As European leaders attempt to defuse the continent’s debt crisis, they are confronting contentious issues over national identity, vastly different economies and how much power should be centralized to control the spending of individual nations.
The fate of the eurozone — the 17-nation bloc that uses the euro — hangs in the balance, as well as the threat of a worldwide recession if the crisis is not resolved quickly.
The European debt crisis has now extended for two years. The continent’s leaders are under increasing pressure to take decisive action to assure international financial markets and keep the debt contagion from spreading. The key current fear is that Italy, with $2.6 trillion in debt, may need a bailout, and that Europe would be unable to cope with such a large potential default.
The eurozone finance ministers meeting in Brussels Tuesday were faced with meshing the political and financial interests of diverse countries –from economic powerhouse Germany, with a $3 trillion national economy, to the tiny island nation of Malta, with a $10 billion annual economy. Then, early next month, European leaders are holding a summit to discuss their options.
The key idea under consideration would force the 17 nations to cede sovereign budget control to a new central authority, likely in Brussels, that could force new austerity measures on such debt-ridden countries as Greece, Portugal, Ireland, Italy and Spain. The idea is to force the eurozone’s weaker governments to adhere to strict spending standards to prevent the need for more international bailouts.
But such central control has long been anathema to European governments and was until now unthinkable in the eurozone. Numerous governments fear the loss of their national identity and control over their destiny.
Various new types of debt sales have been proposed as well, such as the creation of euro bonds, encompassing the debt of the 17 nations, not just that of individual countries. But Germany, and other strong economies in northern Europe, have so far resisted that concept for fear that their top credit ratings would be sharply diminished and their borrowing costs increased if they had to help pay for the debts of weaker governments on the eurozone’s geographic periphery.
Under another variation, only countries with the top credit ratings could band together to sell their debt.
Some analysts have suggested that the European Central Bank needs to increase its funding for individual nations, another idea Germany has so far opposed, again fearful that its AAA-credit standing would be diminished.