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People's Daily Online>>Opinion

European integration at crossroad

By Hong Pingfan (People's Daily)

15:30, February 15, 2012

Edited and Translated by People's Daily Online

At present, the European Union faces a systemic crisis rooted in the European economic integration, in addition to the sovereign debt crisis and bank liquidity crisis plaguing several of its member states. The contradiction between the monetary system and the financial system of the euro zone, as well as the flaws in the zone’s economic governance structure and policy-making mechanism have been thoroughly exposed.

European currency unification has failed to promote fiscal unification because the EU member states have been unwilling to give up their control over tax revenues. Even the fiscal compact reached at the EU summit last December failed to mention a fiscal union or fiscal transfer payments.

The institutional flaws of the euro zone are to blame for the debt crisis plaguing countries like Greece. The euro zone’s regulations about financial deficit and debt made creditors underestimate the risk of lending money to certain European countries, which now carry heavy debt burdens.

The euro zone neither has a mechanism to prevent the sovereign debt crisis nor has a mechanism to deal with the crisis. Since the crisis broke out in Greece in 2010, the euro zone's decision-making authority has been in a difficult position due to the systemic defect of the zone. Politicians of Europe indeed have the determination to safeguard the euro zone, but they do not have fiscal resources which could be allocated in a unified way, and do not have a proper mechanism to solve the debt issue. Therefore, the crisis keeps worsening and spreading.

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William Hooper at 2012-02-1637.34.6.*
Dear Hong Pingpfan,Do you think that if Greece was to leave the European Union it would flourish or collapse? Should the Emperor be worried that a revolt revolt by one of his children will threaten his reign? Does he think that when one goes the other will flee too? Or does he think it will terrify his other children and draw them ever closer to him and strengthen his kingdom? Does he smile when his disobedient child throws a tantrum and storms out of the door, knowing that will be back one day with more piety? Have you spent too long reading Western newspapers? Where is the China of old, the one that plays GO, the one whose every move is calculated to lead to best possible long term outcome? Where is the China that thinks with its head not slides around in liberal dogma? Think of self control and strategic judgement, not the cowardice and weakness of the West! Look how China abandons her chance to work secretly with the Germans, to lend a critic eye, to help them plan. Instead you publically berate a powerful and potentially useful King! Oh People"s Daily you have let me down! I expected more from you, but you turned out to be just like them!
Heinz Stiller at 2012-02-16188.60.9.*
The author echoes conventional views on a break-up of the Eurozone, but I think it is just a little too alarmist. The eurozone currently is a conglomerate of economically strong and weak countries. If Greece and Portugal should leave the Eurozone, many commentators in English-speaking media see an end of the Euro experiment. Nothing could be farther from reality. If you have any kind of group or conglomerate held down by some weak members, what is likely going to happen when weak members leave? The rest of the group will have greater strength, on average. If Greece leaves, the value of the Euro will probably go up, not down, as a big problem "leaves" the Eurozone. The same pertains to Portugal, in principle, but given that the re-financing needs of this country are relatively low, a Portuguese exit is unlikely. All the more, as this country, in contrast to Greece, is undergoing decisive reforms.
  

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