Europe Teeters Again on Economic Brink

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Audio Transcript:

Aaron Schachter: This is The World, a coproduction of the BBC World Service, PRI, and WGBH in Boston. I'm Aaron Schachter. The economic picture in Europe may be going from bad to worse and the issues just won't go away. In Spain the governments borrowing costs are now so high that many believe a bailout is inevitable. The fear is that if Spain's economy collapses, the problems might spread to Italy and even France. Even powerhouse Germany is hurting because of problems elsewhere in Europe. The World's Clark Boyd is just back from a two year stint in Brussels where he followed the Eurozone problems closely. Clark, Spain's borrowing costs are up. Why is that giving the markets and European policy makers such fits?

Clark Boyd: Mostly, Aaron, because Spain isn't really considered the periphery of Europe in the same was that say Greece or Portugal or Ireland is. So when you're talking about problems with the Spanish economy you're talking about the Eurozone's fourth largest economy and there are obviously concerns that if that economy goes south the bailout required for that is going to be immense, even bigger than we've seen for these smaller countries and the fear is if Spain goes then the contagion spreads to countries like Italy, even France, and the problem just gets worse and worse.

Schachter: So Germany, the big powerhouse in Europe, came to rescue of Greece. Will it do it again?

Boyd: Well, this is obviously a big sticking point. For many in Europe it's the million dollar question. Many people think that Germany will step up, that they have no choice, that the political will is such that you can't let the Eurozone fall apart. Here is Alfredo Pastor [?? 00:01:31] who teaches at the IESE Business School in Barcelona when they asked him will the Eurozone, will Germany, step up to help Spain?

Alfredo Pastor: Germany will exhaust every possible weapon in their arsenal before letting the Euro break up.

Schachter: That is an awfully optimistic assessment. I do get the impression that Germans are fed up with bailing out the other countries.

Boyd: Well, I mean to an extent many of them are. The rhetoric in Germany, I mean look at what Angela Merkel was constantly saying. We don't want a break up of the Eurozone. We'll do what it takes to keep the Eurozone together. Meanwhile at home, domestically, she's having to make that case to an increasingly skeptical German public because they say, 'Hey, these are our tax dollars going to bail out these countries. How can we justify doing that anymore?'

Schachter: The frustration that you're talking about in Germany, Angela Merkel having to appease Europe on the one hand, appease her own people on the other. How could that play out?

Boyd: Well, it could play out numerous ways. One thing that we've heard a lot about is everybody in Germany always saying maybe it's time Greece left the Eurozone and maybe we'd all be better off. Now I think that the level of frustration is such that Germans are starting to wonder if maybe they should be the ones to leave the Eurozone. This was a little clip that I found from Hans Olaf Henkel who is a professor at the University of Mannheim, was a huge supporter of the Euro back when it started, and as you'll hear is not so much a supporter of the Euro now.

Hans Olaf Henkel: We have had now 21 summits in the last two and a half years to save the Euro and I'm afraid we'll have another 21 summits in the next two years to save the Euro.

Boyd: Aaron, it's that feeling that we just keep kicking the can down the road. We're not solving the fundamental issues. And actually Hinkel has proposed that Germany, Finland, Austria, and the Netherlands, the big strong core which is shaky enough as it is. I mean even today we heard that Germany might lose its AAA credit rating. Hinkel says why don't the strong Euro countries break away, form their own kind of northern Euro, and see what happens. Maybe both the north and the south would be better off if this economic split occurred.

Schachter: Finally, Clark, I just want to ask you, you have been to many of the countries in the Eurozone. You did reports on the economic situation in those countries. What is the feeling of people living there? Are they fed up or do they understand ultimately beyond the frustration what it would mean to try to break the Eurozone apart?

Boyd: Well, the frustration is definitely there and it's there when you talk to Germans, it's there when you talk to Greeks. I mean they understand that in various ways being in the Eurozone has been good for both of them but they also understand at some fundamental level I think that Germany and Greece probably should never have been put in the same monetary union in the first place. And people ask so isn't there a European Union? These countries, aren't they supposed to come together and solve this? I have to remind them that the European Union is not a collection of states like the United States is a collection of states with a strong central bank. And I also have to remind them that it's not a political union either and that's part of the problem as well. I like to joke the European Union is still 27 tribes and they all vaguely dislike each other and don't trust each other and that makes it hard to solve these big Europe wide problems.

Schachter: The World's Clark Boyd. Thanks for talking with us.

Boyd: You're welcome, Aaron.