As a sovereign debt crisis rages in the euro zone and countries attempt to get to grips with a spiraling deficit, numerous views on who and what caused it have emerged and the inevitable blame game has begun.
From the working habits of the Greeks to the collapse of Icelandic banks, just about everything has been pinpointed as a possible cause for the demise of European economies and the decline of a continent which was the first economic powerhouse of the modern world.
So who really is to blame? Are these ten commonly named culprits merely scapegoats and victims of the wider global economic meltdown?
Click ahead to find out.
Posted 24 May 2011
In March 2010, an open letter appeared in German tabloid Bild to the Greek Prime Minister George Papandreou being less than kind about the Greek people and their working habits and urging its citizens to emulate Germans who “get up early and work all day”.
The letter followed a call by two German politicians for the Greeks to sell their islands and monuments before seeking a penny of aid from the EU.
The Greek deficit swelled in the mid-2000s when the economy was strong and the government saw no signs of that abating.
By 2008 when the downturn hit, Greece’s main industries - shipping and tourism – found themselves particularly badly affected, the nation’s debt became unmanageable.
Austerity plans drawn up by the government to activate a 110 billion euros ($158 billion) bailout package from the EU brought hundreds of thousands of Greeks – 40 percent of whom work in the public sector - onto the streets in May 2010 and the latest round of stringent spending cuts.
Harsher austerity measures helped Greece reach a 45 billion euros loan agreement with the EU and the IMF in May 2011, but they have hit the Greek people hard, prompting a fresh round of strikes and protests.
The German Chancellor Angela Merkel was criticized for initially taking a hard line against EU aid for bankrupt member states, but the Germans were well aware that they would have to stump up the lion’s share of bailout money for faltering euro zone economies like Greece.
In 2010, German exports grew by a staggering 18.5 percent and GDP rose 3.6 percent, while the rest of the euro zone and EU members either lag badly or teeter on the brink of bankruptcy.
Critics argue that the rest of Europe has fallen victim to German economic success and with 80 percent of its trade surplus being down to trade within the EU, they may have a point.
Polls suggest most Germans are opposed to offering assistance with further bailouts and few have faith that they will get back what they have lent so far.
But the implications for the wider euro zone if countries such as Greece, Ireland and Portugal default or throw the towel in on austerity measures are so disastrous, that Europe’s powerhouse is likely to keep paying out.
Although many "boomers" have suffered disproportionately as a result of the economic downturn (pension funds, house prices, savings, kids returning home after college) the reality for many developed nations struggling to get spending down is that a glut of post-war babies are now hitting retirement.
British business minister David Willets argued in his 2009 book "The Pinch: How the Baby Boomers Took Their Children’s Future – And Why They Should Give it Back" that those born between 1945-1965 hold a disproportionate amount of the wealth and have “stolen their children’s future” through economic, demographic and political dominance.
Anatole Kaletsky argued in the London Times that the drain of the baby boomer generation will be the biggest policy issue facing cash-strapped governments over the next decade.
Plans to increase the state retirement age by one year to 66 will be introduced in the UK from 2016, in a move which has passed with little resistance.
Not so in France where Nicholas Sarkozy vowed to press ahead with similar plans, despite six days of strikes over the proposals in October last year.
While the West is in decline, the Chinese economy continues to grow at rates most of the rest of the world can only dream of.
US Treasury Secretary Timothy Geithner has repeatedly pointed east in when identifying hindrances to the global economic recovery.
Common complaints include the undervalued yuan giving the Chinese an unfair trade advantage, lax regulations relating to intellectual property and barriers to foreign imports.
As China’s biggest export market, the Chinese have a particular interest in ensuring the EU stays afloat, but European firms have criticized the public procurement system in China which effectively excludes non-Chinese companies from securing public contracts - estimated to be worth over $1 billion.
“We do have confidence in European financial markets and the euro,” People’s Bank of China Deputy Governor Yi Gang said at a briefing in London in January 2011 and the Chinese have invested heavily in euro zone debt, but when it comes to Europeans penetrating the Chinese behemoth, things don’t seem quite so friendly.
Speculators tend to get the blame for any dramatic market movement, whether it be in cocoa or government debt. The idea that ruthless hedge fund managers are pulling the strings behind massive systemic positions has become entrenched in the public psyche, with everyone from President Barack Obama and Greek Prime Minister George Papandreou to some small investors calling for limits to their control over the markets.
Back in February 2010, the Greek newspapers reported that the country’s intelligence services were investigating “speculative attacks” on its bonds.
Papandreou has said that recent rumors about debt restructuring are being spread by those same speculators whose short positions would be vindicated by a partial default.
While proponents of the theory say that the combination of a heavily sentiment-driven market and investors with large vested interests in a sovereign default are a toxic mixture, critics say that betting against a faltering Greek economy is simply good sense.
When British banks failed spectacularly in 2008, prompting a huge government bailout, ex-RBS chief exec Fred Goodwin became the British version of Bernie Madoff.
The once revered Royal Bank of Scotland posted losses of £24.1 billion ($39.2 billion) during Goodwin’s reign – the biggest ever in UK corporate history – and in 2009 it emerged during a Parliamentary committee hearing that Goodwin had no formal banking training or relevant qualifications.
‘Fred the Shred’ was forced into hiding and for a while it seemed as if he was entirely responsible for the near-collapse of Britain’s banks.
There was further outrage when Fred Goodwin’s pension plan with RBS was made public, amounting to £16 million. Amid mounting pressure to prevent Mr Goodwin from receiving around £703,000 a year, the Royal Bank of Scotland announced in June 2009 that his annual income from his pension had been reduced to £342,500.
Iceland has become something of a pariah state in Britain and the Netherlands where it seems every other person, business or in Britain’s case, local council, was heavily invested in Icelandic banks, which collapsed in 2008.
The British and Dutch governments petitioned Iceland to pay back depositors for money lost, but an outright rejection of a repayment deal by the Icelandic people in a 2010 referendum, with 92 percent voting against to just 2 percent in favour meant a renegotiation of the repayment conditions.
In February 2011, the president of Iceland, Olafur Ragnar Grimmson refused to sign a $5 billion deal to repay the UK and the Netherlands for deposits lost, despite parliament approving it one week earlier.
A second referendum specifying less stringent repayment conditions was again overwhelmingly rejected and the British and Dutch governments have since vowed to pursue Iceland through the courts to recoup the money lost by investors in both countries.
The former British Prime Minister famously said in his previous role as finance minister that the UK would never return to an era of “boom and bust”.
Traditionally the right wing Conservative party were trusted more on the economy than their left-leaning Labour opponents, but Gordon Brown, during his time in charge of the British Treasury changed all that.
Brown pushed through deregulation of the City as Labour embraced traditionally Conservative free market ideas and British borrowers could secure mortgage rates as high as 125 percent.
Debt piled up as the government spent heavily and the consequences of house price and equity booms were summarily ignored.
Current Prime Minister David Cameron, who once described Mr. Brown’s brain as “awesome”, nowadays blames him and the policies of the previous government for Britain’s mind boggling deficit which at 10.4 percent of GDP was the third highest in the European Union last year.
A Moody’s double downgrade of Greece to below junk status and Spain down to Aa2 in March 2011 fuelled market panic over euro zone debt and prompted Greek Prime Minister George Papandreou claim ratings agencies were “seeking to shape our destiny and determine the future of our children.”
There was more bad news in May when Standard and Poor’s cut Greece’s rating again with a warning that it could be downgraded further and criticism of the agencies led to German foreign minister Guido Westerwelle calling for the creation of an alternative European credit rating agency.
However, IMF managing director Dominique Strauss Khan’s argument that rating agencies reflect investor perceptions rather than the true economic conditions of countries such as Greece, Ireland and Portugal does little to explain the fundamental problems which resulted in the near collapse of these euro zone economies.
When they joined the euro zone, countries such as Ireland, Spain and Portugal who joined in 1999, followed by Greece in 2001, effectively relinquished sovereign control of monetary policy and with it the power to devalue their currencies and raise interest rates.
Critics of the euro argue that property and credit booms (and eventual busts) such as those experienced in Ireland, could have been avoided if the Irish had maintained control over their monetary policy.
While it’s a fair point that weaker euro zone economies were always likely to struggle against the relative economic powerhouses of Germany and northern Europe, the idea that the problems they are now facing would not exist if they operated outside the euro zone is far too simplistic.
As Silvia Wadhwa points out, peripheral European economies enjoyed low interest rates on entry to the euro and they spent wildly, improving both infrastructure and the living standards of their citizens.
When the global economic downturn hit, the weaknesses of their national economies were exposed and they were unable to pay back their creditors.
The rest, they say, is history, but it remains to be seen how history will treat the single currency, Europe’s most ambitious project.