European leaders are scrambling these days to stave off a financial crisis and save the European Union. With each passing day though, it is getting less likely that they will be successful. Unfortunately, what happens in Europe is certain to impact Edmond.
On Friday, representatives from France and Germany agreed to pursue a $163 billion aid package to Europe’s most troubled nations. The move, which signals a change in strategy from Germany, is aimed to boost the troubled European economies before the pain spills over into relatively healthier European economies (like Germany). However, the economic news in recent days is indicating that those relatively healthier economies are on the brink of a recession as well.
The fact is that the problems in Europe extend well beyond Greece, Spain, Italy and Ireland. While those economies are not near the largest in Europe, the integration of the Eurozone means that more than ever before, the smaller economies are connected to the continent’s economic powers. With a common economic market, firms in Germany sell to consumers in Greece. And, even more importantly, banks in Germany lend to firms in Greece. As the Greece economy slumps consumers buy less and Greek firms become less able to repay their loans. As a result, Germany gets hit too.
The same phenomenon is playing out across all of Europe. Greater integration means that struggling countries are now bringing down their healthier neighbors. And the pain will only accelerate if Greece, and other nations, are forced to leave the Eurozone.
The adoption of a single currency throughout most of Europe has lowered the cost of transacting business across Europe. This has undeniably boosted Europe. However, the single currency also means that many countries have lost some control over their economies leaving them unable to employ the usual economic tools to boost their economy (such as lowering interest rates). As a result, their economies have continued to slump.
What Europe is learning is that economic integration requires an integrated effort to combat recessions. And if anyone is going to lead it’s going to have to be the Germans.
In my visit to Germany this spring, I detected a resentfulness among Germans a resentfulness that they are going to have to support the countries who cannot help themselves — that German taxpayers are going to have to pay to help bail out the Greeks, the Irish, the Spaniards and perhaps many more. But I also detected a recognition that, German action is the only option. No other country has the ability to save Europe.
So, it’s good that Germany is now showing a willingness to act. We soon will find out if this latest action is sufficient (history says it’s not). We soon will find out if the euro, and the European Union can be saved. Let’s hope for the best. Or else, we also will soon realize just how integrated the world economy really is these days.
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.