"The Eurozone’s Problem Is The Same As It Ever Was"
Covering the Eurozone economic crisis is frustrating because even though new things keep “happening” week after week, the basic problem keeps staying the same. Indeed, it’s a problem that’s existed latently from the very beginning of the Euro.
What’s the problem? The problem is basically that the Eurozone unites very different countries. They speak different languages, have different political cultures, have different productivity levels, and have different economies. The problem with this has always been that you might have an economic downturn that afflicts some countries much worse than others. In that case, people in the hard-hit areas aren’t going to just pick up and move to the more prosperous ones. Here in the USA, people are fairly reluctant to move toward job opportunities and the problem is much worse when you talk about national boundaries and linguistic barriers. At the same time, people in the hard-hit areas aren’t going to receive fiscal assistance from the national entity. Here in the United States, a state like Nevada still has Social Security checks flowing in. Doctors and hospitals are still getting their Medicare money. Title I funds are disbursed, etc. A hard-hit European country doesn’t have that cushion. Absent those cushions, a hard-hit country will have no choice but to engage in sharp austerity budgeting—tax hikes and spending cuts—that tend to further depress growth.
The objective conditions push either toward further fiscal integration of the European Union or else to breakup of the Euro. Either would solve “the crisis” in its acute form, and just leave us with the underlying fact that the Italian economy is not so hot. But neither is politically acceptable at the moment, and neither is going to be politically acceptable tomorrow. So not only do we keep lurching through these crisis points, we’re certain to keep on lurching for a good while now. But there’s really no “news” happening here and there’s not likely to be. It’s just the same old problem over and over again.