NATIONAL/INTERNATIONAL
Eurozone Crisis a Result of Spending
by Zack Anderson
E
uropean countries can’t pay their debts,
and because many of the countries are
connected economically and politically
by either the European Union or the common
currency of the euro, they all have a vested in-
terest in what happens to their neighbors. This
is the essence of what has been going on in Eu-
rope since the Greek government was bailed
out for the first time with 10 billion euros in
May 2010.
But according to Marc Clauson, profes-
sor of history and law, the problem started
a lot longer ago. He said it began in the late
19th century when European countries began
to become social democracies and started to
promise to provide their citizens with lots of
services.
“As long as Europe was prosperous, they
could fund these kinds of things,” Clauson
said.
But in the 1960s, prosperity decreased and
promises continued to increase, so countries
began to borrow more and more, Clauson said.
When countries started to run out of money,
its lenders started to doubt whether the coun-
try could repay them. This can make the coun-
try no longer able to borrow more money.
Greece, Italy and Spain are three coun-
tries in the middle of the crisis, which is com-
pounded by the fact that they all, along with
14 other European countries, officially use the
euro as their currency. Because they use the
euro, they cannot necessarily have the mon-
etary policy that is best for them, Professor of
Economics and Berry Chair of Free Enterprise
Bert Wheeler said.
“It cripples national policy,” Wheeler said
of the euro. “You really have to have a more
global European Union monetary policy,
which may not be conducive to what an indi-
vidual nation needs.”
Countries in the European Union and the
eurozone, the countries that use the euro, don’t
necessarily want either union to fail, which is
why they have already bailed out Greece, Ire-
land and Portugal. Wheeler said in addition
to the economic concerns, there is a political
side to why Europe wants to remain united, as
the European Union is an “outgrowth of World
War II.”
“There’s a lot more going on here then just
the economic side of things, so they’re very
leery to want to have the European Union col-
lapse,” he said.
1. Money Can’t Solve Everything
The eurozone agreed in October to increase how much
they were willing to give to bailout countries from 440 billion euros
to 1 trillion euros. But pumping money into these countries is not
necessarily the best way to go.
“You can’t spend yourself into prosperity or out of
recession,” Clauson said. He said it is impossible in the long run to
do this.
Wheeler said expanding the bailout package was the
wrong thing to do. “They’re postponing a day of reckoning,” he said.
Wheeler also said doing this actually gives countries an incentive to
continue in their irresponsible spending.
Along these lines, Associate Professor of Economics Jeff
Haymond said Greece has not even tried to get their spending under
control. Money “can reduce the real debt burden, but until you deal
with the problem of excess spending, you are not going to be able to
ultimately address it,” Haymond said.
2. If There Is No More Money, Admit It and Deal
With It
Haymond said the eurozone crisis is a crisis of insolvency,
which simply means countries are unable to pay their debts. It
means the countries having problems are bankrupt. But they have
not admitted that, and they have not tried to deal with that.
“If you are otherwise bankrupt, you need to go through the
steps of declaring where you really are, which is bankrupt, and then
take the steps to recover,” Haymond said. “And that’s the steps that
they have not wanted to do.”
Both Wheeler and Frank Jenista, professor of international
studies, compared what European countries must do to solve their
problems to what an individual or family would have to do to solve
financial problems. Jenista said the countries have to get their debt
under control. He compared this to one spouse in a two-salary family
losing their job. “You can’t go on going to movies, eating out, buying a
new car,” he said.
Wheeler said an individual can borrow money for several
years, but that they can’t do this forever. “You have to start paying
back, and when you do, it will significantly affect your standard of
living.” He said the eurozone crisis is playing out a little differently
than a situation like this would because it deals with countries and not
families.
3. The Government Can’t Always Be Blamed For
Everything
The government of each European country that is having
problems obviously bears a large part of the responsibility. In fact, the
three main countries having the most difficulties — Greece, Italy and
Spain — have appointed or elected new governments in the past two
months.
“We have a failed leadership. By definition, they have failed
in their economic stewardship. That’s why they’re in this situation,”
Haymond said of the leaders that got replaced in Greece and Italy.
Even the tax evasion in Greece that has led to that
government not bringing in as much revenue as they could can be
partly attributed to government. Though Haymond said press reports
joke about avoiding taxes being a Greek national pastime, he also
said the way the Greek government spends money might be a reason
so many evade taxes.
But the people of these countries might be one of the
reasons the governments are spending so much. Wheeler said
Americans really don’t want the government to stop providing
services to them and that the same attitude is prevalent in Europe.
“The battles may change, but the big picture is not going to change
until the culture changes and the individuals within the culture
change,” Wheeler said.
He said people want more then they produce. “We all do that
naturally. It’s sin. We just simply do that, so until the people are going
to stand up and say, ‘No more,’ they will continue to do it indefinitely.”
— Zack Anderson
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December 2011
