A3: While there is no one particular issue to watch; there are several important trends to monitor in the coming days and weeks:. Look also for future IMF statements regarding Italy. A4: It is important to remember that there are two completely different timelines: market time and Merkel time. Market time has significantly accelerated the time horizon of this crisis, particularly since the July 21 European summit. The market as well as other large economies demands to see financially sufficient and decisive decisions coming from Europe to resolve the crisis once and for all.
And we wonder why the European crisis feels like it is on running on two separate speeds? Q5: What does this all mean for the United States? Can or will the United States help rescue Europe? A5: How this continually unfolding crisis will impact the United States is also uncertain, but it will take a significant toll.
A real economic shock in Europe would certainly upend the fragile U. How exposed the United States is, both directly and indirectly through derivatives and guarantees , to the 17 eurozone economies countries is less clear. According to Dr. These daunting numbers do not include American exposure to banks in the United Kingdom, nor do they include the nine other European Union countries not in the eurozone that would be deeply impacted by the crisis.
It is important to note that this figure is four times greater than the debt caused by U. However, on the bright side, U. The only question we must ask is: at what great future cost? To avoid rewarding populists, the German team proposed a limit to the concessions that EU members should offer. In contrast, the French team warned that an Italian exit would spell the end of the European project, and therefore should be prevented at all costs. Unlike the UK, Italy is a founding member and part of the eurozone and the Schengen area.
But other participants completely disagreed. The Dutch team also feared populist spillovers but drew a different conclusion: a clear no to any concessions or negotiations with Italy to maintain and preserve the integrity of the EU and the eurozone. The Spanish team suggested finding a way to keep the EU and eurozone together by finding a compromise. One concrete proposal that came up was to enhance the size of the rescue fund and prolong its duration, combined with strict accountability measures.
The second part of the scenario imagined an even more significant escalation: a victory of Marine Le Pen in the French presidential elections. She would also try to reform the single market, including by abolishing temporary postings of workers to other member states; and she would attempt to prevent EU interference in internal affairs through the rule of law framework.
First, the four country teams reflected that this scenario might present an even bigger threat to the EU than the exit of a member state—a big member state attempting to hollow out and renationalize the EU from within by trying to get its fingers on the right buttons in Brussels— rather than threatening exit as a so-called nuclear option. In responding to this scenario, the country teams discussed to what extent Le Pen could be constrained. The French team was pessimistic, pointing out that the French presidential system provides limited checks and balances.
Yet despite this, the EU should not try to constrain France by isolating it with sanctions, as in the case of Austria in The Spanish team also warned against a confrontational approach toward France; instead, the EU should start negotiations and keep the French busy with talks as long as possible.
Other countries that suffered after the Great Recession of became stronger and experienced lower unemployment. While the eurozone was finally on an economic upswing, the recession caused by the global financial crisis severely impacted the eurozone's economy.
Unemployment rose to 7. Under this agreement, 26 separate European countries agreed to allow free movement of people, goods, services, and capital within the borders of the eurozone. Not every member of the EU is also a member of Schengen, and not every participant in Schengen is part of the EU , but a collapse of the euro would nonetheless affect countries inside and outside of the region.
Economically, it is possible to have competing currencies in the same economic zone. There is nothing preventing Germans or Italians from trading in both German Deutsche marks and Italian lira, for example. That scenario only seems unlikely because an end to the euro would increase pressure to dissolve the entire EU experiment.
If Schengen were to fall, countries inside the eurozone would need to implement border controls, checkpoints, and other internal regulations previously eliminated in the Schengen Agreement. The costs of this would spill over into private businesses, particularly those relying on continental transportation or tourism.
To the extent that import quotas or tariffs are implemented by various member nations, and to the extent that those measures are reciprocated elsewhere, there would be a corresponding decline in international trade and economic growth. A collapse of the euro would affect more countries than those in Europe, although in uncertain ways. Other regions, particularly major trading partners in North America and Asia, would face financial and possibly political consequences.
Many of the supposed economic benefits inside the EU do not transfer to external trading partners. The freedoms of labor and capital do not extend to the United States or China, for example, unless foreign consumers and producers gain access to a member country. As a result, it can be difficult to predict the potential fallout since it is possible that even stronger pro-growth policies could replace the bureaucratic super-state seated in Brussels.
On the other hand, increased economic isolationism from nationalist movements could threaten international businesses and financial markets. In the short term, markets would likely react negatively to added uncertainty. The EU is a known commodity, even if imperfect, and markets like predictability. However, in the longer term, the markets could benefit from a once-again growing Europe. If a post-euro world returns continental Europe to competitive economic growth, it is very likely that the global economy will benefit.
Redenomination would entail two broad changes. This means adjusting present wages, prices, and other values to the new money on an approximately proportionate basis. Second, the international value of the currency would need to be priced into the foreign exchange forex markets. This is based on many factors, including the productive capacity of each national government and the relative risk of a devalued currency.
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