Currently, there is an unpleasant feeling that due to the sovereign debt crisis the eurozone’s ship is sinking. To find out the actual situation with the debt, it is first necessary to look at reasons causing such an interpretation of events, says Antra Trenko, economist at the Bank of Latvia.
With the global crisis having gained momentum in 2010, safer routes were considered, setting up a number of «guiding lights» to indicate the most reasonable course. Several initiatives for sustainable economic growth were launched: the strategy Europe 2020, Euro-Plus Pact and improvements of fiscal and macro-economic surveillance, emphasizes the economist.
She indicates that corrective actions – progressive financial sanctions – will be imposed on eurozone’s countries repeatedly straying away from a sound fiscal policy (i.e., breaching the Stability and Growth Pact conditions).
Unfortunately, this is not enough, because much depends on member states’ leaders, whose political life is based on the ability to find a reasonable compromise between unpopular, yet necessary decisions to balance the economy (with spending cuts and budget consolidation being an inevitable element) and their electorate’s interests, Trenko says.
In her view, it is wrong to blame the euro in confidence decline, since it was not the eurozone membership that triggered the crisis in Ireland, Portugal and Greece. In fact, the reasons for the severe downfall differ in each of these states. Ireland’s biggest problem was inconsiderate banking policy and the related real estate bubble. While for years Greece and Portugal clang to inefficient economic policy based on cheap loans at financial markets and the lack of structural reforms, with domestic consumption propping up the economic growth. These countries did not resist the temptation to get cheap money, but were also unable to spend it reasonably to somehow slightly level out their economic competitiveness with the eurozone’s strongest players.
Given the eurozone countries’ economic interdependence, there is no doubt that the euro area has to find a debt crisis solution that could be integrated with the previously-mentioned economic policy initiatives. Undoubtedly, these are difficult times and it looks like the economic storm is neither abating in the eurozone, nor elsewhere.
Yet, arguments against the euro introduction in Latvia have no grounds. It is not the single European currency to be blamed, but the inability of several countries to make use of advantages. The euro is not a cure-all, as it does not protect against unreasonable and unsustainable economic policies and crises. Instead, the euro is an evidence of the country’s economic and financial stability and credibility. It is not irrelevant, because it is in the interests of such a small and open economy like Latvia to have this currency in this harsh globalization era, Trenko emphasizes.