Crying Over the Eurozone

by by by Alexandra Corrigan

illustration by by Robert Sandler

On Oct 19, Carla Bruni-Sarkozy gave birth to her first child with the sitting French president. Brushing off media paparazzi, Bruni-Sarkozy refused to give details, deflecting the spotlight elsewhere: “It’s just so uninteresting for French people,” she claimed. Nicolas Sarkozy apparently agreed, because at the time of the birth he was meeting with German President Angela Merkel. With Greek strikes violently escalating in October, and the November G20 Summit approaching, European leaders must take immediate and significant action to mitigate the sinkhole that has become the European debt crisis.
This Eurozone crisis is testing the longevity of the euro, a nine-year-old currency once hailed as a unifying emblem of trans-national finance. We will soon find out whether the Eurozone (a concentric circle within the European Union—17 nations who have adopted the euro as national currency, not including Great Britain) can continue to share, play nicely and not say mean things about their neighbor’s work-habits.
Heads of state and other major financial players (European Central Bank leadership, the International Monetary Fund’s new chief, etc) gathered at swanky Brussels hotels this week, smiling calmly for the cameras, while holding closed-door meetings. National representatives continue to tease the public with a soon-to-come “comprehensive solution” statement, one meant to ease investors’ fears. The meeting in Brussels will be the 21st conference on the debt crisis, and is intended to be definitive. But despite the build-up, as of Wednesday in Brussels, top leaders have maintained the same message: they have a plan to announce a plan. European leadership can’t commit to a plan, or even to each other.

The sickness—and potentially, the cure—to the Eurozone crisis is the European Central Bank (ECB), which is still deciding what it wants to be when it grows up. In theory, it is supposed to be a limited version of the US Federal Reserve, entrusted with maintaining price stability for the 17 nations of the zone. The ECB operates with private and public bank investments, and is supposed to protect against rising inflation and unemployment, two contagions of global magnitude.
According to Daniel Gabor, a post-doctoral scholar at Bristol Business School, the ECB’s track record of price stability had been “utterly impeccable until 2009.” But when the economic crisis reverbrated down from Wall Street, “investors figured out the ECB wasn’t a real central bank, since it had no lender of last resort function,” said Mark Blyth, Professor of International Political Economy at Brown University. Acting as an erratic safety net, rather than the steady hand of Europe, the ECB has actually caused more instability.
The ECB’s intended focus on prices hasn’t worked, judging by European unemployment and cost of living increases. Old-world attitudes haven’t been adjusted, according to Cornel Ban, the deputy director of the Development Studies Program at Brown University. “This kind of financial stabilization makes people worse off. It is a crisis of policy learning.”
Despite lofty expectations, the Eurozone talks will only decide a few things, if any. These objectives include mandating that European banks raise 100 billion more euros of reserve capital (to hedge against future failures), forcing Greek lenders to accept more pay-cuts (to help un-saddle its economy), and strengthening the bailout fund. Europe’s financial fate waits while its leaders’ settle on a credible, sweeping plan. Reports from Brussels indicate how fractured the talks between nations are. As Goldstone put it, “Stable prices are certainly better for Germany, where unemployment isn’t a big deal. But they’re bad for the ‘fringe zone,’ countries that believe devaluing the currency will create jobs.” The results of the upcoming talks will shed more light on the ability of such different nations to have central banks.

French and German officials, who represent the Eurozone’s two largest economies, have set the terms of the debate. The French are heavily exposed to Greek debt, and Sarkozy is aggressively lobbying for an enlargement of the ECB emergency fund (the European Financial Stability Facility, or EFSF)—essentially transforming it into a bank with broad authority.
But despite Sarkozy’s dedication to reform, the Germans aren’t entirely supportive. President Merkel, whose country has rebounded strongly from the recession, feels Germany will be unfairly burdened by such an agreement, and seems unwilling to contribute an outsized amount of more money. The German media projects an ethos of protectionism—a country reluctant to support the “lazy” Greeks, who face staggering 17 percent unemployment. As talks grow more and more tense, plans for a new EFSF emergency fund may get mired in bureaucracy.
The ECB’s inability to totally prevent Greece from defaulting will probably result in the continuance of traditional financial methods. Fear of total collapse (i.e. a ripple effect from Greece to Portugal, Ireland, Italy, and Spain) has put everyone on edge, making the talks petty and increasingly conservative. Sarkozy, for one, is taking this all very personally, snubbing both the Italian Prime Minister Silvio Berlusconi and the Prime Minister of Britain, David Cameron. Harsher words befell Cameron during the October 23 talks, as Sarkozy announced that he’d had “enough” advice from the currency outside. He asked Cameron, “you don’t like the euro, so why do you want to be in our meetings?”
After what must have been an uncomfortable moment, Merkel displayed some true German tact by threatening to exclude all non-Euro countries in the talks if they proved too difficult. These eleventh-hour talks have stalled investment, shown some petty in-fighting, and have compromised creativity for the sake of conservative measures.

ALEXANDRA CORRIGAN B ‘12 sometimes can’t believe when she looks up in the mirror, how she out in Europe, spending euros.