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What is the future for the eurozone?
Stephanie Flanders | 17:25 UK time, Wednesday, 14 July 2010

Where does the eurozone go from here? That's the question I've been looking at today for Radio 4's PM programme.

Seasoned Europe watchers say there only two ways out of this crisis for the eurozone - it could pull countries closer together, or it could break them apart.

That may be right. But in past European crises, there's usually been a muddle-through option - that's what many eurozone governments are hoping to get away with now.

Crucial to how this turns out will be Germany - where many are furious at the way things have gone. They don't like the idea of bailing out other countries at all.

Bailing out Greece - a country that only qualified for the euro on dodgy budget numbers - is about as bad as it gets.

The German chancellor has told them they have to support the massive new safety net for the eurozone, because the future of the euro is the future of Europe - and of Germany.

But the real reason for Germans to support the single currency is that it has served them very well. As other countries have become less and less competitive - German companies have sailed ahead.

Nearly all the growth the Germany economy has had in the past 10 years has been from exports - most of them within Europe. German exports to Greece have risen by 130% in the past 10 years. Greek exports to Germany have risen by less than 10%.

German and French officials also tend not to mention that it was lending by their domestic banks and investors that helped Greece, Spain and others to live so long beyond their means.

The biggest economies in the eurozone are rallying round the big support package agreed in early May, because they think a default by a European government could be bad for everyone. But it's also because they know it would be particularly bad for the French and German banks who are sitting on a large amount of Greek and other sovereign debt.

Supporters of a closer and deeper union say this is the way that European integration has always gone: the economic ties come first, and eventually, the politics has to follow. But it's difficult to see much public appetite coming out of this crisis for deeper political integration within the Eurozone, or massive budget transfers between states.

Then again, most within the eurozone don't much like the break-up scenarios that some are painting. My personal favourite, appealing to tidy-minded but impractical economists, is the idea of having one euro for the super-competitive Northern Europeans and one for the South. (Imagine the fun that France could have deciding which to join.)

So yes, everyone really wants to find a way to muddle through. But if the eurozone is going to get through this without radical change it's going to have to find a way to grow.

Spain, Greece, Portugal and the rest all now face a long hard slog re-balancing their budgets - and their economies. To make the numbers add up, they need a strong domestic recovery elsewhere. Right now no-one can promise they will get one.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/07/the_future_for_the_eurozone.html

[PigeonFart]

Jean Paul Trichet (or whatever his name is) is currently having a meeting with that World Cup psychic Octopus. As soon as i hear news from Frankfurt, i'll post it here.

I think everything will stay as it currently is. It's just some countries will have to pull up their socks.

[Konglishman]

[nautilus]