The End of the Euro, or Just a Greek Tragedy?

Economic issues in Europe have dominated the news over the last few days. Greece is in real danger of going bust; years of corruption, government overspending, and tax avoidance are coming home to roost.

Will the EU -- Germany and France in particular -- bail Greece out? If not, the contagion has the potential to spread around the Eurozone to Spain, Italy, Ireland. At least the UK can depreciate its currency to help get out of trouble; Greece is locked into the Euro and has not made the structural changes necessary to adapt since it joined.

If the EU does support Greece, will there be enough incentive for the Greek government and people to make the necessary painful adjustments, which will mean real cuts in living standards? Or will they keep on spending, like the rich kid on heroin who knows that when things get really tough, Daddy will bail them out? (“Daddy” in this case being Germany, with some help from France and the Benelux countries.)

Last week, however, we saw poor indicators from Germany in particular and the Eurozone in general, in terms of the economic recovery, so voters in the stronger countries are less likely to be comfortable with bailing out their profligate neighbors. As the BBC reports:

“Economic growth in the eurozone has slowed to a crawl -- and that's bad news for the UK as much as it is for member states. The 0.1% growth figure for the fourth quarter of 2009 was worse than expected and puts into perspective the UK's similarly anaemic performance over the same period.”

I have always feared that the UK was in for a “double dip” recession; I am probably a bit of an economic pessimist by nature. These figures suggest, however, that this may be an issue for Europe more widely. And once public-sector cuts start to hit home in countries including the UK, that must act as another kick to an already weak economy.

So ... no answers or predictions, other than this: If you are a service/solution provider/supplier to the Eurozone or the UK, don't bank on a robust recovery and booming sales any time too soon.

Peter Smith

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