September 14, 2011
The End of the Line: Eurozone Crisis Hits Tipping Point
by LizAnn Sonders and Michelle Gibley
The inevitability of the eurozone crisis was foreshadowed by the late, great economist Milton Friedman. At the time of the euro’s debut in early 1999, Friedman expressed concern that it would not survive the first major European economic recession or crisis. Prescient thinking.
Euro 101
The primary motivation for the creation of the euro was less economic than political. The goal was an integrated Europe that could more effectively compete with (and/or rival) the United States. The hope was that a single currency would also force economic restructuring in the more-wayward peripheral countries, requiring them to abide by the Maastricht Treaty rules that govern member countries’ budget policies.
Things didn’t work out as planned…
Key points
* The growing likelihood of debt default by Greece rocks markets and sentiment.
* Although the banking system is healthier today than it was in 2008, contagion risks are elevated.
* The grand experiment of a unified currency in Europe is facing its greatest test yet.
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