1、Crisis, Contagion and Bailouts: Whats Next for the European Union? European financial officials finally got out in front of swiftmoving market developments on May 10th by launching a huge $960 billion (750 billion euro) financial stabilization plan - exceeding most expectations - to bail out Greece
2、and ensure the viability of the European Monetary Union, at least for now. Some observers say the move prevented a potential financial meltdown in which concerns over sovereign debt defaults would have swiftly led to large-scale bank runs in some European countries.Many experts this week expected th
3、e package to continue to calm markets - at least temporarily - by guaranteeing most sovereign (and some private) debt in Greece.or by providing credit for other troubled member economies in the future, including Portugal, Spain and Ireland. The bailout - which also includes some bilateral loan agree
4、ments, U.S. funds and dollar swap agreements through the Federal Reserve had the immediate effect of sweeping away fears of a possible collapse of the Eurozones financial system. Such an outcome would have set off a new round of recession in Europe and might have dragged the world financial system b
5、ack to the depths reached 12 to 18 months ago or worse. Some critics still view the overall stabilization package, which left many details vague, as a short-term fix that ultimately will fail to address deep public and private debt levels, pressing fiscal deficits and persistent internal and externa
6、l trade imbalances. One explanation for why Europes financial authorities did not act sooner to avert potential disaster: The leading player in any stabilization measure is Germany, because of the size and strength of its economy. But Germany was caught up in regional elections in North-Rhine Westph
7、alia that were critical to the future of Angela Merkel, the German chancellor, and her coalition. Merkel appeared to want to delay any action on the European financial crisis until after elections because much of the German electorate takes a dim view on bailouts for countries thought to have over-b
8、orrowed and overspent. The elections, held this past weekend as the bailout measures were being worked out, resulted in a serious defeat for Merkels coalition anyway, and Merkel is now being roundly criticized for allowing financial events in Europe to skid nearly out of control. Others point out th
9、at delaying action may have made the bailout more costly to Germany and others than it would have been earlier, as borrowing costs climbed dramatically in reaction to swiftly mounting perceived risks. In the run-up to the announcement about the European aid package, Wharton professors Mauro F. Guill
10、en(born and educated in Spain) and Saikat Chaudhuri(born and educated in Germany), and Jean Salmona (born and educated in France), founder and chairman of the editorial board of ParisTech Review, participated in an interview on the likely outcomes from the financial crisis facing Greece, some of its
11、 sister countries and the European Monetary Union more generally. How did events spin so out of control? How will the politics of the crisis affect the Eurozones economic performance? And will there be similar crises in the future? Guillen, Chaudhuri and Salmona addressed these and other questions -
12、 as well as many longer-term issues relevant in the wake of bailout efforts - on May 7, just before the huge financial support package was announced. Mauro Guillen: The background to all of this is, of course, a little bit more than 10 years ago when some European countries adopted the euro as their
13、 currency. But they didnt think about situations in which maybe the adoption of a common currency would create stress and, in particular, the fact that even though there is a common currency in the center of Europe there are no mechanisms in place really to make sure that all the countries are playi
14、ng by the same rules and that all the countries are essentially complying with some basic criteria, which are half economic and half political. So this is not just about economics. It is also about politics criteria having to do with budget deficits and having to do with the way in which you are mak
15、ing sure your country can remain competitive after you have essentially given away a very important policy option in your toolkit, which is to devalue your currency. In other words, you are surrendering your sovereignty in terms of your currency, which means that when you are in hard times, you cann
16、ot devalue in order to become more competitive. But at the same time, the architects of this monetary union 10 years ago didnt think about what should be done in case one or more countries actually get into trouble. They didnt think about what kinds of institutional arrangement and decision-making p
17、rocedure should be in place to tackle a crisis that unfortunately as always happens with these sovereign debt crises has built up over a very, very long period of time. But the crises unfold very quickly. So the roots of the situation are to be found in the last five years or 10 years and probably t
18、he last 15 years, since Greece, Portugal, Spain and so on became members of the European Union in the mid 1980s. But the unfolding of the crisis actually has taken place over just a period of two months or three months and, therefore, if you didnt plan, especially institutionally, for the situation
19、then there is no way in real time that you can actually put in place the mechanisms to cope with the situation. Saikat Chaudhuri: The latest economic crisis shows its time to create the right institutions and mechanisms for dealing with the kinds of financial crises seen in Europe last week. Will we
20、 see more crises? I think that in a global economic system.We will see more crises. Thats just the nature of it. I think it is a good time to start thinking about the right institutions and mechanisms at those levels, which can respond to these types of crises in an effective fashion. And thats been the lesson from the global financial crisis. I think thats the lesson from the Greece package. I think that knowledge reached a certain level in Europe and that we will see a strong response coming from Europe, from Germany, France and other countries. They cant
