EDITORIAL: Euro melancholia

One country's economy is on the verge of bankruptcy after years of slovenly fiscal policy. If the Japanese government were to say Japan must pay to save this foreign country, taxpayers would very likely object. However, this is exactly the situation European countries are debating right now.

The country in trouble is Greece. Due to excessive government spending, coupled with tax aversion tendencies of their high-income class, tax revenues have not increased, leading the nation's fiscal deficit to balloon to as much as 12.7 percent of gross domestic product. In addition, this fact was hidden until the country changed government last year.

However, the European Union (EU) must support Greece because Greece uses the euro, the EU's common currency.

Since its introduction in 1999, the euro has become a powerful international currency, second only to the dollar. There are now 16 countries in the eurozone. The size of the Greek economy is a mere 2-3 percent of the eurozone GDP. However, if Greece should default on foreign loans, the effects could spread to countries like Portugal and Spain with similar problems.

If this happens, the credibility of the entire euro-zone will suffer. This is probably the most serious crisis the euro has faced since its introduction.

How is the eurozone to overcome this crisis? The other member states cannot readily offer assistance. No matter how inter-related the effect might be within the currency block, there will be taxpayer resistance to using their tax money to clean up a mess in a foreign country.

Already in Germany, the mood is to restrain the government from taking such a course of action.

European Central Bank President Jean-Claude Trichet said it would be a "humiliation" to ask the International Monetary Fund for help. Even if Greece leaving the eurozone is theoretically possible, it would seem like abandoning a friend in need and damage European solidarity, which would be a major political setback.

The bailout agreement at an EU summit meeting on Thursday revealed the predicament facing them. Despite promising to actively help Greece fix its fiscal mess, the agreement failed to spell out specific financial assistance.

The euro is called a "currency without a government." This means that, although the ECB exists, there is no central government to manage the eurozone's economic policy. There are times when the EU economic policy is more important than the individual member states' policies. However, when it comes to fiscal policy, sovereignty lies first with each member state, although there is a rule that the deficit-to-GDP ratio must be contained below 3 percent. The eurozone does not function as one state, which makes it difficult to find a solution when a problem arises.

This is because despite having an integrated economy, EU politics is slow to catch up. Some argue for the creation of a "European economic government" to help address this weakness.

European integration is in many ways a miniature version of the global community. Non-EU regions face a common problem in which their respective economies are swayed by trans-border economic activity. How should this situation be dealt with? The travails of the EU over Greece is something that can happen to us, too.

--The Asahi Shimbun, Feb. 13