Will debt crisis lead to reform in Europe?
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People's Daily, September 28, 2011
Editor's note: Recently, the European debt crisis, which was quiet for a short period of time, started to ferment once again. The new rescue plan for Greece is an uphill battle and the credit rating of Italy was downgraded again by international rating agencies. How many European countries will also be involved in the whirlpool in the future? What is the way out of the crisis? In the seminar themed China-Europe Relations in Global Version, a reporter from Jiefang Daily interviewed the Institute on Global Development under the Development Research Center of the State Council Deputy Director Ding Yifan.
How far will the crisis reach?
Reporter: Recently, alarms sounded in Greece and Italy again. Do you think countries like Greece will default in paying their debts or even be ejected from the euro zone? If the answer is "yes," how will it affect the global economy?
Ding: If countries of the euro zone cannot cope with the crisis properly, it will be possible that Greece will default in paying its debts. However, since Greece's economic aggregate accounts for only a small proportion of the total economic aggregate of the euro zone, Greece will not heavily impact the euro zone even if it is completely broke.
But Italy, as the third largest economy of the euro zone, is different from Greece. If Italy has failed to pay its debts, the economies of Spain and Latin America probably will also be dragged in the mud pit. Once a domino effect occurs, the financial tsunami will sweep the whole world once again and the global economy may be dragged to the bottom too.
Certainly, this is only possible theoretically and is unlikely to happen in practice. For instance, in terms of "Greece's exit from the euro zone," the Greek government can theoretically require its people to convert their euros into domestic drachmas and boost the country's export competitiveness through currency devaluation, but the key lies in whether the Greek people will give up euros and reuse drachmas.
Can Europe reach a consensus?
Reporter: The probability of the "bankruptcy" of the Greek government seems low. Thus, how will the European debt crisis develop? How can the countries in the euro zone ease and even resolve the tough issue?
Ding: The debt crisis will perhaps last for a long time. In fact, the designers of the European Economic and Monetary Union have long forecasted the crisis and even developed solutions: using the crisis to "reversely force" the European countries to unify their fiscal and economic policies, promote the establishment of a "euro zone economic government" and even the "European United States" and achieve the ideals of the "fathers of the Euro." There were many similar cases of using crises to promote reforms in the course of the European integration. French and German leaders have reached a consensus on the establishment of a "euro zone economic government"
However, although political elites have reached a consensus, it seems that the masses do not agree with them. At present, the pan-Europeanism that advocates complete European integration is competing against the narrow nationalism that encourages each country to solve its own problems. The result of the competition remains to be seen.
European: A U.S. conspiracy?
Reporter: Some analysts said that the United States orchestrated the European debt crisis to suppress the euro. What do you think of this conspiracy theory?
Ding: This conspiracy theory makes some sense. An incredible coincidence is that the Greek debt crisis broke out just when the combined national debt of European countries surpassed that of the United States, which was a reflection of Europe's greater economic influence than the United States.
The United States could not stand it, and probably orchestrated a debt crisis in the euro zone. There is some possible evidence for the U.S. conspiracy: It was the U.S. securities firm Goldman Sachs that whitewashed the huge debt of Greece and pushed the unqualified candidate country into the euro zone. Then, U.S. credit rating agencies downgraded the credit rating of Greece and destroyed the people's confidence in Greek debt.
