EUROZONE DEBT

CRISIS 2009

PRESENTED BY : MOHIT KARWAL

DRISHTI
BOSE
SHIVANGI SINGH
MUSKAN JANGRA
 CONTENTS
 WHAT IS DEBT AND SOVEREIGN DEBT?
WHAT IS EUROZONE?
ADVANTAGES AND DISADVANTAGES OF
THE EUROZONE
WHAT IS THE EUROZONE DEBT CRISIS?
DETAILED CAUSES OF THE CRISIS
IMPLICATIONS OF THE CRISIS
SOLUTION
PRESENT SITUATION
CONCLUSION
WHAT IS DEBT?
Debt refers to a sum of money that
is owed or due.
Debt is money owed by one party,
the borrower or debtor, to a second
party, the lender or creditor. The
borrower may be a sovereign state
or country, local government,
company, or an individual.
SOVEREIGN DEBT
Sovereign debt - also referred to as
government debt, public debt, and national
debt - is a central government's debt.
Sovereign debt is issued by the national
government in a foreign currency in order
to finance the issuing country's growth and
development.
SOVEREIGN DEBT
CLASSIFICATION
On the On the
basis of basis of
lenders duration
Internal
Short term
( If debt is
(If debt lasts
owed to
for less than a
lenders within
year)
the country)

External
Long term
( If debt is
(If debt lasts
owed to
for more than
lenders from
a year)
foreign areas)
WHAT IS
EUROZONE?
 The Eurozone is a
geographic and
economic region
that consists of all
the European Union
countries that have
fully incorporated
the Euro as their
natural currency.
The Eurozone is one of the largest
economic regions in the world and its
currency, the Euro, is considered one of
the liquid when compared to others.
The Euros are printed and managed by
the European System of Central Banks
(ESCB)
Symbol of Euro - EUR
The Eurozone comprises of 19
out 28 countries of the
European Union. These
countries are :

Austria Latvia
Belgium
Lithuania
Cyprus
Luxembo
urg
Estonia
Malta
Finland
The
France
Netherland
Germany
s
Greece Portugal
Ireland Slovakia
Italy Slovenia
ADVANTAGES OF EUROZO
BENEFITS OF EUROZONE
LOWER TRANSACTION COST
With a single currency, there will be no longer a cost involved
in changing currencies; this will benefit tourists and firms
who trade within the Euro area.

Protection for smaller countries against international

financial crisis which often adversely affect small
countries with limited reserves

PRICE TRANSPARENCY
With a common currency, it will be easier to compare
prices in different European countries because they
would all be in Euros. This enables firms to source
cheaper raw material and consumers to buy cheaper
goods
Eliminating exchange rate uncertainty
Volatile swings in the exchange rate can destroy the
profitability of exports (e.g. a rapid appreciation). This
exchange rate uncertainty undermines business confidence
in investing. Therefore with a single currency business
confidence should improve leading to greater trade and
economic growth.

IMPROVED TRADE Supporters of the Euro argue that

greater price and cost transparency/no exchange rates
encourages intra Eurozone trade. The ECB state exports
and imports of goods within the euro area rose from about
27% of GDP in 1999 to around 32% in 2006.

Improvement in inflation performance

The ECB which sets interest rates for the whole Eurozone
area will be committed to keeping inflation low; countries
with traditionally high inflation should benefit from this
greater inflationary discipline. EU inflation has been low.
 Low-interest rates It was hoped membership of
the Euro would help reduce bond yields as there was
greater security belonging to a stronger currency. Initially,
this occurred with bond yields in Greece, Spain and Ireland
converging on German bond yields.
But the credit crisis of 2008-12, saw Euro bond yield rise to
record levels, suggesting that the Euro could be very
destabilizing for interest rates.

Benefits to the financial sector

The introduction of the Euro appears to have reduced the
cost of trading in bonds, equity, and banking assets within
the eurozone.

Inward investment
Inward investment may increase from outside the EU as
firms take advantage of lower transaction costs within the
EU area. Some firms have said they prefer to invest within
the Eurozone area.
DISADVANTAGES OF EUROZONE
 The cost of transitioning 12 countries' currencies
over to a single currency could in itself be
considered a disadvantage. Billions were spent
not only producing the new currency, but in
changing over accounting systems, software,
printed materials, signs, vending machines,
parking meters, phone booths, and every other
type of machine that accepts currency.
 In addition, there were hours
of training necessary for employees, managers,
and even consumers. Every government from
national to local had impact costs of the
transition. This enormous task required many
hours of organization, planning, and
implementation, which fell on the shoulders of
government agencies.
The chance of economic shock is another risk that
comes along with the introduction of a single
currency. On a macroeconomic level, fluctuations
have in the past been controllable by each
country.

• With their own national currencies, countries

could adjust interest rates to encourage
investments and large consumer purchases.
The euro makes interest-rate adjustments by
individual countries impossible, so this form of
recovery is lost. Interest rates for all of
Euroland are controlled by the European
Central Bank.
• They could also devalue their currency in an
economic downturn by adjusting their
exchange rate. This devaluation would
encourage foreign purchases of their goods,
which would then help bring the economy back
to where it needed to be. Since there is no
longer an individual national currency, this
method of economic recovery is also lost.
There is no exchange-rate fluctuation for
individual euro countries.
• A third way they could adjust to economic
shocks was through adjustments
in government spending, such as
unemployment and social welfare programs. In
times of economic difficulty, when lay-offs
increase and more citizens need
unemployment benefits and other welfare
 to make these payments. This puts money
back into the economy and encourages
spending, which helps bring the country out of
its recession. Because of the Stability and
Growth Pact, governments are restricted to
keeping their budget deficits within the
requirements of the pact. This limits their
freedom in spending during economically
difficult times, and limits their effectiveness in
pulling the country out of a recession.
• In addition to the chance of economic shock
within Euroland countries, there is also the
chance of political shock. The lack of a single
voice to speak for all euro countries could
cause problems and tension among
participants. There will always be the potential
risk that a member country could collapse
financially and adversely affect the entire
WHAT IS THE EUROZONE DEBT
CRISIS
 In 2007, EU economies, on the surface, seemed
to be doing relatively well – with positive
economic growth and low inflation. Public debt
was often high, but (apart from Greece) it
appeared to be manageable assuming a positive
trend in economic growth.
 However, the global credit crunch changed many
things.
(The credit crunch refers to a sudden shortage of
funds for lending, leading to a decline in loans
available.)
 Bank Loses: During the credit crunch, many
commercial European banks lost money on
their exposure to bad debts in US (e.g.
subprime mortgage debt bundles)
• Recession: The credit crunch caused a
fall in bank
lending and investment; this caused
a serious recession
(economic downturn).
• Fall in House Prices: The recession
and credit crunch also led to a fall in
European house prices which
increased the losses of many
European banks.
• Recession caused a rapid rise in
government debt: The recession caused
a steep deterioration in government
finances. When there is negative growth,
the government receive less tax:
(less people working = less income tax;
less people spending = less VAT; less
company profits = less corporation tax
etc. )
(The government also have to spend
more on unemployment benefits.)

• Rise in Debt to GDP ratios: The most

useful guide to levels of manageable
debt is the debt to GDP ratio. Therefore,
For example, between, 2007 and 2011,
UK public sector debt almost doubled
from 36% of GDP to 61% of GDP (UK
Debt – and that excludes financial sector
bailout). Between 2007 and 2010, Irish
government debt rose from 27% of GDP
to over 90% of GDP (Irish debt) .

Green – debt
in 2007
Blue – debt
in 2010
 EU BONDS YIELDS
•Markets had assumed Eurozone debt was safe. Investors assumed that with
the backing of all Eurozone members there was an implicit guarantee that all
Eurozone debt would be safe and had no risk of default. Therefore, investors
were willing to hold debt at low interest rates even though some countries
had quite high debt levels (e.g. Greece, Italy). In a way, this perhaps
discouraged countries like Greece from tackling their debt levels, (they were
lulled into false sense of security).
•Increased Scepticism. However, after the credit crunch, investors became
more sceptical and started to question European finances. Looking at
Greece, they felt the size of public sector debt was too high given the state of
the economy. People started to sell Greek bonds which pushes up interest
rates) see: relationship between bonds and yields)
•No Strategy. Unfortunately, the EU had no effective strategy to deal with
this sudden panic over debt levels. It became clear, the German taxpayer
wasn’t so keen on underwriting Greek bonds. There was no fiscal union. The 
EU bailout never tackled fundamental problems. Therefore, markets realised
that actually Euro debt wasn’t guaranteed. There was a real risk of debt
default. This started selling more – leading to higher bond yields.
•No Lender of Last Resort.
Usually, when investors sell
bonds and it becomes difficult to
‘roll over debt’ – the Central bank
of that country intervenes to buy
government bonds. This can
reassure markets, prevent
liquidity shortages, keep bond
rates low and avoid panic. But,
the ECB made it very clear to
markets it will not do this. (see: 
failures of ECB) Countries in the
eurozone have no lender of last
resort. Markets really dislike this
as it increases chance of a
liquidity crisis becoming an actual
default.For example, UK debt has
risen faster than many Eurozone
economies, yet there has been no
rise in UK bonds yields. One
reasons investors are currently
willing to hold UK bonds is that
they know the Bank of England
will intervene and buy bonds if
Uncompetitiveness

Eurozone countries with debt

problems are also generally
uncompetitive with a higher
inflation rate and higher labour
costs. This means there is less
demand for their exports,
higher current account deficit
and lower economic growth.
(The UK became uncompetitive,
but being outside the Euro, the
Pound could depreciate 20%
restoring competitiveness.
Poor Prospects for Growth
People have been selling Greek and Italian bonds for two reasons. Firstly 
because of high structural debt, but also because of very poor prospects
for growth. Countries facing debt crisis have to cut spending and
implement austerity budgets. This causes lower growth, higher
unemployment and lower tax revenues. However, they have nothing to
stimulate economic growth.
•They can’t devalue to boost competitiveness (they are in the Euro)
•They can’t pursue expansionary monetary policy (ECB won’t pursue
quantitative easing, and actually increased interest rates in 2011 because of
inflation in Germany)
•They are only left with internal devaluation (trying to restore
competitiveness through lower wages, increased competitiveness and
supply side reforms. But, this can take years of high unemployment.
Individual Cases
Ireland’s debt crisis was mainly because the Irish Government had to
bailout their own banks. The bank losses were massive and the Irish
government needed a bailout to pay for their own bail-out
Greece. Greece had a very large debt problem even before joining Euro and
before the credit crisis. The credit crisis exacerbated an already significant
problem. The Greek economy was also fundamentally uncompetitive.
Italy’s debt crisis – long term structural problems. Very weak growth
prospects. Political instability
 PIIGS
PIIGS is an acronym used to refer to the five eurozone nations that
were considered weaker economically following the financial crisis:
Portugal, Italy, Ireland, Greece and Spain. Since the nations use the 
euro as their currency, they were unable to employ independent 
monetary policy to help battle the economic downturn.
BREAKING DOWN 'PIIGS'
On May 10, 2010, European leaders approved a 750 billion euro
stabilization package to support these nations. The economic troubles of
the PIIGS nations reignited debate about the efficacy of a single currency
employed among the eurozone nations. Critics point out that continued
economic disparities could lead to a breakup of the eurozone. In
response, EU leaders proposed a peer review system for approval of
national spending budgets in an effort to promote closer 
economic integration among EU member states.
Economic Impact
The PIIGS have been a major drag on the eurozone's economic recovery
following the 2008 financial crisis, contributing to slow GDP growth, high
unemployment and high debt levels in the area. Compared to pre-crisis
peaks, Spain's GDP was 4.5% lower, Portugal's was 6.5% lower and
Greece's was 27.6% lower as of early 2016. Spain and Greece also had
the highest rates of unemployment in the EU at 21.4% and 24.6%,
respectively. Sluggish growth and high unemployment in these nations is
a major reason why the debt-to-GDP ratio of the eurozone rose from
79.3% at the end of 2009 to 93% in early 2016.
This chronic debt persists despite both the U.S. Federal Reserve's
massive quantitative easing (QE) program, which has supplied
credit to European banks at near-zero interest rates, and harsh
austerity measures imposed by the EU on its member countries as
a requirement for maintaining the euro as a currency, which many
observers believe has crippled economic recovery throughout the
whole region. Greece's public debt to GDP ratio is 180.1%, Ireland's
is 91.4%, Italy's is 132.6%, Portugal's is 128.4% and Spain's is
98.9%
While the origin of the term PIIGS grew from the currency trading and
investment community, it caught on with the public. The members are
quite vocal against the use of the term, finding it to have negative
connotations that do not exactly inspire confidence.

As much as the members of PIIGS criticize the term, this acronym has
just become too well used and convenient and will most likely stick with
them for some time. While it seems the entire EU and the rest of the
world is suffering from some of these same symptoms, these five
countries seem to always be on the top of the list when it comes to high
debt levels compared to GDP, stagnate economic growth, unstable and
sometimes corrupt governments, high unemployment and a general lack
of catalysts for change, besides government or EU intervention. Each of
these countries has had some previous experience with growth and
economic success, but since joining the highly touted EU, they have
used their collective borrowing strength to promote growth using debt
instead of organically expanding their economies.
Portugal
Located on the tip of Spain in Southern Europe, this country ranks as the
14th largest economy in the European Union. Hosting over 10 million
people, Portugal exports over 75% of its agriculture-based products,
including grain, cattle, cork wheat and olive oil. While it's one of the
smallest economies included in the original PIGS, Portugal's economic
woes include the same issues of slow economic growth, high
unemployment and a high debt to GDP rating that affect its
Mediterranean cousins.
Italy
The boot-shaped county in the south of
Europe has had the misfortune of being
included in this group, and is sometimes
interchangeable with Ireland, depending
on who is using the term. Because of
Italy's rich history, famous food and
romantic nature, it is one of the most
visited countries in the world. About two-
thirds of the 60 million residents work in
the service sector, which may explain
part of its high unemployment. Tourism, a
driving force in this country, has been
negatively affected since the world
economy stumbled in 2008. Italy's
economy is considered above average in
development, driven by an educated,
efficient, hard working labor force. Italy
boasts a very high standard of living, but
it has financed these standards by being
one of Europe's biggest offenders of
taking on debt. The country has reached
Ireland
Also called the Emerald Isle, Ireland is a famous tourist destination due
to its rich history, unique climate and terrain. Ireland has a population of
around 4.5 million, and a small economy, which places it close to
Portugal in its ranking in the European Union. Ireland was dubbed the 
Celtic Tiger, as it was once considered an economic anchor with Asian-
like growth characteristics. Ireland participated in the economic boom
 throughout the 1990s and 2000s, but suffered from the same symptoms
that affected many other countries, such as a housing bubble. Ireland fell
as fast as it grew, and was the first eurozone country to fall rapidly into 
recession in 2008. In order to avoid collapse, Ireland required massive
injections to its banks and significant government oversight and
rebuilding efforts. While it emerged from the recession with the rest of
the world, the scars are deep, leaving the country with heavy debt and
very high unemployment.
Greece
Greece joined the EU in 2001, and its government began building a
mountain of debt that surpassed its GDP prior to the other EU countries.
Greece also suffers from slow economic growth and high unemployment,
but it differs in its economic structure compared to other European
nations; Greece has a very large public sector workforce accounting for
about half its GDP. This in itself has limited Greece, to a certain extent, in
its economic recovery, as the public sector is notorious for moving and
reacting slowly. Since the end of 2009 and up to 2011, Greece has been
the most public, and most troubled, member of the PIIGS, seeing its fair
share of corruption and political unrest.
The Greek yield diverged in early 2010
with Greece needing eurozone assistance
by May 2010. Greece received several
bailouts from the EU and IMF over the
following years in exchange for adopting
EU-mandated austerity measures to cut
public spending and significantly increase
taxes, while experiencing a further
economic recession. These measures,
along with the economic situation in itself
caused social unrest, and in June 2015
Greece, with divided political and fiscal
leadership and a continued recession, was
facing a sovereign default. The following
month the Greek people voted against
bailout and further EU austerity measures,
which opened a possibility of Greece
leaving the European Monetary Union
 entirely. The withdrawal of a nation from
the EMU is unprecedented, and the
speculated effects on Greece's economy if
the currency is returned to the drachma
 range from total economic collapse to a
Spain
Spain is the fifth largest economy in the EU, and,
despite its place in the PIIGS, it's the 12th largest
in the world as of 2010. Famous for its historical
sites and diverse climates and locations, Spain also
relies heavily on tourism to drive its economy. With
over 45 million residents and a large land mass,
Spain is an important part of the EU, but it has
seen some of the worst economic damage. Part of
the reason Spain was placed in this group was its
dramatic economic downfall that started in the late
2000s. Spain boasted 15 years of above average
GDP growth and began to stumble in 2007 as a
result of a similar property bubble that occurred in
Ireland, high unemployment and a large 
trade deficit. With such a successful run in growth
and comparatively strong banking system, it was
hard to imagine Spain falling so hard and staying
down so long; however, prolonged growth without
assessing fundamental issues such as debt
management and employment, brought this
country onto the brink of crisis.
The Bottom Line
While it is hard to imagine and impossible to turn back time, it's a
wonder how the PIIGS might have fared had they gone it alone or left
their currency floating and let the markets decide their fate.
Unfortunately for these countries, the damage, whether caused
collectively or independently, is deep and has left long lasting scars.
The debt they collected to grow their economies has reached a point
where it will most likely be excused, restructured or somehow revised
in order for them to move forward. While the media tends to dramatize
the issues of each of the PIIGS, their state of affairs could be much
worse.
IMPLICATIONS OF
THE EZC AND
POSSIBLE
DIRECTIONS
• Implications for the advanced countries
• The EZC and the EMEs
• Possible directions
IMPLICATIONS OF THE EZC
AND POSSIBLE DIRECTIONS
 The EZC has been moving from one peripheral
economy to the next, and more recently, is affecting
the core economies in the euro zone.
 EU accounts – 26% of the world GDP (at market
exchange rate) and the euro zone – 19.4%.
 The euro area accounts 10% and 26% of the global
equity markets turnover and the global holding of
reserves.
 Thus, the crisis threatens the pace of recovery of the
global economy especially the EU and within that, the
Euro Zone is a significant market for the rest of the
world.
IMPLICATIONS FOR THE
ADVANCED COUNTRIES
 The creation of the EU and Euro zone has been part of the
European dream of integration. A breakup of the Euro
would be painful in economic and political terms.
 A serious challenge is being faced by the two European
gaints Germany and France as the banks of both these
countries face large exposures . The markets have been
relentless in pricing them down.
 United Kingdom, that technically remains outside the
Euro Zone got no choice of remaining a passive spectator.
 As at present, the United States has a large financial
stake in Europe (over $600 billion). There are closing trade
links as Europe is US’s largest trading partner and the
largest destination for investment by U.S. corporations.
THE EUROZONE CRISIS(EZC)
AND THE EMERGING MARKET
ECONOMIES(EMES)
 For China and India, Europe and Eurozone accounts for a
significant market. Therefore, stagnation or worse, a
downturn in the euro zone will dent their export growth.
 China is somewhat balanced as the China is looking for
opportunities to diversify its forex assets (in the form of
sovereign debts as well as real assets like interest in
public sector units).
 For India, EU is a major trade partner (20.2% of India’s
exports and 13.3% of imports).
 Thus, the globalized banking system played a crucial role
in transmitting the crisis from advanced economies to
various parts of the world, including the emerging
markets.
POSSIBLE DIRECTIONS
 For dealing with the EZ crisis, the possible
alternatives being debated are on three broad lines.
 First, fiscal consolidation, including privatization.
This is the default policy choice.
 Second, would be to go in for a closer fiscal union
and a substantially enlarged European budget.
 Third, is the radical one, of peripheral economies
leaving the euro zone. A breakdown of the currency
may be very expensive, it could lead to insolvency
of several Euro zone countries, a breakdown in intra
zone payment.
CONCLUDING
OBSERVATION
The outcome of the current crisis may be a matter of
conjecture. None of the three choices are simple. Status
quo is also not an option. The choices will have to be
political, but the consequences will undoubtedly be
economic. The issue is not any more on how to deal with
the current crisis. Rather, to make the choice on ‘The
Euro’- as Eichengreen put it, to ‘love it or to leave it’ and
depending on that, to do what needs to be done. In the
end, we conclude by observing that neither of these two
roads would be easy, the one that carries with it the vision
of unification still holds a dream but the other route may
only take the euro economies further apart.
MEASURES
TO SOLVE
DEBT CRISIS
AND
STABILISE
EUROZONE
 The crisis has many causes, problems and faces. Besides the fact that
the EMU was conceived with a too low level of convergence in
monetary and economic policies, a major flaw of the European
Monetary Union (EMU) was that it did not include the scenario of a
sovereign debt crisis. The Greek crisis has proven that government
bonds are no more risk free investments and is only one of the many
problems the EU is currently facing. Spain, Cyprus, Portugal, Italy and
Ireland, as well as others, have to currently cope with difficult internal
challenges, creating tremendous social and political tensions.
Nonetheless, each case is different and requires different policy
responses. It is essential that the concerned countries can rely on the
support, the solidarity and the decisiveness of the European
community. The crisis proved that the mechanisms currently in place
were not enough to ensure fiscal discipline and economic convergence
within the Member States. The EU therefore needs to find solutions to
avoid financial and economic shocks in the future, which derive from
the co-existence of our monetary union and the still incomplete single
market with divergent economic policies
CREATE BANKING
SURVEILLANCE MECHANISM
 The sovereign debt crisis derived in large parts from the financial crisis and
the bail-out measures the governments had to undertake to prevent a
collapse of the real economy. The lack of oversight and rules for the financial
sector led to excesses on the financial markets. In the end the European
citizens had to carry the burden for the irresponsible behaviour of some
financial institutions. The costly rescue operations cannot be communicated
to and justified before the European citizens. If instruments, such as the
EFSF and the ESM, are deemed prudent by the decision-makers, that needs
to be clearly communicated and explained to the citi- Page 2 zens. In the
future no financial institution must be "too big to fail" and it must be insured
that the financial industry itself carries the risk of speculative adventures on
the financial markets. Hence a single supervisory mechanism (SSM) is
needed to ensure such an environment coined by financial stability exists in
the Euro area. In order to secure financial stability and fiscal discipline, the
EU must continue to develop appropriate regulatory norms and mechanisms
for the control and supervision of the big financial players. The European
Central Bank (ECB) could be the appropriate body to insure stronger national
supervision at the European level.
BOOST GROWTH AND
COMPETITIVENESS
 In the globalized world the EU needs to boost its competitive advantages in
order to keep being an important political and economic player in the
world. Competitiveness needs to be restored at the EU level in order to
offer to all the Member States equal opportunities to generate growth. A
long-term strategy for growth and a balanced budget are key elements of a
renewed European economic and financial policy but should not jeopardize
the European social model, based on solidarity, social protection and
democracy. Trust in the European project is again necessary in order to
attract (foreign direct) investment, boost trade and increase consumption
of European goods. Trust in the functioning of the European market and
economy is fundamental and needs to be restored and increased in order
to safeguard growth. Our top priority must therefore remain to create jobs
and growth in order to maintain social cohesion and welfare for future
generations. One of the key aspects for ensuring economic success and
being competitive in a globalized world is education and knowledge. In
order to ensure this competitive advantage, Member States must invest
significantly in R&D, improve their educational systems, offer professional
training opportunities and secure investment from the private sector
INCREASE DEMOCRATIC
ACCOUNTABILITY AND
TRANSPARENCY
 The European public needs to have trust in the European institutions and EU policy-
making. European citizens must feel that decisions taken on EU level are legitimate.
During the crisis decision-taking too often occurred behind closed doors in the
European Council. Instead of using the Community Method, measures like the European
Stability Mechanism (ESM) and the Treaty on Stability, Coordination and Governance in
the Economic and Monetary Union ("Fiscal Compact") were concluded in an
intergovernmental setting. Those intergovernmental agree- Page 3 ments should be
transferred into EU-law as soon as possible and all newly created institutions, including
the so-called "Troikas", must be subject to the full democratic scrutiny by the European
Parliament. As a principle the democratic control of decisions should occur on the same
level as the decision-taking. The cooperation between the national parliaments and the
European Parliament must be intensified in the framework of Protocol 1 of the Treaties.
This, however, must not lead to the creation of an additional parliamentary assembly.
The European Parliament is the citizens' chamber of the EU and there is no need for the
introduction of an additional organizational level. Currently, the EU is as much in the
media as never before, because the crisis affects almost all parts of European society
and must be tackled with European solutions. The crisis should be seen as a challenge
to induce and establish more participation and integration of the public and civil society
in European policy-making. Society should be further included in EU-level decision-
making and have the chance to shape policies, for example due to instruments like the
recently introduced European Citizens Initiative (ECI)
AN ADDITIONAL FISCAL CAPACITY
FOR THE EUROZONE WITHIN THE
MFF FRAMEWORK
 In its current setting the Euro area is unable to react adequately on economic
shocks. The EU monetary policy doesn't provide the necessary tools to
facilitate the desired adjustments of the economy. The national budgets are
not big enough to provide the necessary means and are furthermore subject
to tight rules for fiscal discipline set by the Stability and Growth Pact and the
Treaty on Stability, Coordination and Governance in the Economic and
Monetary Union ("Fiscal Compact"). In order to be able to counteract and
absorb financial and economic shocks, the Euro zone needs an additional
fiscal capacity. The funds for this purpose must be drawn from additional
resources and the budget must be developed within the EU's Multiannual
Financial Framework (MFF) to underline the unity and integrity of the EU. At
the same time the EU budget's share of own resource funds should be
increased significantly to make it more independent from national
contributions. In addition to the financial transaction tax the possibilities to
raise further funding on EU level should be explored in that regard.
Confidence by citizens that the decisions taken by EU leaders are and will be
in their best interest is key to regain their trust in the European project. It is
essential to explain fiscal and financial solidarity between Members States
and the necessity of subsidies, guarantees and transfers within the Union.
DEFINE A EUROPEAN NEW DEAL
 Europe is currently at a turning point in its history. The
challenges that lie ahead of the EU need to be solved together
with politicians, citizens, employers and employees. For that it
is necessary that we define a fair and new deal for the EU,
adjusted to the needs of our time. Due to the high degree of
interdependence between EU Member States, the countries
have common problems which ask for common solutions.
Increased political integration is the answer to many of the EU’s
challenges, but for this the trust and belief of the citizens in the
European project must be strengthened and is key to our
recovery. Deep economic integration creates the need for
political integration to avoid the development of extreme
economic imbalances and to restore competiveness and the
perspective for economic growth. Coming to that, civil society
and policy makers need to make sure, that economic
integration is accompanied by a social dimension in order to
ensure social cohesion, fair competition, good working
conditions, a fair labour market, and safety nets for those who
need it. In any case, It will be very difficult to communicate a
feeling of trust in the European project to the citizens in such
periods of global crisis, but this perspective is the only possible
way-out on the medium term. A particular effort of pedagogy
and transparency is therefore needed in this process. The main
challenge is to win back the confidence of the citizens in the
MAKE A FUNDAMENTAL DECISION
ON THE FUTURE OF THE EU
 The crisis has given us a better idea of the social, political
and economic costs. The EU is in recovery and we are
confident that it will overcome the crisis and see it as a
chance for further integration, which despite its
disastrous consequences for a lot of citizens can be an
opportunity for institutional progress. However, the
discussion about a new vision for the future of the
European project must be carried out in a public,
democratic and transparent form. A new European
Convention with the participation of the European
Parliament, the national parliaments and governments
and the European Commission is the only appropriate
instrument.
 CONCLUSION
 The EU will survive and will not break up any time soon, no matter the
economic, social, political, and foreign policy challenges. The next crisis
in the capitalist economy will force governments to make even greater
concessions to banks and corporations at the expense of the slashing
living standards from the middle class and workers. This will necessarily
entail greater division within EU and greater popular opposition to its
continued existence, for it will cease to serve the majority of the people
and only cater to the financial elites. It will take several crisis of
capitalism for the EU to collapse and not one deep recession and one
left-centrist reformist regime in Athens opposing austerity, neo-
liberalism and the patron-client integration model. After all, there are
many countries waiting anxiously to join the EU, despite the fact that it
has sharply deviated from its original mission and its interdependent
integration model intended to help the economically weaker members.
 It took many decades for political leaders to convince their citizens that
EU membership was good for everyone and not just for banks and
multinational corporations based mostly in northwest Europe. It has
taken a relatively shorter time for people to judge for themselves the
degree to which the EU best serves the interests of all people in all the
member states and not just the core. The prevailing skepticism of
whether there are really any benefits to the national economy and
society as an EU member, or if membership really serves the domestic
financial and political elites as well as the core EU members, especially
 Such changes will not come because the powerful banks,
insurance, pharmaceutical, defense, and other multinationals
are behind the regimes of Europe and they resist any change
in the patron-client integration model, and in making a
commitment to social justice by strengthening the middle
class and workers that have suffered high unemployment and
major cuts in living standards. Along with some programs
designed to reduce unemployment by strengthening
businesses and providing even greater tax and other
incentives to corporations to hire and keep workers, there will
be a major propaganda campaign for voters to support the
EU. Without tangible results in socioeconomic improvement,
the result will be continued rise in the right wing and left wing
political parties and disparate groups that want their
countries to leave the EU or they demand a different
integration model.
 The contradiction of the EU is that it is trying to project itself
as the most desirable bloc with the strongest reserve
currency on earth, as it tries to attract new members in
Eastern Europe, while at the same time, it is chocking growth
and development within the periphery areas precisely
because it has a strong currency under monetarist policies
and neoliberal course of privatization and corporate welfare
programs undercutting the middle class as the popular base
of a democratic society. Survival is indeed certain for the