Eleven countries in the European Union merged their currencies to form the euro on 1 January 1999, with six more joining later. Together the 17 countries that use the euro are called the eurozone.
The architects of the euro project hoped the use of a single currency across Europe would boost growth and encourage the economies of the individual countries to converge.
But in practice this convergence did not take place. Instead, cheap credit flowed from the stronger eurozone countries such as France and Germany into the weaker ones such as Greece and Portugal.
Socialist Worker has always rejected nationalist arguments for “keeping the pound”.
Nevertheless, we oppose the euro project on the grounds that it would only ever benefit Europe’s rulers at the expense of its workers.
DEFICIT and DEBT
National economies typically spend more than they raise in tax revenues. They then borrow the shortfall on the international capital markets by issuing bonds.
The shortfall each year is called that country’s deficit. The cumulative deficit year on year is known as that country’s debt. These deficit and debt levels rise and fall as the economy changes.
Greece entered the euro on 1 January 2001, two years after the initial entrants. Over the next few years its both its debt levels and its year-on-year deficit ballooned.
BAILOUT and DEFAULT
The debt levels of countries like Greece weren’t a problem during the boom years of the 2000s. But after the financial crisis of 2008 banks started to panic about the amount they had lent to weaker eurozone countries.
That panic now threatens to tear the eurozone apart and wreck the euro project, which would be a huge blow to Europe’s ruling class. That is one reason why they are desperate to “bail out” the banks by lending Greece the money to keep its creditors happy.
But the ever increasing sums being allocated for the bailout are proving politically unpopular in the stronger eurozone countries. That is why people are now considering the previously unthinkable option of Greece defaulting—writing off some or all of its debts.
This could happen in one of two ways. There could be a “default from above”, triggered by banks and bosses, and run in their interests. Or it could be a “default from below” triggered by the people of Greece refusing to pay for a crisis brought on by the rich.