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Slovak Vote Reveals Euro’s Underlying Problems

October 12, 2011

Slovakia has suddenly found itself at the forefront of the European Debt Crisis, as its parliament voted down the agreement for Greece’s second bailout yesterday.  While it appears that the Slovak Parliament will probably approve this agreement and yesterday’s vote will not have any long term affects on the euro, it does highlight a number of the problems with the euro’s structure:

  1. Timing:  While Slovakia is the last country to vote on the bailout package, this package was originally announced on July 21.  Taking at least 2.5 months to approve a rescue package is hardly a quick resolution for a crisis.
  2. Democracy:  The EU is often accused of having a “democratic deficit” since its only directly elected arm is the European Parliament, which historically has been the weakest branch of the EU.  However, the Greek bailout package must be approved by the parliaments of all 17 countries that use the euro.  In this case, that might have been too much democracy, as a country that accounts for just 1.6% of the Eurozone’s population now throwing a wrench in the system.
  3. All Politics are Local:  As the BBC reported today, the Slovakia’s vote was determined by local politics, as the Slovak neo-liberal Freedom and Solidarity party voted against the bailout.  Their leader, Richard Sulik, argued why should the second poorest country in the Eurozone be forced to increase its own debt to bailout Greece?  The Slovak electorate appears to agree with him, especially as the average Greek pension is 3-4 times higher than that is Slovakia.
  4. Lack of “Solidarity”:  The EU likes to talk about how all citizens of the EU are European and share common values.  That may indeed be true, but at a concrete level, there are often few ties between EU member states.  I would argue that Greece and Slovakia share almost no common history or ties:  They have never been part of the same country, they speak very different languages, one is predominately Catholic while the other is Orthodox, they were on opposite sides of the Iron Curtain, etc.  While France and Germany have been in the same European club since 1951, Slovakia just joined in 2004, which is not a long time to discuss common bonds.
  5. Economic Differences:  The Slovaks, which are the second poorest eurozone member (just ahead of Estonia) and have an unemployment rate around 13.4% find it hard to bailout the Greeks.  Germans, who have the largest economy in the EU and an unemployment rate of 6%, often argue that they should not help the Greeks in order to make them for fiscally responsible like the Germans.  If neither the richest nor the poorest really want to help the Greeks, who will?

With all of these issues, it is not surprising that Eurozone leaders are having a tough time creating a plan to solve the euro’s problems.  Hopefully it will become clearer soon that a real “European” solution is needed and countries get behind it.  Otherwise, the euro will probably have an even more troubled road ahead.

In order  to help people understand the theoretical underpinnings of the European Debt Crisis and how it affect the US, the EU Center is pleased to be offering ...Is the Euro Doomed? Why Europe’s Financial Crisis Might Worry All of US,” a discussion of IU faculty, which will occur October 20th at 5:30 at the Monroe Country Library in Meeting Room 1B in Bloomington.

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