The European Union is an economic and political institution forged over decades, sealed with a treaty in 1993 but only, truly made real in 2002, when most of the current member states dropped their currency in favor of the common euro. For centuries a breeding ground for war and imperialism, Western Europe had bound itself together in peace and apparent prosperity, with a supranational government all its own to be quartered in Brussels.
Its anthem: “Ode to Joy.”
Things have changed. While most major banks remain multinational (with interests around the world) their errors — some would say crimes — have brought renewed focus on the sovereign state. Today, with Greece on the edge of default, the euro zone nations have a new catchphrase: “Exposure.” As in, how much “exposure” do our banks have to the bad debt held by yours.
It’s enough to make one’s head take an “Exorcist”-style lap around the neck. But here, below, is a simple guide to this latest and most important chapter in the crisis. The results in Greece will likely determine, and certainly predict, the fate of the European Union. This is the least you should know.
Why is Greece in debt?
Like any state (or person, for that matter) it spent more money than it took in. Traditionally, but especially after switching over to the euro, the Greek government paid out huge amounts of cash it simply did not have. To compound this, the retirement age there is low by modern Western standards, and benefits are generous. Public sector employees are well paid.
Sounds good, right?
The problem is that Greece is also infamous for mass tax evasion. That means severely limited revenue. So when the money ran out, Athens turned to European banks for loans. Soon, the government was borrowing billions and those debts, like subprime mortgages in the United States, were often repackaged and sold off around the Continent. Everyone, especially banks in France and Germany, wanted a piece. Now they have it.
Why does Europe — indeed, the world — care so much about Greece’s debts?
One of the perceived perks when Europe got together on a single currency (Greeks, for instance, gave up the drachma for the euro) was that a strong Europe could prop up an individual state in a time of need. But what’s happened is that Europe itself has become too weak, in the aftermath of the global financial meltdown, to bite the bullet on a country like Greece. A default would shatter otherwise monetarily strong countries like Germany. The Germans, like the Americans, would be left with a host of “too big to fail” banks ready to do just that…