure from Germany, governments have laid off workers, cut pay, reduced spending on social programmes, and imposed higher taxes and fees to boost revenue.
As economies have shrunk, countries' debt levels have worsened. In Spain, the interest rate on 10-year government bonds stood at a worrying high of 6.2 per cent on Friday, not far from the 7 per cent mark that forced Greece, Ireland and Portugal to ask for bailouts. The level of bad loans on the books of Spain's banks has risen to an 18-year high. All those in recession, but especially Spain, Portugal and Greece, now have hideous rates of joblessness. In Spain, one out of every four citizens is jobless.
In Greece, the first shortages are starting to appear. Melina Ferousi, a businesswoman who imports paper and stationery items, said: "French and Spanish suppliers are still selling on credit, but German ones are particularly strict and are refusing to do so." And Greeks, fearful that an exit from the euro would mean their savings would be devalued overnight, have been withdrawing deposits from banks.
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