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Europe’s common currency, the euro, is in danger of losing its already shaky value by being weakened further by potential bankruptcies in debt-laden governments.
In an atmosphere of discord and hesitation, among members of the European Union, leaders convened a summit Dec. 16 and 17 to deal with the vexing financial troubles. But all that came out of the meeting was a hazy agreement to establish a permanent European rescue account at such time that the current $975 billion emergency fund is exhausted. That rescue entity will occur in 2013.
Prime Minister Jean-Claude Juncker of Luxembourg had proposed issuing “euro bonds” as a way to raise capital for those deeply indebted economies of Europe, according to The Washington Post.
Although the Italian foreign minister, Franco Fratini, agreed, fiscally hard-nosed German Chancellor Angela Merkel reacted negatively, expressing that it was a bad idea. Germany is one country that has come to its senses and has rejected the wrong-headed Keynesian notion that the road to prosperity is: Let’s get on the superhighway of government spending.
But the European leaders meeting to address their financial woes did issue another pledge to do whatever is required in the months lying ahead to keep the euro from being cheapened by bankruptcies among the European Union governments that have embraced the common currency.
So, the Europeans, in their Brussels confab, agreed, as a first step, to calm market jitters at least for the moment. As Michel Goldfarb of the Global Post writes: “Between 1871 and 1945, France and Germany went to war three times. How many times have they gone to war since? None. The story of the euro and its current crisis begins with that fact.” The idea of what today is the European Union can be traced to the 70 years of war and uneasy peace. Out of that came the EU. Europe’s collective economies grew.
“The logic of economic integration,” writes Goldfarb, “led inevitably to the creation of a single currency.” The treaty in 1999 set the EU on the path toward the euro, used today by 16 of the EU’s 27 members. “Today the EU accounts for between 27 percent and 28 percent of world GDP—a larger share than either the U.S. or China.” he said.
But now there is crisis. The global economic downturn caught the over-leveraged economies with their financial pants down. Particularly those that were, like the United States, so hugely dependent on a supposedly never ending property boom to maintain prosperity. In the U.S., the irresponsible action Congress took to prod Fannie Mae and Freddie Mac to lend mortgage money to those without a snowball’s chance in July of paying it off were at the root of our financial breakdown.
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