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Leslie Budd on... the Eurozone

Updated Thursday, 27th May 2010

Has the Greek debt crisis exposed flaws in the euro economy system? Leslie Budd examines the consequences of a currency crisis and the knock-on effects of cuts in public expenditure.

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Hubris is a Greek word meaning overbearing pride, but you could be forgiven for thinking it had become a northern European one, given the Greek debt crisis, which has shifted into a currency crisis for the whole Eurozone.

The banal understanding of debts and deficits into contemporary economies leads to perverse outcomes. If you cut public expenditure, there will be a multiple decline in national income, lower tax revenues and higher government deficits. Fiscal crises always follow financial crises as public money bails out the failures of the financial system and drives up public debt and deficits. The driver of the recent European crisis is the same as the financial crisis: imbalances between surplus and deficit countries. The Greek problem is a consequence of a fatal flaw in the design of the Eurozone system, in the lack of fiscal rebalancing between richer and poor economies. Indeed, if all Eurozone economies became trade surplus ones, like Germany, then the whole system would collapse. Perhaps we need downtime for the richer European economies.

Downtime occurs when a production or IT system does not function because of maintenance or network failure. In a period when so much of business relies on information systems to produce and deliver goods and services, this is a serious threat. But perhaps it should be seen as an opportunity. If the whole of Northern Europe experienced downtime during the summer months, its inhabitants could migrate south to the Aegean and Mediterranean Seas. The bottom line is they would spend large sums of money, boost local economies and solve the crisis at a stroke.

That’s my view. You can join the debate with The Open University.





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