Europe's Debt Crisis May Saddle Germany
STEVE INSKEEP, host:
Its MORNING EDITION from NPR News. Good morning. Im Steve Inskeep.
RENEE MONTAGNE, host:
And Im Renee Montagne.
This week, the nations of Europe face the consequences of taking on too much debt. A handful of European countries ran up big budget deficits.
INSKEEP: And this, in turn, has affected other nations. In a global economy, everything is connected, and that is especially true in Europe where 16 nations share a common currency.
MONTAGNE: Portugal, Italy and Spain all have fiscal problems. Greece is overloaded with debt.
INSKEEP: And now lets see how all of this affects two of Americas big trading partners. In a moment, well hear about conditions in Britain. We start with Europes strongest economy: Germany.
NPRs Eric Westervelt reports from Berlin.
ERIC WESTERVELT: First the good news: A modest appreciation of the Euros value could, in the short term, help Germanys export-dependent economy. But Christian Dreger with the German Institute for Economic Research says there is some fear that if the Greek government doesnt keep to the very tough austerity measures it agreed with the European Commission, it could spark a more dangerous plunge in the value of the euro.
Professor CHRISTIAN DREGER (German Institute for Economic Research): A debt crisis in Greece could be a financial crisis, as well. So many German banks are engaged in Greece, for example, and this would probably lead to a further crisis in the euro area.
WESTERVELT: The debt and deficit crises in Greece, Spain and Portugal underscore a political problem in the European Union that has dogged the euros own 11-year history. The 16 countries share a common currency, but lack a way to effectively coordinate fiscal policy. Economist Markus Kerber says the Greek debt crisis exposes the fallacy that you can have a common currency with such different economies and governments as Greece and the Netherlands.
He says there are small nations in the zone whove been getting a free ride, not making tough economic decisions, knowing the euro currency will be held up by the strength of the German, French and Dutch economies. He hopes the crisis spurs both political and fiscal reforms.
Dr. MARKUS KERBER (Economist): The sooner the European community and the sooner the European Monetary Union becomes conscious of its free-riding behavior over a relatively small state, the better it is, you know, to reform the mechanism. So we restrict the real danger to a tumbling down of the walls of Greece.
WESTERVELT: But some politicians fear that will create a two-tier eurozone and undermine the very political benefits that were supposed to come with a unified currency.
Eric Westervelt, NPR News, Berlin.
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