Is It really the Greeks' fault?
Since the beginning of the debt crisis, assumptions have been made about the work ethic of southern European countries.
For many citizens within the eurozone, the rickety state of the euro and the unstable finances of those countries on the periphery have made them very nervous. Amid this uncertainty, the cultural and economic differences that the euro project intended to mitigate have re-emerged as sources of conflict as constituent nations examine the causes of, and propose solutions to, the crisis.
Among the more pronounced of these cultural differences are those that would draw a line between north and south. As the thinking goes, the financially disciplined northern countries are being unfairly burdened by the financially irresponsible behavior of their southern neighbors. A quick look at political and social problems unfolding in Greece, for example, reveals a culture of corruption that would seem to confirm the assumptions of northern critics.
But are the weaker economies of the eurozone really to blame for the crisis? To answer this question, it is necessary to consider the purpose behind the creation of the euro and to examine the benefits that resulted. The eurozone was created to reduce trade barriers and facilitate commerce between a large network of national economies, a system which ostensibly would benefit all members. But during the creation of the euro, export-oriented economies, such as Germany, emphasized a monetary and fiscal policy that favors more developed economies. The expectation, then, was that the smaller economies of Europe would be able to improve their economic performance by adjusting their past economic policies to match the new Europe-wide standard.
The goals of these new policies, among others, were slower wage growth, less government spending, and lower inflation, as regulated by a more independent European Central Bank. These goals, however, would not serve the best interests of southern economies, because, as less-developed economies with smaller export sectors, these countries rely on greater spending and higher inflation. Thus, the current problem with the euro reflects a flaw in the original set up of the euro zone. While well-developed countries, like Germany, benefit from intra-eurozone as well as international trade through a favorable exchange rate, southern economies are struggling to keep up. In other words, by selling export goods with the euro, German companies generate more revenue than they would with the deutsche mark, though southern economies gain no such benefit. They have, however, given up significant control of their monetary policies.
This state of affairs proved workable during boom times when money from northern Europe poured into countries like Spain, Greece, and Portugal, but once the global financial crisis struck, they were unable to adjust to the sudden loss of demand. Thus ensued a housing crisis in Spain and a debt crisis in Greece and Portugal. These countries are now struggling to pay back loans on the one hand, and cut spending to reduce their deficits on the other, while their badly damaged economies are limping along toward an extremely slow recovery.
The policies of the eurozone, which emphasize fiscal discipline and low inflation over economic growth and wage increases, do less to benefit the southern economies. But without their recovery, all of the members of the eurozone are in jeopardy. Finding a way out of the dilemma will indeed take the kind of coordination and discipline that was originally demanded by the northern countries, but it will also require a solution to the monetary restrictions from which southern economies suffer.