UK out of Europe deal: Can it work?
Twenty-seven countries that make up the European Union came together on Friday in Brussels to try and save the euro, which is the common currency of 17 of them, but it is uncertain if the solution proffered can fix the problem. Some experts believe that it is probable that the regional compact struck may not prove adequate. In that event, it is likely that the rest of the world might have to pitch in. Much would depend on how much the world loves the euro.
Since the new European currency came into existence 20 years ago following the Maastricht Treaty, it has emerged as a major international means of exchange. Its going under — caused by spending exceeding earnings in several countries in Western Europe, including important ones such as Italy and Spain, causing an unprecedented sovereign debt crisis — would have jolted the economies and financial institutions on all continents. In Europe itself, ordinary bank deposit holders faced ruination. The world is concerned, not least the United States, many of whose banks and other financial institutions have developed close links with European banks. India too would have taken a hit as the EU is a significant source of trade and
investments.
The European leaders who met in Brussels failed to arrive at a revised Treaty of Europe that would take care of future financial crises, but signed an inter-governmental agreement instead. It was pushed strongly by Germany and endorsed by France, the continent’s two largest economies. The compact stipulates that the governments of the 17 euro zone countries would henceforth submit themselves to fiscal and monetary monitoring by an overarching regional authority, and those that cross a pre-determined deficit threshold (to be a certain percentage of GDP) would be penalised. Britain — not a euro zone country — is the only EU country that kept out of the agreement, although Hungary and Denmark had similar positions. In fact, a new treaty looked possible but for British intransigence. London has now become the whipping boy of Europe. It is being said Britain failed to realise its ambition of emerging as the political leader of the 10 non-euro zone countries of Europe, as the Nordic and former Communist states did eventually sign up.
First, the solution has its critics. The Europeans have parked a bailout package of $270 billion with the IMF, but some think this hopelessly inadequate. Two, the harsh spending cuts envisaged for governments can cause a recession, making a mockery of the Friday agreement. Therefore, the efficacy of the medicine is yet to be tested. So it’s still too early to lampoon a eurosceptic British nation not prepared to relinquish its financial sovereignty. The euro remains on test.
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