Europe Tries To Steer Euro Out Of Crisis
LYNN NEARY, host:
We turn now to Europe to find out the latest efforts there to deal with financial problems that have hit several countries. We called Philip Coggan. He's a columnist and capital markets editor for the Economist magazine in London. Thanks so much for being with us, Philip.
Mr. PHILIP COGGAN (Columnist, Capital Markets Editor, Economist Magazine): Hello.
NEARY: So, how did the euro fair this week to begin with?
Mr. COGGAN: It's had a very volatile up and down run. Two things are playing out really. One is the financial crisis in many European nations and the worry that countries like Greece won't be able to repay their debt. And the second thing is the actions that governments and central banks are taking to deal with that crisis, some of which are helping the euro and some of which have been harming it.
And the Germans on Wednesday night decided to ban the short selling - that is betting on a falling price of government bonds and another complicated instrument called a credit default swap. The alarm that that caused was that, first of all, it was the Germans acting on their own; secondly, it was like a bit like blaming the mirror (unintelligible) face. Blaming the messenger for the bad news as they are just indicates to investors that they don't get it.
NEARY: But you said some things are working. What's working?
Mr. COGGAN: Well, the hope is that the Germans will pass a bailout package, which will agree to support the Greek government and other governments that get into trouble. And also the European Central Bank will buy the bonds of governments which are having difficulty financing themselves in the market. That works to some extent in the sense that it has lowered the cost of borrowing for those governments.
It does raise questions over the very long term of whether in aggregate Europe has enough money to pay its debts. 'Cause all it is, is transferring money up the chain from Greece and Spain to Germany just as the banks in America transferred their debts up to the federal government.
NEARY: What efforts does the EU have to force Greece or any other country to implement these austerity measures?
Mr. COGGAN: Well, they've done a number of things. They will call in the IMF, and the IMF is International Monetary Fund, is much more used to dealing with countries that have deficit problems. The second thing that the Germans are talking about is imposing rules on countries in advance of funding problems. So, if you run a deficit for several years you may face penalties.
For example, not being able to get subsidies from the European Union or at worst losing your right to vote in European-wide decisions.
NEARY: Let me ask you about a more sort of ineffable a problem here, and that is that it seems as though there's now a mistrust between countries with a stronger economy like Germany and those with weaker economies like Greece. How does the European Union hold together in the future, given that level of mistrust that's there now?
Mr. COGGAN: It's going to be difficult. I think the main reason it holds together is because it's so difficult to break it apart. It's as if you said, well, California's got a lot of debts; maybe it'll give up the dollar. It's almost unimaginable to think that individual state could do that in the United States. And it'd be very difficult, suddenly, to announce if you were Greece that they were going back to the drachma, for example.
You'd have to change all your coins and all your debts would still be in euros, so it wouldn't deal with the underlying problem. But it may well be that this leads to changes in the relationships between governments. And it is a question for democracy. It's an irony in Athens, the cradle of democracy, that Greek economic and social policies are effectively being dictated to them by outsiders, whether in Frankfurt or by the IMF in Washington.
NEARY: Philip Coggan is a columnist and capital markets editor for the Economist magazine. He spoke to us from London. Thanks for being with us, Philip.
Mr. COGGAN: Thank you.
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