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"Radical change" needed to save euro

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"Radical change" needed to save euro

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Ireland’s economic crisis appears to be spreading across Europe as investors worry that some countries will be unable to service their sovereign debt. It has been said the very existence of the single currency is at stake. Euronews interviewed Dan O’Brien, the Economics Editor for the Irish Times, for his analysis.

James Franey, euronews:
Mr O’Brien, do the Irish people believe these tough spending cuts will put the country back on the road to recovery? What’s the mood on the streets like?

Dan O’Brien:
The mood here is a mix of uncertainty, anger and fear, and I wouldn’t say there’s any definite hard consensus that these extraordinary measures being taken will advance the country and allow it to get out of the very deep hole that it’s in. There is, as I say, very deep uncertainty about the economic situation and about how to get out of this difficult situation. Certainly to go through the kind of shock that this country has gone through — in terms of confidence particularly, having had to be bailed out — that is likely to have a significant impact on confidence.

euronews:
If the government’s four-year plan doesn’t work what options are left on the table. There are some politicians who have floated the idea of a default. How credible is that idea?

Dan O’Brien:
Well, as a member of the eurozone, the option for any individual government to decide unilaterally to default on any form of debt is very limited. The default option, I think, would only take place in the context of the euro itself breaking apart. The alternative, as is set out in the terms of the bailout package, that if the budgetary targets are not met they will have to be “augmented” so that will effectively mean more cuts and/or more tax increases going through next year, if budgetary targets are not met.

euronews:
Can the euro survive in its current form?

Dan O’Brien:
I think that’s very much in question now. There are deep problems with the euro structure and, more widely, how the financial system in Europe, internationally, works and there are real concerns that the forces pulling at the euro will simply become to powerful and overwhelm it. There are things that can be done — these are very radical things and very radical things that some countries oppose. It’ll probably come down to the question: “do you want to take radical measures or do you want to see the euro fall apart?” As has been suggested recently by some finance ministers there is the possibility of replacing, partially replacing, national governments’ debt or bonds with a euro area bond that’s underpinned by the euro area as a whole. Both of those are highly controversial. The latter effectively means bringing Europe much closer to a unitary state, and of course it would be very controversial to deepen integration as a response to such a crisis when, in fact, we could be looking at fragmentation rather than integration in Europe.