The eurozone crisis is one of those lazy, sky-high but short, can-of-corn fly balls no one can catch.
Survivors of gym class to veterans of organized ball no doubt have been stuck in the situation dozens of times. Some would-be slugger pops up a pitch; the left and centre fielder come barreling in to field a sure out as the shortstop backpedals, his glove up to block out the glare of the sun.
I've got it, you've got it, oops, no one's got it, is how it usually goes. The ball drops sadly between three gloves. Runs score, runners reach, an extra out is given away.
That's the current economic crisis in Europe as a collection of the world's most esteemed governments and one of humanity's great experiments in democracy scramble mightily to do an absolute minimum that's never enough. Only it's been dropped ball after dropped ball, one after another, for two years. It's Aaron Sorkin quoting Eugene O'Neil - there is no present or future, only the past, happening over and over again, now.
As it stands, the fallout from the 2008 crash of the U.S. bank Lehman Brothers required Ireland and Portugal to be bailed out financially by the 17-odd nations of the European Union. Greece has all but defaulted on its debt and required its own package of bailouts.
And so the blood clot is working its way to Europe's heart. Because of a lack of action, investors think Spain is next likely to default on its debts; as a result, it's becoming harder for it to find people to lend it money. According to the Economist, the European Central Bank (ECB) is intervening in bond markets but, unless something drastically changes, Spain will need a bailout, exhausting what meager funds the EU has left to deal with the crisis.
Once Spain falls, attention will shift to Italy, a G7 country and the world`s third largest holder of sovereign debt and the same cycle of doubt and inaction will begin again. The EU doesn't have the resources to save Italy; the result of an Italian default would likely be that country pulling out of the euro and going back to its original currency, the lira. The result of that would probably be an end to the euro, the fragmentation of the EU and general economic chaos.
The theory is someone, namely Germany, the EU's strongest economy and largest shareholder in the ECB, will see the breakup of the EU as such a horrendous outcome it will spearhead a genuine solution to the crisis, which involves stronger united pan-European government, a shared approach to European debt and some sort of stimulus package for weaker economies. But it just doesn't seem likely that German voters, along with the increasingly frustrated Finns and Dutch, will allow their government to use their money to bailout Europe even it is in their best interest to do so. More importantly, it would take, according to the Economist, three years to conduct all the referendums, debates and legal wrangling needed for such a long term solution; the process hasn't even started.
The collapse of the euro is not a done deal; according to the Huffington Post's Imogen Lloyd Webber, a best guess is there is a one-in-five chance of it occurring. But the longer the crisis drags on without something more than words and half-measures, the closer Europe comes to catastrophe.
How bad would it be? Well before 2008, most people didn't know there was a bank in New York named Lehman Brothers and its collapse led to the so-called Great Recession. Chances are you've heard of Spain, Italy, Europe. The collapse of the euro zone would cause a global economic shock wave of an even greater magnitude; Lloyd Webber writes that some estimates show U.S. financial institutions hold a combined stake of $2 trillion in European banks.
In the chaos of a euro implosion, currencies would be devalued, there would likely be runs on banks, governments would fall, and there would be some form of civil unrest across Europe. High employment and a capital-d Depression would probably follow.
The fallout globally would be, at least, another recession.
Here at home, it's hard to gauge what the consequences would be, past probable hardship. If such a collapse occurred before the provincial election, would it hasten the demise of Premier Christy Clark or would voters be so spooked by the NDP's supposed economic credentials they would flee back to the B.C. Liberal brand?
The outlook would also be cloudy for northern B.C. Commodities such as lumber would suffer as the global financial system struggled to deal with another virtual heart attack brought on by European disorder.
Enbridge's $6 billion Northern Gateway project would assume even greater prominence. On one hand, a collapse in oil prices from a seizure in global trade and demand could, when combined with the hostility the pipeline is receiving, effectively mothball the endeavour. On the other, a multi-billion-dollar enterprise would look very tempting to a region laid low by layoffs and stagnation and a fall in U.S. demand would make oilsand producers desperate to find new buyers in Asia.
Here at home, City hall would face more tough choices. Even as cuts and tax hikes in Europe are causing widespread protest and calls for an end to austerity, Mayor Shari Green and council will be in the midst of their own austerity program being conducted under the auspices of a core review. Will cuts and perhaps job losses at City hall be possible or wise in the midst of another recession? Or, in the face of declining revenues, will slashing city services be the only way for mayor and council to preserve the city's books?
Hopefully these are all questions no one will have to answer. But when it comes to the euro, the only thing that seems to be certain is don't bank on its politicians not dropping the ball.
- Associate news editor Rodney Venis
