For the love of all things holy, Europe is going absolutely freaking nuts.
I’ll spare most of the fun in macroeconomic theory and just say this: the Euro is so toast.
If you’re not much for keeping up on the financial markets, here’s the Europe crisis explanation in less than 300 words.
Europe’s Economic Problems in 300 Words
Europe shares a common currency.
European nations do not have the same problems, nor do they have the same desire to fix said problems.
Traditionally, countries facing a debt crisis inflate their currency to repay debts. However, because European nations all share the same currency, you have to have agreement among all nations (or at least those that carry most of the political weight) to approve measures to create liquidity.
Those nations that carry the most political weight naturally have the most economic weight. Germany doesn’t really care about Greece’s problems, because it doesn’t want to fool around with policy that affects its $3+ trillion economy to maybe save Greece’s $300 billion economy.
Greece has a politically irate population unwilling to take an offer by the broader Eurozone to essentially remove Greece’s debt problem if the nation agrees to higher taxes and fewer social services.
Greece sees the solution to the problem as proposed to be unworkable. Greece knows that its problems will affect other EU nations so it can just sit around and do nothing, never agreeing to any proposal until it gets a more favorable deal.
Other EU nations don’t want to play along, because…well, “screw those guys!” Meanwhile, other countries that were on the brink are now on the verge of failure due to a greater slowdown.
So, basically, you have a macroeconomic staring competition going down. At some point, Greece’s economic woes will flow into the broader Eurozone. Other European banks, governments, and institutions hold Greek debt securities. And every moment we wait, things get worse elsewhere.
They could just cut the PIGS nations (Portugal, Italy, Greece, and Spain) free and let them deal with their own struggles on their own currencies. But that sets a precedent – all Euro-denominated debt is not the same in the risk of default. That’s not good for the markets.