Debt Crisis Puts Eurozone Countries On Edge
GUY RAZ, host:
The size of government in Greece will probably have to shrink, at least for the foreseeable future.
Yesterday, the country's prime minister appealed to European leaders in the International Monetary Fund for emergency loans to keep Greece from going into default. A total of five European countries now face a severe debt crisis. So severe, writes The New Yorker's James Surowiecki, that the fear of the moment is that entire governments will go under.
James Surowiecki is the financial columnist for The New Yorker magazine. Welcome to the program.
Mr. JAMES SUROWIECKI (Financial Columnist, The New Yorker): Thanks for having me on.
RAZ: Let's start with Greece. It now owes lenders about $400 billion. That's more than 110 percent of its GDP, its economic output. First of all, can a country go bankrupt, I mean, default on its loans?
Mr. SUROWIECKI: Oh, sure. I mean it's happened before. Most recently, at least on a big scale, was Argentina. In the beginning part of this decade, Argentina essentially backed out of, I think at the time, was about $80 billion in bonds. And a few years after that it was actually able to sell new debt.
RAZ: So we're in a situation now where there are countries like Greece and Portugal, they essentially need help. They need some kind of bailout from other European countries or from the IMF. Presumably, this is creating a lot of resentment among the stronger economies in the eurozone, for example, Germany and France.
Mr. SUROWIECKI: Especially, actually, in Germany. There has actually been a pretty profound difference between the French and German attitudes toward the bailout. The French have actually been much more active in saying this is necessary. And in Germany, I think, there's just a lot more resentment, a lot more hostility to the thought of the bailout.
And I think it reflects a couple of things. I mean, one is it reflects German aversion to debt, arguably dating back to the '20s when they got into huge trouble. You know, had hyperinflation and the like. And I think there's also this other kind of sense of they are these hardworking exporters who, you know, are sort of accumulating these big reserves, and now they're being asked to essentially pay them out or at least lend them to these frivolous borrowing southerners, essentially.
But I think one of the things to keep in mind is that a hefty chunk of Germany's exports go to other countries in the eurozone. And if you didn't have the euro and if Greece's currency reflected its economic strength, or rather its economic weakness, German goods would be much, much more expensive.
RAZ: They wouldn't be able to buy it. Yeah.
Mr. SUROWIECKI: Exactly. And so, Germany does reap benefits from being part of the euro.
RAZ: What if Germany decided not to help bailout Greece or Portugal or any of these other countries? I mean, what are the possible consequences of that?
Mr. SUROWIECKI: I think that the backstop would be the IMF, the International Monetary Fund. There are a couple of problems with that from the European point of view. The first is that if that happened, it would really, in a sense, kind of reflect badly on the eurozone generally, right? There's a sense of we couldn't solve our own problem. I mean, think of the United States if the IMF had to come in to give, I don't know, Mississippi a loan basically to stay afloat.
The second thing that would happen is it would really start to raise questions about the sustainability of the euro and whether or not these countries would be better off leaving it having their own currencies.
RAZ: I mean isn't that discussion already being raised now? I mean, there are certainly some people talking about the idea that Germany and France could conceivably leave the eurozone when they go back to the deutschmark, go back to the franc.
Mr. SUROWIECKI: My assumption is that in the long run, all these countries are going to stay in the euro at least for the next couple of years. But there is an argument that a lot have made that basically Europe was essentially too quick to try to incorporate as many countries as possible.
And, you know, there were all sorts of kind of budgetary gains that had to be played on the part of some of the smaller countries to get into the eurozone. And the bigger countries basically just winked at that because they wanted these, you know, countries to be part of the common market. And it may be in a sense that that's come back to bite them now.
RAZ: That's James Surowiecki. He's the financial columnist for The New Yorker magazine. James Surowiecki, thanks so much.
Mr. SUROWIECKI: Thanks for having me on.