Europe debt crisis is latest threat to global system

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Michael Probst / AP The foremost symptom in the last month of the deepen­ ing global economic crisis has been the sovereign debt panic in Europe—steadily increasing the odds of an ex­ plosion of the European Union and the death of the euro. The spillover would engulf the world, sinking to new depths a stagnant U.S. economy, as well as that of China and other “emerging” economies.

The European Union and its common currency, the (Above) Protesters hold banner, “Smash banks, redistribute wealth,” in front of European Central Bank in Frankfort, Nov. 12.

U.S. homebuyers to take out mortgages they couldn’t af­ ford. In both cases, the underlying cause was a financial­ ization of the global economy, encouraging if not forcing both consumers and governments to take on more debt in turn arose out of decades of falling rates of profit, coupled with increasing globalization as Western corporations fled further and deeper abroad to cut production costs.

The Wall Street Journal reported: “In the first steps toward the closer political and financial integration that many have come to believe is essential for the euro’s survival, the European Commission on Wednesday went beyond float­ ing the idea of euro bonds. It also proposed that countries surrender more power over their finances to the European authorities, giving Brussels the right to request a rewrite of spending plans that seem too profligate.” Not even the wealthiest on the continent are going to be immune from such pressures. On Nov. 16, the bond sell-offs that had been plaguing the southern tier of Eu­ rope hit some of its healthiest economies—e.g., Austria, the Netherlands, Finland, and France. One week later it was Germany’s turn. For months, said The Wall Street Journal, the worst-case scenario envisioned was that the crisis, “born in heavily indebted countries, would infect otherwise healthy countries at the heart of the monetary union.” That scenario is now being played out. “If investors go on a buyers strike of European debt,” The Journal commented, that could raise borrowing costs and threaten the solvency of the euro zone, which in turn “could destabilize the global financial system and damage world-wide economic growth.” This would look some­ thing like the “buyers strike” after the demise of Lehman Brothers, when banks refused to lend to each other. The cause is the same underlying malady.

On Nov. 23, The New York Times noted, “Germany’s stature as an island of stability in the European debt crisis was shaken when it fell far short of selling all the govern­ ment bonds it put up for auction. Investors are beginning to question whether there are any havens left in Europe after German bonds got a surprisingly bad reception.” The failed sales, said The Times, also mean that Germany, which for months has been resisting EU-wide initiatives to help weaker economies, would have less prestige to dictate how the euro region will cope with the debt crisis. The paper continued: “There is a growing sense in the region that unless the European Central Bank and big euro members like Germany and France agree to take major action to prop up the region’s finances, the euro-currency union itself could start to crumble. The debt crisis has toppled five governments, including Italy and Greece, by raising those countries’ borrowing costs to dangerously high levels. And now the crisis is prompting many inves­ tors to pull money out of the euro region altogether.” n Supercommittee meant that at the same time as inves­