If the Eurozone Countries Fail to Consolidate, Europe May Face Collapse

Europe has two alternatives in its further development - either to gradually move towards budget federalism, or to disintegrate. If the first scenario fails, the very idea of a united Europe will collapse.
The European financial system needs immediate consolidation; in fact, this had to be done yesterday. There are disciplined and undisciplined taxpayers. Why should a disciplined Finnish taxpayer pay for his undisciplined Portuguese counterpart? It is useless to always rely on aid provided by the European Central Bank (ECB). By the way, it is high time for Greece to leave the Eurozone. This is actually the last remaining chance of salvation for Europe, albeit an extremely painful one. The fact of Greece still belonging to the Eurozone benefits only Greece and not the entire Europe.

Europeans are now faced with a number of tactical and strategic tasks. The tactical goal at the present moment is to pacify investors by simply lengthening the period of government debt redemption - something which the ECB is actually doing. This will ease the situation for another half-a-year or even a year. Meanwhile, the ECB will be able to deal with its key strategic goal - to bring down the euro's exchange rate. If the single European currency retains its exchange rate at the present, very high, level, the problems will persist, and Europe may not exit the crisis for another three decades.


There are two ways to solve the problem of a high euro exchange rate. The first is to achieve its decline and a USD-euro parity; and the second is to shift production from the Eurozone to the regions which represent potential markets for goods and services. This was the way that Japan chose in the mid-1990s. Gross national product grows, and the national economy relieves part of the problem associated with the exchange rate. However, this solution has one drawback: such a measure is unpopular and may instantaneously trigger social protest actions across Europe. So there remains only the option of lowering the euro's exchange rate, becauseу Europe (especially Greece, Portugal, Spain and Italy) cannot rival with Japan or China in terms of their productivity levels.


A. L. Vedev - Candidate of Economic Sciences, Director of the Center for Structural Studies