We’re told that the eurozone crisis could wreck the global economy. But who really knows what’s going on over there? Check out this Q&A to pick up a few pointers.
What is the eurozone?
Described by economist Ann Pettifor as a “monetary union designed above all to promote, protect and subsidise the interests of money-lenders and speculators in the private bank-debt and sovereign debt markets,” the eurozone is composed of 17 nations that share a common currency, the euro. Germany is the most powerful country in the eurozone. Other large eurozone economies include France, Italy, Spain and the Netherlands.
What is the Euro?
The euro is the common currency introduced in eurozone countries in January 1999. It replaced local currencies such as the German Deutsche mark, French franc, Spanish peseta and Italian lira.
What is the European Union? How is that different from the eurozone?
The European Union (EU) is made up of 27 nations, including the 17 eurozone members. The EU maintains open borders among member nations in which goods and services move freely making it the largest trading bloc in the world with a population of 503 million people and a total economic output of $15 trillion per year or roughly one-fifth of the total global economy.
Several EU nations including Great Britain, have opted not to join the eurozone in order to preserve their own national currencies while a number of member nations from Eastern Europe and the Baltic have not yet met the Eurozone’s eligibility standards.
How did the European Union come to be?
The EU’s development has been propelled by elite business interests since its inception 60 years ago when six countries (France, Germany, Italy, Belgium, Luxembourg and The Netherlands) reached an agreement to share coal and steel production. Those same six countries subsequently signed the 1957 Treaty of Rome which created the European Economic Community. The EEC began to abolish tariffs among member nations in 1959.
Incremental steps were taken toward greater economic integration during the 1960s and 1970s. Additional countries joined the EEC including Great Britain in 1973 and Greece in 1981. With business elites clamoring for a European free trade zone, the Schengen Agreement was adopted in 1986 which called for the free movement of people, goods, services and money. On January 1, 1993, 12 European nations launched a single borderless market. At around this time, the EEC was renamed the European Union and took on broader powers.
What is the Maastricht Treaty?
Named for the Dutch town where it was signed in 1992, the Maastricht Treaty set in motion the creation of a common currency seven years later. It required member states that participate in the euro to maintain very low rates of inflation and to strive for an annual rate of government deficit to gross domestic product that does not exceed 3 percent, a difficult figure to meet especially during a recession when a government’s tax revenues plummet and social needs increase.
What is the ECB?
Based in Frankfurt, Germany, the European Central Bank administers monetary policy for the 17 eurozone countries. Its primary objectives are maintaining inflation below 2 percent and keeping private banking interests afloat at all costs. According to a Dec. 16 Reuters report, the ECB is providing hundreds of billions of Euros in three-year loans to cash-strapped private banks even as they hoard the bulk of that money instead of lending it to consumers and businesses.
Under EU statute, the ECB is forbidden to provide credit to governments as central banks in the US and Great Britain are able to do. “The effect is to oblige governments to borrow from commercial banks at interest,” writes economist Michael Hudson. “This gives bankers the ability to create a crisis – threatening to drive economies out of the eurozone if they do not submit to ‘conditionalities’ being imposed in what quickly is becoming a new class war of finance against labor.”
What is the Troika?
The Troika consists of the European Central Bank, the European Union and the International Monetary Fund. This trio of neoliberal institutions works in tandem, dispatching representatives to indebted countries such as Greece and Italy to dictate the terms of multi-billion euro rescue packages. Like the medieval doctors who bled their patients to death in the name of saving them, the Troika rescue crew invariably requires government leaders to initiate additional austerity measures to receive loans. The loans are then used to repay outstanding debts (or at least the interest on the them) to private banks so as to avoid default. This further damages the recipient country’s economy and will make additional rescue efforts necessary again in the future.