Europe’s Continuing Debt Crisis

The European debt crisis has engulfed the 17 countries that use the euro and is already having an impact on this side of the Atlantic.

So, far the steps the European government have taken to resolve the situation have come up a little short.

Anchor Lisa Mullins talks to Rana Foroohar of Time magazine about the prospects for the upcoming year.

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Lisa Mullins: I’m Lisa Mullins and this is The World, a coproduction of the BBC World Service, PRI and WGBH in Boston. America’s fragile economic recovery may depend less on the things being said in Washington and on those being made in Berlin, Athens and Rome. The European debt crisis has engulfed the 17 countries that use the euro and it’s already having an impact on this side of the Atlantic. So far the steps the steps the European governments have taken to resolve the situation have come up a little short. Rana Foroohar oversees business and economic coverage for Time magazine. She says the problem is that Europe is kinda like a dysfunctional family.

Rana Foroohar: Germany is the boring dad. He’s been working a desk job for 12 years. You know, he saved up a lot of money, and Greece and Italy, who are his teenage kids, have gone out and crashed the car. He nows has a choice to make. They’re his children, is he gonna pay for the damage or is he gonna say you’re on your own? And the Germans just have not made that fundamental choice yet, and it does come down to them because Germany and particularly Angela Merkel, is really the only, Germany is the only country and Angela Merkel is the only leader that can really bring this crisis to a close by unifying Europe by saying we’re gonna back the debt of the weaker countries if need be, and we’re gonna come together with a true political union.

Mullins: So then is Germany at least right now kind of you know, if it is that tough father, is it exerting tough love by resisting giving aid to the countries like Greece?

Foroohar: Well, that’s certainly one way to look at it and that’s the way the Germans would look at it. And you can see their point, you know, they’ve been very prudent. They’ve done a lot of hard work in the last 12 years. They’ve reformed their economy, their labor markets, they’ve become more flexible, they’ve saved, they’ve become incredibly competitive on the global stage. Their export machine can compete with China at much higher wage levels. So they’ve done all this hard work and you can understand why they look to the south and think well, why should we bailout these spendthrift countries? But here’s the rub: one of the reasons that the Germans have done so well is because they’ve been part of the union. They’ve been able to export a huge amount to the other Eurozone countries, the neighboring countries. Their weaknesses in some way have been Germany’s strengths. And they’ve benefitted during the boom days of the ’90s from this union and now they’re gonna have to pay the price, or not, decisions still have to be made.

Mullins: Well, we see Greece for instance, comparing the Germans today to occupiers in WWII. Is that fair?

Foroohar: Well, it’s absolutely not fair, but I think that the sort of political nature of that language really shows you how deep these divides go. The cultural divides. And you know, there is, I think what that touches on is this nervousness about Germany at the heart of Europe, Germany as a leader of Europe because you know, Europeans look at WWII. They think you know, what would a powerful Germany be like? But the truth is that Germany and France together were the countries that gave birth to the European Union. It was their steel and coal union in the 1950s that started the union. Germany is the only country strong enough economically to really lead right now and Europe desperately needs leadership.

Mullins: Is there reason to believe that in 2012 there will be solutions to this crisis? I don’t know if Germany or who you might say would provide them, but do you think they’ll be there?

Foroohar: Yeah, it’s an excellent question. I think it is going to come down to some really good brinksmanship on the part of Angela Merkel. If she can walk this incredibly difficult line and try to bring together France and possibly the UK, although you know, the UK looks like it’s slowly but surely sort of seceding from the union, which is another story altogether. But if she can do that, if she can sort of sit everyone down at the table and get some real cohesiveness and say okay, we’re gonna bail you out. We’re gonna back your debt, we’re gonna create some euro bonds, but in exchange for that you have to give up some political control and some fiscal control to the larger union, then I think that we will see solutions. But the problem is these issues go very deep for Europeans you know, they’ve been sort of a selfish union, a union that was born in boom times and was mainly economic. And now that things have gone bust they’re having problems with coming together as a real political union.

Mullins: Rana Foroohar, an assistant managing editor at Time magazine overseeing business and economic coverage, nice to have you on.

Foroohar: Thank you.

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