The ongoing euro crisis, which has made it difficult for some countries in the eurozone to repay or refinance their debts, has had economic implications not only in Europe, but also in the United States and across the globe.
“This crisis in Europe was so severe that it directly impacted the pace of the (economic) recovery in the United States,” Mark A. Wynne, Ph.D., vice president at the Federal Reserve Bank of Dallas, said in his remarks to students, faculty and staff at The University of Texas at El Paso on March 27. “It has had a direct effect on the United Kingdom for whom Europe was the single most important trading partner. It even matters to China. China exports more to Western Europe than they export to (the U.S.). So problems in Europe reverberate around the world. It matters to everyone.”
Wynne, who is the founding director of the Federal Reserve Bank’s Globalization and Monetary Policy Institute, talked about the “The Euro Crisis: What Happened and Why it Matters” as part of the University’s Centennial Lecture series, which brings noteworthy speakers to the UTEP campus to share their perspectives on a broad range of contemporary issues.
Wynne’s lecture was an opportunity for members of the UTEP community to consider some of the driving factors of globalization and explore the increasingly interconnected world economies, UTEP President Diana Natalicio said.
“As we experience an ever-increasing flow of goods, services, labor and money across the globe, it is clear that how we function as a global community and what we need to do to support global economic stability are critical issues of concern to us all,” she continued.
Wynne described the European debt crisis (also known as the euro crisis), which began in 2009, as a multifaceted issue with more than one cause.
“It would be a mistake to think that the euro crisis was only due to the welfare state or it is due to excessive government spending,” he said.
During his lecture, Wynne discussed the fundamental challenges of why the European debt crisis emerged. He drew on lessons from U.S. economic history, including the European Union’s decision to create a single monetary currency that would create one market in Europe that was similar to the market that exists in the United States.
“The idea was to make trade between Germany and Portugal as easy as trade between California and New York,” Wynne explained.
The euro was introduced on Jan. 1, 1999 and replaced the national currencies of France, Germany, Spain, Italy, Greece, Portugal, Luxembourg, Austria, Finland, the Republic of Ireland, Belgium, and the Netherlands in 2002. Today, 17 European countries use the euro and are known as the Eurozone.
However, economists like Wynne did not consider Europe an optimum currency area, which is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.
“If you’re not an optimal currency area, then the sharing of a common currency is a bad idea,” Wynne said.
By 2009, Wynne said things began to go terribly wrong in Europe.
Greece’s new government admitted their budget deficit was 12 percent GDP. One of the criteria for a country to participate in the single monetary union was that it had to have a government budget deficit of less than 3 percent GDP.
Years of uncontrolled spending led Greece to become the first eurozone country to take a bailout from other European countries in 2010. The bust of the housing boom in Ireland resulted in it taking a bailout the same year. In 2011, Portugal received a bailout and Greece received a second bailout. In 2012, Greece defaulted and banks in Spain asked for a bailout.
“The key point here is that the causes of the crisis were multifaceted and different countries got into trouble for different reasons,” Wynne said. “But the fundamental reason that became problematic for all these countries was that they were all sharing common currency and did not have the option of devaluating and depreciating their way out of trouble.”
Concerns that the euro might implode were eased when the president of the of the European Central Bank pledged to do whatever it takes to prevent that from happening, Wynne said.
Wynne emphasized that people in El Paso and the rest of the United States should care about the European debt crisis because Europe is still an important market for U.S. products. Europe also continues to be an important source of investment in the United States.
Rafael Alvarado, who graduated from UTEP last December with a bachelor’s degree in finance and economics, said Wynne’s explanation of the eurozone will help him in his new job at Xerox Corporation in their corporate strategy office.
“I think these Centennial Lectures are a great opportunity to learn about what’s going on in the world from the people who are out there and who know more than we do,” Alvarado said.
The next Centennial Lecture speaker will be Monica C. Lozano, the publisher and CEOof the nation’s largest Spanish language daily newspaper, La Opinión, and CEO and chair of its parent company, ImpreMedia, LLC. She is scheduled to appear at 5 p.m. Tuesday, April 15 in the Undergraduate Learning Center.
Posted at http://news.utep.edu/?p=23627.
Laura Acosta is a writer in UTEP's Office of University Communications.