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Bismillahi Al-Rahman Al-Raheem

Q&A: Euro Crisis


On the evening of 12/11/2011 Silvio Berlusconi the Italian Prime Minister announced his resignation and three days previously on the evening of 09/11/2011 George Papandreou announced his resignation from the leadership of the Greek government due to the financial economic crisis that has plagued the two countries and in particular the sovereign debt crisis. And this was after the parliaments of these two countries passed austerity measures, for these two countries to be placed under the monitoring of the IMF and European negotiations so as to implement these measures to be included as part of what has been called the European rescue plan. And beside the two crises of these two countries which have reacted in the last few days there are similar potential crises that could occur in Ireland, Portugal and Spain and these have been continuous since two years. The sovereign debt crisis has even begun to stretch to France and she is one of the major countries of the Euro region just as she is one of the major states in the European Union. In addition it is interesting to note that all of these countries experiencing crises can be seen to fall in the Euro region.

The question is what is the extent of the effect of the crises upon the future of the Euro as well as the survival of its region encompassing 17 states from amongst the original 27 that comprise the European Union? And the question goes even beyond that and asks what is the future of the European Union as a whole?!

In addition does this have an effect on the other major world states, America, Russia and China in addition to Britain which although part of the European Union is not part of the Euro zone?

The answer:

1) The Greek sovereign debt crisis has affected the Euro region due to fear that Greece will fall behind in paying its debts which have reached 350 billion Euros ($482 Dollars). These debts are above its GDP by 160 % where the deficit in its budget had reached 13.6% with knowledge that the permitted deficit level within the EU is 3.5%. The European and IMF negotiations requested from Greece for it to implement austerity measures within a plan entitled the ‘European rescue plan’. However Papandreou wanted to hold back from implementing more of these measures and he then called for a referendum relating to the acceptance of these measures and he was supported by five ministers including the minister of finance. However he was forced to give up the idea of holding a referendum when he was summoned by the Europeans to the French town of Cannes where they warned him that his country would not obtain any further funding if it did not implement the austerity plan. And on 11/10/2011 the international debt donors agreed to pay the sixth Greek debt payment of a value of 8 billion Euros. On 21/10/2011 the government decided to increase the austerity measures challenging the protesters and entering the country into a general paralysis as a result of general strikes and violent protests in Athens.

2) And it is known the beginning of recession and deflation was officially announced in November 2008 in Europe with the eruption of the international financial crisis from its centre America. Thereafter the financial and economic crises began to appear one after the other including a crisis in the stock markets, the collapse of companies and banks and the attempt of the states to save them by pumping huge amounts of money into them which represented a heavy burden upon these countries without solving or treating the problem and this is considered one of the reasons of the sovereignty debt crisis. Meaning that this treatment is a reason for the increase in the disease and produced symptoms which were not additional side problems only but rather fundamental main problems. The crisis of the Euro became apparent when its value began to fall against the main international currencies and specifically the Dollar. And the most recent but not the last was the eruption of the crisis of sovereign debts meaning the crisis of nations debts where the income and GDP of the states is less than the built up debts and what it issues like treasury bonds. So when the income of the state and its GDP became less than the value of these debts which are in the form of bonds for a number of reasons and which are purchased by other states, banks and international financial institutions and then this state became unable to make the debt payments causing the value of the bonds to decrease and the debt interest rate to increase in addition to the value of insurances. The general debt then increases and the confidence in the ability to repay the debts diminishes so nobody will accept its purchase but would rather try and get rid of them (the bonds), because the states possessing the bonds would not be able to repay them and as such their inability or incompetence becomes apparent. Due to this the crisis erupts affecting the whole economy of the state and even affects the political stability and the position of the governments. And this is what happened in Italy recently which led to the fall of the Berlusconi government just as this happened in Greece leading to the fall of the Papandreou government.

3) France and Germany are working to solve the problems of the Euro zone however it appears that there are differences between them and these have been considered to be fundamental in relation to how to manage the crisis and how to deal with it and between those who have accepted its suggestion! This has been especially so because the subject of economy clashes with the subject of the sovereignty of nations. This is because France and Germany consider themselves the two great heads and leaders of the European Union. As such there is a competition behind the scenes between them concerning which one of them will have the main say within this union. This was remarked upon at a previous time by the chief of the office of the European Council for foreign relations in Berlin Ulrike Geurot when she directed these words to the states of the Union: “If you have come from two completely different directions then it is a certainty that they will clash with one another. However I hope that a positive dialogue can occur”.(Reuters 20/05/2011).

And in accordance to this the difference between France and Germany has appeared in terms of their proposed treatments. France has presented the establishment of an Economic government as a treatment for these crises however Germany has proposed the establishment of an economic management meaning the establishment of structures and frameworks of work and the imposition of punishments and they did not agree to an Economic Government because it gives the impression that there is a higher entity than the will of European Governments which would dictate a specific economic policy upon everyone which would mean the causing of irritation to other states who would say that this would erode their sovereignty. For this reason this suggestion has yet to see the light of day. There is also a dispute in regards to economic growth as Germany has made hard adjustments to stimulate exports which had caused imbalances in the trade budgets which the European regions have not been able to cope with. And specifically Germany is recording large economic benefits whilst at the same time other states including France are showing a trading incompetence in the region of billions of Euros. Due to this France has requested from Germany to strengthen local demand and decrease taxes to encourage imports whilst Germany requested from the other states that they follow its example by lowering wages. There is also a difference in relation the European stabilisation fund and increasing the support for it. Germany had increased its share in it from 123 Billion Euros to 211 Billion Euros after the German parliament agreed to this on the 29/09/2011 which indicates that Germany is very keen for the Euro to remain and is working for its continuance through support from the states of its region made up of 17 states. And the European states have agreed to strengthen the stabilisation charter which is supposed to limit the deficits however this collapsed within the crisis. And amongst the suggestions made by Germany includes the freezing of international support to states which have permitted deficits to increase in their budgets a great deal. The European commission thought about this however they saw that this would not solve the problem but rather only prolong it. Germany also suggested freezing the voting rights of these states for a number of years as a minimum in relation to the decisions which are made at the level of the European Union which would render the role of the states experiences difficulties in the Union to become ineffectual. Germany also suggested that the other states follow its example as well in limiting the deficit ceiling within their constitutions and to lay down procedures for announcing the bankruptcy of states which are suffering from large debts and which would have no choice except to leave the Euro zone.

However these suggested solutions require a change in the Lisbon Treaty that governs the European Union which only came in to existence after a difficult birth due to the sharp differences between the Union states which were keen to maintain sovereignty for themselves as independent states within the Union and they are not ready to make concessions for the interests of the collective. Due to this it is not easy to bring the Germany suggestion into reality. The last German suggestion was put forward by the German finance minister Wolfgang Schaeuble when he called to:“Moving more of the political international and local jurisdictions from the states of the Euro Zone up to a European level so as to solve the sovereignty debt crisis” where he indicated that: “The central European bank has an independence which qualifies it to adopt a policy that would look after the interest of the group so that a state’s interests are not considered at the expense of the other states”. However he added to this saying: “That he has not until now reached an agreement about a shared (unified) European policy” (DBA 12/11/2011) and he admitted what it was facing in regards to Greece what he described as: “A mountain of problems”. Prior to this there were statements from the Prime Minister of Germany Angela Merkel warning in them about the future of the Euro zone and she confirmed that: “Germany does not want to bankrupt any state because that would mean the bankruptcy of them all”.She repeated this again on the 14/11/2011 saying in front of the conference of her Democratic Christian Party in Leipzig: “That Europe is living in its most difficult time since the second world war… and if the Euro failed then Europe would fail” which all indicates the existence of concerns towards the Euro and the cohesion of the Euro Zone.

The large number of suggestions from Germany and its warnings beside its support for the European Stabilization Fund and its agreement over raising the budget of the fund from 440 Billion Euros to a Trillion Euros all together indicates the extent of their concern in terms of treating the problem as well as the extent to determination to keep unified European currency the Euro as well as to preserve and protect the Euro zone and even more the stability of the European Union as a whole. So it can be understood from this that Germany will not give up on or free itself in the foreseeable future from the Euro, its zone and the European Union whilst acknowledging that the Euro is the secret to the success of this Union and its downfall would mean the downfall of the Union or its failure.

4) From another angle this crisis has presented an opportunity to America for it to exploit the crisis to turns the attention away from its own troubled financial and economic situation and that she is the real original source of the crisis. From a second angle it seeks to shake the confidence of the Europeans in regards to their Union and their currency and it is working to cause its downfall and failure with its Euro currency so as to diminish the international European influence which competes with her and especially in terms of economics and international politics. Indeed she wants to make it follow her and walk in its shadow and according to that it has began the work to aid her at a moral level so that she remains following her or so as to make her proceed under its shade. And America refused in the G20 Summit which was convened at the beginning of this current month the suggestions to increase the funds of the International Monetary Fund by double so as to move towards a solution for the Euro Zone. The secretary of state for finance Timothy Geithner before the convening of the finance ministers of the G20 states declared: “He supports supporting the Fund for Europe however what is has remaining of funds is sufficient to solve the problems of its debts” and he said: “That the United States of America are amongst the nations that are eager to continue the pressure upon the Europeans to take firm measures to end the debts crisis which has continued since two years” (Al-Jazeera 14/10/2011).

In addition famous credit rating companies like the institutions ‘Standard and Poors’ and ‘Moody’s and Fitch’ are American companies that play a role in destabilizing the trust in the situations of these financing states where it has lowered the rating categorizations of Spain, Portugal, Italy and Greece just as the company Moody’s lowered in 7/10/2011 the rating categorization of quite a number of European banks which numbered 21 including the larger banks. The IMF has estimated that the losses of the European trading Banks total approximately 200 Billion Euros as a result of the Euro crisis since the last year in addition to the loss of assets being estimated at 100 billion Euros. And when attention is placed back to the credit rating then attention is also placed upon the rising level of unemployment in states where redundancies have increased in line with the financial crisis and to the increase in private sector debts and budget deficits.

5) As for the position of Britain which is a major member of the EU, she stands on a corner on the edge of the Atlantic monitoring the European situation whilst working to protect itself from disasters of this Union and the financial crisis ramifications that it has also been struck by. She does not want to take part in the solving of the problems of the Union in the same way as she is seeking to make gains and spoils. She did not enter the Euro zone and did not give up its currency in addition to not showing any desire to adopt it. As such the Euro issue does not concern many and there are voices within Britain which are calling for it to exit from the EU so that pressure is not put upon her to join the Euro or to integrate further into the Union. Indeed she showed satisfaction at the expense of the Union when the foreign minister William Hague declared that: “The Euro will become a moment in history noted for its collective folly (stupidity)” and he compared the Euro zone to: “A burning building that has no fire escape doors” and he said that he was repeating what he had previously stated in 1998 as head of the Conservative party. And he said in an encouragement to the Germans to free itself from the Euro: “It has specified that the Germans provide the support for the weak member states like Greece for the entirety of its existence!” (BBC 28/09/2011). The Prime Minister David Cameron said:: “The Euro crisis does not only represent a danger to European economy alone but rather the world economy in its entirety” (BBC 02/10/2011) and the European politicians are well aware of the extent of the British contempt. The Head of the European Commission Jose Manuel Barroso indicated this when he said: “It is upon the states of the Union which are not supportive of joining the Euro to not work to stand in the path of those states that wish to make progress in that direction” (Al-Jazeera 10/11/2011). Despite all of this Britain does not intend to exit from the EU as long as it remains standing because it is working to achieve economic gains from it in addition to the political gains on the world level when it works to pull Europe to take decisions which are in line with its interests. Its exit would be harmful to it and she had worked hard for many long years to enter it in the first place. Upon this the Prime Minister Cameron said: “The exiting of Britain from the European Union would not be in its National interests. If we were to find ourselves outside of the European Union we would be in situation similar to Norway meaning that we would be exposed to (and affected by) all of the decisions that are being issued from Brussels without being able to take part in making those decisions” (Eitar Tas Russia 14/11/2011) and at the same time he rejected giving up British Sovereignty when he called to: “The handing over of a large portion of the European Commission powers in Brussels to the national governments”. So Britain does not want to exit from the European Union and at the same time it does not want to enter in to the Euro zone!

6) In regards to China and Russia then it is in their interest for the Euro to remain and that is so that it can stand in the face of America and in the face of the Dollar and its dictator like position in the world economy. However they are both not doing much for its sake because the position of the Euro beside the position of the EU as a whole is not positive towards them as this region and the Union impose upon them restrictions upon their trade and economic movement. Due to this they do not work energetically to aid it and the Chinese President Jintau who attended the recent G20 summit in Paris on the 3rd and 4th of this past month did not indicate any Chinese will to increase its investments in Europe and to buy treasury bonds from the Euro zone states and in particular the five most affected states: Italy, Greece, Portugal, Spain and Ireland and bought a small number of them to please Europe. Rather its president Jintao said when meeting the French President Sarkozy on the margins of the Summit of the G20 that it: “Is necessary for Europe to solve its crisis relying upon itself” (Reuters 06/11/2011) indicating in this statement the implicit refusal of China to support Europe which had requested from her (i.e. China) to support the ‘European Stabilization Fund’ which had raised its value to one Trillion Euros and was working to increase it to even more than that. This is at a time when China has supported the American economy through purchasing 1.14 Trillion Dollars of American Treasury bonds whilst they have reserves of the American currency to the level of 3.2 Trillion Dollars as studies have shown. In contrast America granted it large trading relaxations. However this political influence that America was able to employ so that China was able to support its economy is something that Europe does not have in regards to China.

7) In light of this the European Union has fallen under the stress of financial and economic crises as a result of the capitalist economic system and it is also falling under the threat of collapse and disintegration due to these continuing crises which if they afflict a certain place do not just affect that place but rather its harms are spread through the whole globe because the whole world is intertwined as a network in the capitalist economic system. A system which is making the people suffer under the weight of its crises and its repercussions. It is not possible to fix this system from the inside because its foundation is corrupted and rotten and it is not possible for a sound system to arise from it and as such it is necessary to look at a solution from outside it and indeed it is necessary to search for the correct system which emanates from a correct belief which complements human nature.

The world is in need of a system that is sound in its foundation and branches and this is not found except in the system that the creator of everything has placed before us, the Lord of the all creation who knows what is correct for his creation and this system will provide them with a tranquil economic life and replace the system that keeps man in worry and anguish:

{ فَمَنِ اتَّبَعَ هُدَايَ فَلَا يَضِلُّ وَلَا يَشْقَى وَمَنْ أَعْرَضَ عَنْ ذِكْرِي فَإِنَّ لَهُ مَعِيشَةً ضَنْكًا }

“Whosoever follows My Guidance, will not lose his way, nor fall into misery. But whosoever turns away from My Message, verily for him is a life narrowed down.” [Taha 123-124]

14 Muharram 1433


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