Greek debt crisis raises doubts about the European Union

Press quote (New York Times)
07 May 2010

But the problem is more fundamental, said Simon Tilford, chief economist at the Centre for European Reform in London. "Most of the time, the gap between European rhetoric and reality is just an annoyance," he said. "But that gap is simply lethal when it comes to the euro." Instead of attacking markets and forming a new European agency, "the leaders need to focus on the issue that is driving the markets: the dire growth prospects for the southern rim" of the eurozone, meaning Greece, Portugal, Spain and even Italy. No matter how big the loan package, "the only way to ensure debt sustainability is to get them growing," …The southern countries are so uncompetitive compared with the others, especially Germany, that there are permanent trade imbalances that will destroy the euro, Mr Tilford said, unless European leaders either fix the imbalances or accept more political and fiscal integration. "But the course we're on is unsustainable," and Germany seems uninterested in changing its economic model to benefit the poorer south. While individual countries will bear continual transfers of funds to poorer areas within the nation — to eastern Germany, for example, or to Corsica or Wales — "I don't see the necessary social solidarity in the wider eurozone to provide this kind of fiscal supranationalism," Mr Tilford said. "The myth of European integration and solidarity has been exposed as wishful thinking."