‘Eurogeddon’: How Grim Does It Sound? – OpEd

By Polina Chernitsa

The economists at Australia’s Deloitte-Access Economics (DAE) consultancy company predict a so-called “Eurogeddon”, the collapse of the European economic system in the very near future. According to their forecasts, the euro currency will cease to exist while the EU’s demands for all types of goods and raw materials will weaken. This in its turn will lead to a large-scale recession. First of all this recession will hit China, the world’s largest exporter of goods to Europe. According to DAE’s experts, the European authorities are yet to come up with a proper response to such challenges.

The term “Eurogeddon” emerged in late 2011 when the problems in the euro-zone started to snowball. EU leaders held one summit after another, the new head of the European Central Bank Mario Draghi had to make a statement almost every week and the rating agencies kept downgrading the euro-zone countries. At some stage, the markets stopped reacting to negative reports taking forecasts of a large-scale recession, or “Eurogeddon”, as it was named by some bloggers-financiers, as something inevitable. It is not surprising that such a resonant term soon entered the professional economic environment, economist Denis Barabanov told the “Voice of Russia”:

“Many experts, for example Pimco and Nouriel Roubini, are now making similar forecast. I think it is not about the company’s authority which is important but about the fact that they usually choose the worst possible scenario. The purpose of this kind of “intimidation” is both to warn the investors and advertise themselves.”

Economists Dmitry Tratas agrees with the latter statement:

“The term sounds beautiful indeed and we should thank its creators for such a beautiful marketing move. Thanks to this move, an Australian company, which was only known to a narrow circle of experts became widely known overnight. There is certainly an advertising component behind it.”

Although the economic system is now “in conditional balance and working” the chaos may come unexpectedly and it is difficult to figure out the exact factor that will trigger it, DAE’s report says. The forecast also states that the fate of the euro should be determined by the end of the year. On this point, one should note that similar forecasts were made by the world’s most respected financiers (including EU officials) last year. In their report, the Australian economists also note that in order to avoid the collapse the EU countries should reduce their state debts and toughen their fiscal policies. On Monday, the IMF head Christine Lagarde directly said that the only way out for the euro zone states is to uncompromisingly cut spending.

According to DAE’s report, “Eurogeddon” will have a decisive impact on China. The recession in the Euro-zone will automatically block China’s market outlets which will lead to a debt crisis within the country.

The recent events surrounding the European debt crisis are playing into the hands of the Eurogeddon scenario’s supporters. The creditors and Brussels are failing to agree with Greece on the exchange of its old bonds for new longer term ones. Apart from the debt issue itself, political decision making by the EU leaders may also speed up “Eurogeddon”. Their decision to join the oil embargo against Iran may cancel out any plans for the recovery of the European economy.