August 11, 2012
The debt crisis in Eurozone is a development that has never been faced in the past nor been predicted as one of the many possible outcomes of a single-currency monetary union. This is the main reason that explains why completely different and divergent propositions are heard in daily basis, and how the general feeling of the public and the statements of political leaders shift from optimism to pessimism with extreme and exhausting pace.
Empirical evidence from social sciences shows that people are meant to be very well-prepared to face a condition that they have managed to organize and study in advance. From a business decision to a military strike, and from the voting against a political party to the organization of the daily schedule, people tend to invest time in the predictable. Yet there are many times -more than those being predicted- that history and the sequence of events bring about evolutions and shifts that cannot be handled in an efficient manner. I lately believe that this is the very cause of the frustration of ideas and sayings and the pass from optimism to pessisim inside the Eurozone: the fact that no one seems to be sure about this or the other option.
To that purpose, I am writing down two scenarios of the predictable and two of the unpredictable that are actually shaping the current debate for the future of Eurozone:
Predictable 1: The Eurozone member-states decide to drop out overdebted partners from the monetary union. The crisis turns from a European one to state one and the stability of Eurozone without Greece, and afterwards without Spain and Italy, is secured. Especially in the case of Greece, there is no fear that imbalances and further instability will occur in Eurozone due to the small size of Greece’s economy.
Predictable 2: The Eurozone member-states agree to issue eurobonds so that debt shifts from national to European. This option is lately re-emerging by Guy Verhofstadt as a double-targeted solution. First, to re-trigger solidarity in Eurozone and consequently in the European Union, and second to share the burden of debt from the states in desperate situation. While Verhofstadt’s propositions stirs up moral and practical issues, it is an option widely discussed and, to my point of view, a realistic scenario.
Unpredictable 1: a pre-emptive strike from the US and Israel against Iran unleashes a nuclear backlash from the side of Iran. Other Arab States of the Organization of Petroleum Exporting Countries are involved in the war field, the prices of oil are falling down dramatically, escalation brings in Syria and fuels up the Kurdish guerilla all over Middle East, Israel and Iran are deepening actual warfare with extensive use of nuclear weapons, thousands of casualties are counted, dollar is falling and pulling down euro, debt crisis ends up with spiral bankruptcies, China and Russia are entagled, and so on. From that spillover, Eurozone collapses and no alternative mechanism can prevent it.
Unpredictable 2: The European Central Bank and the Eurozone member-states decide to stop shoring up Greek and Spanish economy. Both governments declare suspension of payments and pensions, social unrest and clashes are spread up, blind looting and atrocities between citizens are occurred, the government escapes in peril, and chaos prevails. The army is weak and unable to cease down unrest, and the EU is unable to act.
To summarize: while we spend our time engaged in repeated ideas and focused on the known, we forget to give emphasis to the extreme, the unknown, and the very improbable. This implies the need to use the extreme event as a starting point and not treat it as an exception to be pushed under the rug in order to decide how we will move and affront the crisis.Dimitris Rapidis