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Zion's Corner Blogs


Op-Ed: The European Crisis: All Eyes on Germany

If the Eurozone spins out of control, no country is safe. Israel is a niche country.
Published: Friday, June 15, 2012 7:59 AM




“We shouldn’t have any illusions. Europe stands at the abyss and will fall into it in the coming months if Germany and France together do not change policy and are courageous enough to develop a fiscal and political union for Europe.” This is what extreme pro-European former German Foreign Minister Joschka Fischer wrote earlier this month. He added, “Europe led by Germany prefers to extinguish fires with kerosene rather than with water and in this way, the fire is hastened with Merkel’s forced austerity policy....It would be tragic and ironic at the same time if at the beginning of the 21st century, United Germany would peacefully, with the best of intentions, destroy the European order for a third time.”

Fischer’s article is only one example of a surprising new field of European unity: “The United Europe of Worry and Fear.” It results from the Euro monster having risen up against its creators. Two years ago, most European stock brokers didn’t know the names of the two political parties which have alternated in ruling Greece over the past decades.

One would have been declared mentally insane if one had correctly forecast that European stock exchanges would rise and fall depending upon which party leads in Greek opinion polls. Yet that is what happened in the past weeks, anticipating the June 17th parliamentary elections.

The economic problems of the Eurozone will remain major for a long time. When one problem seems to be solved, at least one other emerges. Like Greece, Ireland and Portugal, Spain will now receive a loan from its Eurozone partners. The amount may go up to 100 billion Euro in order to save several Spanish banks from going bankrupt.

Cyprus receives little foreign attention, but is so connected to Greece that it may soon need loans as well. In the long run, Italy and even France are far from safe.

Despite major withdrawal of deposits, Greece’s banks have not gone bankrupt because they are supported by the European Central Bank. The country’s best option may be to leave the Eurozone sometime this year and return to the drachma. Yet even that may not prevent it from chaos. This year will see the fifth consecutive shrinking of the country’s economy. Youth unemployment is over 50%. In a pessimistic scenario, if there is more violence in Greece, it may even spill over to Brussels.

The economies of most other Eurozone countries stagnate or shrink this year. Average unemployment in the Eurozone is at 11%. It may rise further. In uncertain times, investors do not expand businesses nor put much money into new ventures. If Greece leaves the Eurozone, many more people living in other problem countries are likely to send their savings abroad, preferably to Germany.

In the current situation all eyes are on Germany. It is both the largest economy of Europe and the country which has benefited most from the Euro’s introduction. In exchange for making more money available to others, Chancellor Angela Merkel wants greater European integration. Opposing forces in both Germany and abroad are huge. One wonders how much more the German people are willing to gamble their own country’s stability for greater European unity - which may be unachievable.

Across Europe, Euro-skepticism is on the rise and many consider that creating the Euro was an enormous mistake. Even in the Netherlands, once a strong supporter of a united Europe, two Euro-critical parties – Socialists on the far left and the Freedom Party on the far right - are consistently receiving together more than a third of votes in the polls for September’s parliamentary elections.


f Greece leaves the Eurozone, many more people living in other problem countries are likely to send their savings abroad, preferably to Germany.
If the Eurozone spins out of control, no country is safe. British Minister of Finance George Osborne said that his country’s prospects for economic recovery are being "killed off" by the crisis in the Eurozone.

U.S President Obama considers today’s Europe the sick man of the world’s economy. He is not only worried about its impact on the United States, but if Europe causes a worldwide economic crisis, his chances of reelection will be reduced.

Israel is a niche country. With its many medium-size companies and high-tech exporters, it is far more flexible than big economies. Israel exports a broad range of products to many countries. New gas finds off the coast will improve its balance of payment.

Yet Israel cannot escape unscathed in a global economic crisis, even if it may be less vulnerable than many other countries. One example among many: the number of tourists from abroad may fall significantly. Another: if Israel’s main customers are in economic crisis they will also buy less.

Those who demonstrate – in part, rightly so – for greater social justice in the streets of Israel’s cities, might be quite happy five years hence if they are not economically worse off then, than they are today.