Secondly, changing leaders will not alter market demands. Austerity was imposed to calm bond markets, not to punish the public. The markets have predictably begun to protest the shift of dialogue from austerity to growth as the euro hit a four-month low on Monday. However, the current crisis has been caused by deep-rooted structural problems that austerity cannot solve. Some southern European countries have had unsustainable levels of government spending for decades. On the other hand, ironically enough, investor panic about a EU break-up could actually cause it to happen by pushing government bond yield spreads to dangerous levels. In fact, after pushing Greece’s public to the brink by demanding shockingly severe austerity measures the real possibility of a EU breakup has actually been created after election turmoil led to neo-Nazis and extremist parties entering the country’s politics for the first time in decades.
This current path the EU has been forced on is clearly unsustainable; indebted countries cannot continue to be held to ransom by the markets as standards of living continue to drop as recession bites. Economies are meant to serve people, instead of the other way around. It is not simply a change of leaders and policies that the EU needs, but a re-think of creditors’ demands. In balancing austerity and growth, it is the time-frame of the deficit-cutting and how quickly creditors demand repayment that counts. Some creditors will ultimately have to accept losses no matter how harsh the conditions of austerity they impose and take responsibility for their decision to lend to these countries. As long as the EU does not break up, the markets must recognize there is no ‘silver bullet’ to the crisis and instead focus on making sure the indebted countries maintain fiscal discipline by making structural changes over the medium-term to long-term.