Could the Euro's Days Be Numbered?

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Orestis Panagiotou / EPA

People walk under a sculpture at the entrance of the Athens Stock Exchange.

The frenzied betting by financial markets against the stability of Greek government bonds is a clear indication that many investors don't believe Athens will find a way to deal with its massive debt — at least not without an equally huge European bailout. But beyond the market speculation lies a longer-term question that is tormenting the 16 euro-zone nations: Could the Greek crisis be the beginning of the end for the common currency, just eight years after its first notes and coins were issued? Might the doubts and pressures that are driving the euro's value downward lead to the eventual implosion of Europe's most concrete achievement thus far?

The responses, of course, depend on who you ask. However, it's clear that if levelheaded economic experts are even pondering the viability of Europe's monetary union, the situation is grave indeed. "This is a very deep crisis for the euro and all of Europe because what we have is a terrible debt and deficit problem that virtually all European nations share and no collective structures to deal with any of it," says Philippe Moreau Defarge, a European affairs expert at the French Institute on International Relations. "Europe is being forced to recognize it isn't as rich or as well-organized as it thought, and faces several long, hard years of finding its way back to solid ground."

And what about the future of the euro? "I think it's quite possible we could see the euro gone in several years — or at least reduced to a currency only used by France, Germany and a few small nations keeping it alive," says Bob Hancké, an expert on European political economics at the London School of Economics. "The problem is that monetary union was never followed up by political union to coordinate budget and taxation practices and create euro-zone institutions and capacities to help member economies adapt to changes and turmoil. The result is member governments are left very few ways to deal with the current attack on Greek debt and the severe pressure that it's putting on the euro."

The rest of the euro-zone countries can come to the rescue. Indeed, these countries — led by France and Germany — have pledged twice this month to do what's necessary to see Greece through its deficit crisis and defend the common currency. If need be, officials say, that will include a financial bailout of Greece, providing the funds to allow Athens to make its debt payments as the government slashes spending and raises taxes, no matter how unpopular this may be with its taxpayers.

"Permitting what will essentially become an existential assault on the euro by financial markets isn't something leaders are going to let happen — the political and economic consequences would simply be too grave," says a French government adviser who preferred to remain anonymous because of the sensitivity of the situation. "The pressure being applied by market speculation is making things harder, but far from impossible. The euro isn't going away."

However, Hancké describes a scenario in which continued market doubts could drive the value of Greek bonds to junk status, confounding outside efforts to bail Athens out and forcing Greece to simply abandon the euro before it drags the currency down to nothing. "Once that happens, markets then turn successively on indebted countries like Spain, Portugal, Italy and Ireland until they're driven out as well," Hancké explains. "At that point, even if a core of countries continue using the euro after so many others have left, the currency will have lost it's main original function as being the means by which greater European integration and common governance is attained."

Though worried about the underlying causes of the crisis — overspending by governments that led to spiraling budget deficits and public debts — Moreau Defarge believes member states will indeed take whatever efforts are required to save the euro. "There's nothing for any of them to go back to," he says. "This is the present and future they've chosen."

But he's convinced the euro zone will be forced to further integrate their economies, coordinate budgets and tax structures as well as cede budgetary and oversight powers to a central body tasked with preventing collective calamities from happening — and distributing emergency funds when problems do arise. Some observers even hope that, far from killing the euro, the crisis may remedy its structural failings. "Europe has always advanced when forced by necessity," editorial writer Bernard Guetta noted in the Libération newspaper on Wednesday. "So it's now that things will start to happen."