Growing Economic Fractures Threaten Eurozone

Europe's debt crisis seems to grow more dire every day as borrowing coasts for Spain and Italy soar. Germany's Chancellor Angela Merkel holds the purse strings, and says that although saving the single European currency will be a Herculean task, it must be done.

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AUDIE CORNISH, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish. The election in Greece this Sunday could decide whether the country stays in the eurozone, but it's about more than Greece's debt problems. There's a growing consensus that the entire eurozone is in danger of breaking up, an event that would do significant damage to the global economy. Europeans who set out a few years back to be partners with a common currency are rapidly drifting apart. NPR's Philip Reeves says that much was clear at a recent soccer match.

PHILIP REEVES, BYLINE: A big crowd gathers to see two European nations do battle. This game is part of a soccer tournament that many Europeans consider more important than the Olympics.

UNIDENTIFIED MAN: Well, the first thing you see when you look at the Germany team is just how big they are. They're the...

REEVES: Germany is playing Portugal in the Euro 2012 contest. The rival fans in this stadium share the same currency. They're subject to the same European Union laws. They enjoy access to the same single market. They can move freely across the same landscape. Yet these days, it's their differences that stand out. For the German fans, life is pretty good. Their exports sell like hot cakes. Unemployment is low.

(SOUNDBITE SONG)

REEVES: Not so for those lustily singing Portuguese fans. For them, it's tough getting a job. Unemployment is above 15 percent. Their shrinking economy is propped up by a $100 billion bailout from the EU and IMF. A lot of that bailout money comes from Germany. Disparities like this are growing sharply within the eurozone. If Greece exits from the single currency after this weekend's elections, these could deepen even more, says economics analyst Peter Thal Larsen.

PETER THAL LARSEN: The risk is that there would be financial contagion on a large scale right across the troubled countries of the eurozone.

REEVES: Thal Larsen says if the Greeks exit, can't get access to their money for a while and then see their assets devalued, that will be noticed. It will be noticed by many millions of other Europeans worrying about their economies: the Irish and the Portuguese and the region's struggling southern heavyweights, Spain and Italy.

LARSEN: The big worry is that they might respond to that by trying to take their money out of their countries' banks and move it to somewhere where it would be safer.

REEVES: Today, Spain's borrowing costs crossed 7 percent. Yet only a few days ago, Spain secured a European loan of up to $125 billion to save its banks. Pressure is also building on its big Mediterranean neighbor.

JASON MANOLOPOULOS: I think the market is very worried about Italy, and it just seems like the logical, mathematical progression of this eurozone crisis: As one country enters, then you go to the next weakest, and Italy is the next down the line.

REEVES: That's hedge fund founder Jason Manolopoulos, author of the book "Greece's Odious Debt." He doubts Europe can afford to rescue an economy as large as Italy's without printing a lot of money. There's a general consensus the solution to this crisis is closer fiscal and political union among the 17 eurozone nations. The only way this can happen is if Europe's giant economic engine room - Germany - agrees. Trouble is, the German public is getting tired of footing their neighbors' bills. Speaking to parliament today, the German leader, Angela Merkel, tried again to persuade them to tackle the fundamental flaws at the heart of the eurozone.

CHANCELLOR ANGELA MERKEL: (Through Translator) I know that it's arduous, that it's painful, that it's drawn out. It's a Herculean task, but it is unavoidable.

REEVES: In the end, the Germans are the dominant players in the eurozone's troubled landscape, and in that Portugal game, on the soccer field too.

UNIDENTIFIED MAN: ...against Portugal. Mario Gomez win it. Germany one, Portugal nil.

REEVES: Philip Reeves, NPR News, London.

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