How to Fix Europe: All or Nothing?
The remedies being floated to fix Europe range from the mild to the extreme—it could be either a healthy dose of government intervention or surgery, so to speak, getting rid of some of the weaker euro-zone countries.
“The choice [for Germany] is between giving up some autonomy to strengthen the union or allowing it to disintegrate,” said BMO chief economist Sherry Cooper.
The only thing certain about the “Euro-fix” is that uncertainty will remain for years, said Morgan Stanley’sDick Berner.
However, Marco Annunziata, chief economist and head of FX research of UniCredit, told CNBC Wednesday that he’s against cutting the weaker euro-zone countries loose because “it would risk unraveling the Euro area altogether.”
Annunziata recommends two measures—a type of “balanced budget” action to curb spending of nations, not just in times of crisis, but of growth, and labor-market reform that would encourage more productivity and flexibility.
Nearly all seasoned observers agree that the continent must first, implement the $1 trillion program it’s approved, and then make sure that the wealthy nations step up and guarantee the debts of the weaker countries.
One economist said that it may be impossible for the weaker euro-zone nations to repay their debts, unless Europe also extends the adjustment period of fiscal austerity by five years.
An even more dramatic option is a greater depreciation of the euro than has been seen.
In London on Wednesday, US Treasury Secretary Tim Geithner said he’s confident that Europe will implement the rescue. “I believe they’ll [the European countries] do what’s necessary to make it work.”
According to a government official on Tuesday, Geithner said he favors bank stress tests to fix the European crisis, like those used in the United States during the financial crisis.
As some see it, there are two possible results for Europe—a strong euro-zone region or a no euro-zone at all.