Question:
On the evening of 12/11/2011, Silvio Berlusconi, the Italian Prime Minister, announced his resignation. Three days prior, specifically on the evening of 9/11/2011, George Papandreou announced his resignation from the leadership of the Greek government due to the financial and economic crisis ravaging their countries—most notably the sovereign debt crisis. This followed their parliaments' ratification of austerity measures and placing their countries under the supervision of the International Monetary Fund (IMF) and the European Commission to implement these measures as part of the so-called European bailout plan. Alongside the crises in these two countries, which escalated in recent days, similar crises have occurred in Ireland, Portugal, and Spain, persisting for over two years. The sovereign debt crisis has even begun to extend to France, one of the major powers in the Eurozone and the European Union. Notably, all these countries experiencing significant crises are within the Eurozone. The question is: what is the extent of the impact of these crises on the fate of the Euro and the survival of its zone, which includes 17 out of the 27 countries within the European Union? Furthermore, what is the fate of the European Union as a whole?!
Additionally, does this have an impact on the positions of other major powers: America, Russia, and China, as well as Britain, which is a member of the Union but not part of the Eurozone?
Answer:
1- The Greek sovereign debt crisis has affected the Eurozone due to fears that Greece would default on its debts, which amount to approximately 350 billion euros (equivalent to 482 billion dollars). These debts exceed its GDP by 160%, with the budget deficit reaching 13.6%, whereas the permitted European deficit level is 3.5%. The European Commission and the IMF demanded that Greece implement austerity measures as part of the European bailout plan. However, Papandreou wanted to retreat from implementing more of them and called for a referendum on those measures, supported by five ministers in his government, including the Finance Minister. He was eventually forced to abandon the idea of a referendum after being summoned by European leaders to Cannes, France, where they warned him that his country would not receive additional funds unless the austerity plan was implemented. On 11/10/2011, international creditors agreed to disburse the sixth installment to Greece, amounting to 8 billion euros. On 10/21/2011, the government approved further austerity measures despite protestors and the country entering a state of general paralysis due to a general strike and violent protests in Athens.
2- It is well known that the onset of recession and contraction in Europe was officially announced in November 2008, shortly after the global financial crisis exploded from its center in America. Financial and economic crises began to appear one after another: from the stock market crisis and the collapse of companies and banks to the attempts by states to save them by injecting massive amounts of capital. This placed a heavy burden on states without treating the root problem; in fact, this was considered one of the causes of the sovereign debt crisis. This "remedy" caused the disease to worsen and produced symptoms that were not just side effects but primary ones. The Euro crisis emerged when its value began to decline against major world currencies, especially the dollar. The latest, but not the last, was the explosion of the sovereign debt crisis—the crisis of state debt, which means that the state's income and GDP are less than the debts incurred through treasury bonds. When a state's income and GDP become less than the value of these debts (held as bonds purchased by other countries, banks, and international financial institutions), the state is considered unable to pay its debts. Consequently, the value of the bonds drops, and interest rates and insurance costs rise. The public debt increases, and trust in these bonds vanishes, leading people to stop buying them and instead seek to get rid of them. Because the issuing state cannot repay them, a deficit appears, and the crisis explodes, affecting the entire economy, political stability, and the status of governments. This is what recently happened with Italy, leading to the fall of Berlusconi’s government, just as it happened in Greece, leading to the fall of Papandreou’s government.
3- France and Germany are working to solve the Eurozone's problems, but fundamental differences have appeared between them regarding how to manage and treat the crisis and whose proposal should be accepted. This is especially true since economic matters clash with the issue of state sovereignty. France and Germany consider themselves the two major heads and leaders of the European Union. There is a hidden sovereign competition between them over who will be the decision-maker and have the final word in the Union. This was previously expressed by Ulrike Guérot, head of the Berlin office of the European Council on Foreign Relations, when she addressed the Union states: "If you come from two completely different directions, you are bound to collide with each other. But I hope there will be a constructive dialogue." (Reuters 20/5/2011)
Thus, the disagreement between France and Germany has appeared in the remedies proposed by each. France proposed establishing an "economic government" as a cure for these crises, but Germany proposed establishing an "economic administration" concerned with creating structures and frameworks and imposing sanctions. Germany did not agree to an economic government because it gives the impression that a supreme body outside the will of European governments would dictate a specific economic policy to everyone, which would provoke other states by suggesting a reduction of their sovereignty. Therefore, this proposal did not see the light of day. There is also a difference regarding economic development; Germany has made difficult adjustments to activate its exports, which causes unbearable trade imbalances across Europe, especially since Germany records large trade surpluses while other countries, including France, show trade deficits of billions of euros. Therefore, France asked Germany to boost local demand and cut taxes to encourage imports, while Germany asks other countries to follow its lead by demanding they cut wages. Another point of contention in the remedies is the European Stability Mechanism (ESM) and increasing its support. Germany increased its share in it from 123 billion euros to 211 billion euros after the German parliament approved it on 29/9/2011. This indicates that Germany is clinging to the survival of the Euro and working for its continuation by supporting the 17-member Eurozone. European countries pledged to strengthen the Stability Pact, which was supposed to limit deficits, but it collapsed with the crisis. Among Germany's proposals is freezing financial support for countries that allow their budget deficits to rise significantly; the European Commission considered this but saw that it does not solve the problem but rather perpetuates it. Germany also suggested freezing the voting rights of these countries for at least one year on decisions taken at the EU level, which would disable the role of countries facing difficulties. Germany also suggested that other countries follow its lead in setting a deficit ceiling in their constitutions and establishing procedures for declaring the bankruptcy of countries suffering from high debt, which would leave them with no choice but to exit the Eurozone...
However, these remedies require changes to the Lisbon Treaty that governs the EU, which was born after a difficult labor due to sharp differences between Union states that work to retain their sovereignty as independent states and are not ready to sacrifice for the collective interest. Therefore, approving the German proposal is not easy. The latest German proposal was put forward by German Finance Minister Wolfgang Schäuble when he called for "transferring more domestic fiscal policy powers in Eurozone countries to the European level to solve the sovereign debt crisis," noting that "the European Central Bank has the independence that qualifies it to pursue a policy that takes into account the interest of the group and does not favor one country at the expense of others." But he added: "A common European fiscal policy has not yet been agreed upon." (DPA 12/11/2011). He acknowledged what Greece is facing, describing it as a "mountain of problems." Previously, statements by German Chancellor Angela Merkel warned about the future of the Eurozone, emphasizing that "Germany does not want any country to go bankrupt because that would mean the bankruptcy of everyone." She repeated this again on 14/11/2011, saying before a conference of her Christian Democratic Party in Leipzig: "Europe is living through its most difficult times since World War II... and if the Euro fails, Europe will fail." This indicates the existence of deep anxieties regarding the Euro and the cohesion of the Eurozone.
The abundance of German proposals and warnings, alongside their increased support for the European Stability Fund and their approval to raise its budget from 440 billion euros to one trillion euros, all demonstrate the extent of their concern with treating the problem and their eagerness for the survival of the European monetary union (the Euro) and the preservation of the Eurozone, and indeed the continuation of the European Union. It is understood from this that Germany will not abandon the Euro, its zone, or the EU in the foreseeable future. It is worth noting that the Euro is considered the secret of this Union's success, and its collapse means the collapse or failure of the Union.
4- On the other hand, this crisis provided an opportunity for America to exploit it, on one hand to divert attention from its own troubled financial and economic situation—given that it is originally the primary source of the crisis—and on the other hand to shake the Europeans' confidence in their union and currency. It works to bring it down or cause it to fail along with its currency, the Euro, to prevent Europe from having an international influence that competes with it, whether in economics or international politics. Rather, it wants to make Europe subordinate to it, following in its shadow. Therefore, it works to help it to a certain degree to keep it dependent or under its umbrella. At the G20 summit held earlier this month, America rejected proposals to double the IMF's funds to move toward solving the Eurozone crisis. Its Treasury Secretary Timothy Geithner stated before the meeting of G20 finance ministers: "He supports the Fund's support for Europe, but the latter has enough money to solve its debt problems." He said: "The United States is one of the countries keen to continue pressuring the Europeans to take firmer measures to end the debt crisis that has been ongoing for two years." (Al Jazeera 14/10/2011)
Furthermore, famous credit rating agencies such as Standard & Poor's, Moody's, and Fitch are American companies that play a role in shaking confidence in the financial conditions of those countries. They lowered the ratings for Spain, Portugal, Italy, and Greece. Similarly, Moody's on 7/10/2011 lowered its rating for a significant number of European banks, totaling 21, including major ones. The IMF estimated the losses of European commercial banks from the Euro crisis at about 200 billion euros since last year, in addition to losses in their assets estimated at about 100 billion euros. When reconsidering ratings, they also look at the rise in unemployment in the country, which increases proportionally with the financial crisis, as well as the rise in private sector debt and budget deficits.
5- As for the position of Britain, a major member of the European Union, it stands in a corner on the edge of the Atlantic, watching Europe's conditions and working to protect itself from the disasters of this Union and the repercussions of the financial crisis that hit it as well. It does not want to participate in the Union's solutions as much as it seeks gains and benefits from it. It did not enter the Eurozone, has not abandoned its currency, and shows no desire to adopt the Euro; thus, the matter of the Euro does not concern it much. There are voices emerging from Britain calling for withdrawal from the EU so that no one pressures it to adopt the Euro or to integrate further into this Union. It has begun to "gloat" over the proponents of the Union; its Foreign Secretary William Hague stated that "the Euro will become a historical moment of collective folly" and likened the Eurozone to "a burning building without exit doors." He said he was repeating his view expressed in 1998 when he was leader of the Conservative Party. Provoking the Germans to abandon the Eurozone, he said: "The Germans will have to provide support to the weaker member states like Greece for the rest of their lives!" (BBC 28/9/2011). British Prime Minister David Cameron said: "The Euro crisis poses a threat not only to the European economy but to the entire global economy." (BBC 2/10/2011). European politicians realize the extent of Britain's malice; José Manuel Barroso, President of the European Commission, pointed to this, saying: "The Union countries that do not support joining the Euro should not work to oppose the countries that want to advance on this path." (Al Jazeera 10/11/2011). Nevertheless, Britain does not intend to leave the EU as long as it exists, because it works to achieve economic gains from it alongside political gains on a global scale when it works to drag Europe into making decisions that serve its interests. In fact, its exit would be harmful to it, having sought for many years to enter it. Therefore, Prime Minister Cameron stated: "Britain's exit from the European Union is not in its national interests. If we found ourselves outside the EU, we would be in a situation similar to Norway's, meaning we would be subject to the influence of all decisions issued by Brussels, but we would not be able to participate in making those decisions." (ITAR-TASS 14/11/2011). At the same time, he refuses to surrender British sovereignty, calling for: "handing over a large part of the powers of the European Commission in Brussels to national governments." Thus, Britain does not want to leave the EU, and at the same time, it does not want to enter the Euro system!
6- As for China and Russia, it is in their interest for the Euro to survive to stand in the face of America, its dollar, and its tyranny over the world economy. However, they do not do much for this because the position of the Eurozone, as well as the EU as a whole, is not positive toward them. This zone and the Union still impose restrictions on their trade and economic movement, such as the movement of their merchants and companies in Europe and the entry of their goods. For this reason, they are not very enthusiastic about helping. Thus, Chinese President Hu Jintao, who attended the recent G20 summit in Paris on the 3rd and 4th of this month, did not indicate China's intention to increase its investments in Europe or buy treasury bonds for Eurozone countries, especially for the five struggling nations (Italy, Greece, Portugal, Spain, and Ireland). It purchased a small amount only to appease Europe. Instead, President Jintao said during his meeting with French President Sarkozy on the sidelines of the G20 summit that "Europe should solve its crisis by relying on itself." (Reuters 6/11/2011), thereby indicating China's implicit refusal to support Europe, which had asked it (China) for support for the European Stability Fund, whose value was raised to one trillion euros and which they are working to raise further. Meanwhile, China supported the American economy by purchasing 1.14 trillion dollars in US Treasury bonds and has purchased more than a trillion dollars worth of shares in American companies, and holds American currency reserves amounting to 3.2 trillion dollars, as statistics show. In return, America grants it significant trade facilities. However, the political influence that America is able to exercise over China, making it support the American economy, is an influence that Europe lacks toward China...
7- In light of this, the European Union is under the weight of financial and economic crises due to the capitalist system. it is also under the threat of collapse and disintegration because of these continuous crises which, when they occur in one place, do not only afflict their owners but their evil spreads to the whole world because the entire world is linked to the network of the capitalist system. People groan under the weight of its crises and suffer bitterly from their repercussions. This system cannot be reformed from within because its foundation is corrupt; no sound economy can emerge from it. Therefore, a search outside of it is necessary; rather, it is necessary to seek a correct system based on a correct creed that agrees with human nature.
The world is in need of a system that is correct in its foundations and branches. This can only be found in the system laid down by the Creator of the universe, the Lord of the worlds, who knows what is best for His creatures and enables them to live a secure economic life. Without this system, man remains anxious and miserable:
فَمَنِ اتَّبَعَ هُدَايَ فَلَا يَضِلُّ وَلَا يَشْقَى * وَمَنْ أَعْرَضَ عَنْ ذِكْرِي فَإِنَّ لَهُ مَعِيشَةً ضَنْكًا
"Then whoever follows My guidance will neither go astray [in the world] nor suffer [in the Hereafter]. And whoever turns away from My remembrance - indeed, he will have a depressed life." (Surah Ta-Ha [20]: 123-124)