And to think: Only a few months ago, in the depth of recession in this country, it appeared the euro might soon overtake the dollar as the world’s reserve currency of choice. Members of the Organization of Petroleum Exporting Countries, unhappy with the weakness of the dollar, were making noises about denominating oil transactions in the European currency rather than the greenback. Iran switched.Fast-forward, and for the euro the question is more direct and urgent: Will the currency, and the eurozone concept itself, survive? Should they? Yes and yes, we would submit.
The odds for the European Union currency improved somewhat this week with the vote by Greece’s Parliament to approve a series of austerity measures that qualify the country for a $140 billion bailout. But Portugal and Spain could be lined up behind Greece for similar assistance.
The culprit in the EU, as in Washington, is public debt. The world is awash in it. For years the Greek government has behaved like a teenager on a spree with his parents’ credit card. As the Greeks are learning the hard way, there’s a price to be paid for all that public profligacy, and they will be paying it — with reduced services, new rules for retirements and pensions, no more flouting of the tax laws.
The Greek troubles have shone a glaring spotlight on persistent conflict between Greece and Germany. Much of this is about finances. The Germans will be providing billions of euros to bail out Athens. But it is also about marked differences in national cultures — pitting the rules-driven Germans against the less-rules-obsessed Greeks.
The seamless ease of traveling across the EU — the absence of border control stations and paperwork — hides these differences. But they cannot be wished away. Careful negotiation of enforceable rules limiting national debt will be crucial to the survival of the unified currency and the powerful economic force it has helped to build.
The world needs a stable, prosperous Europe, and that very much includes the United States. The EU is a major trading partner for this country. A stumbling, weakened EU will slow the recovery here in measurable ways.
For evidence of the closeness of the connection, look no further than Wall Street’s performance Thursday. In a nerve-racking 15 minutes in midafternoon, the Dow Jones average plummeted by nearly 1,000 points before recovering to a 300-plus point loss for the day.
Evidently, some of this was systemic — a signal that mistakenly triggered automatic “sell” programs by some large investors. But observers say it was also concern about a spread of the Greek disease across Europe.
Those yips are real.