The Grim Economic Future of Europe! (Worst Case Scenario to Best Case Scenario) [BBC]

[Deleted]

European leaders have warned of a difficult year ahead, as many economists predict recession in 2012.

German Chancellor Angela Merkel said Europe was experiencing its "most severe test in decades" but that Europe was growing closer in the debt crisis. France's President Sarkozy said the crisis was not finished, while Italy's president called for more sacrifices. European leaders, with the exception of the UK, have backed a tax and budget pact aimed at solving the debt crisis and preventing the implosion of the single currency.

The following explains what could unfold next in a crisis that French President Nicolas Sarkozy has warned risks "disintegration" of the eurozone.
(Worst Case Scenario to Best Case Scenario)


Pictured: 1. David Cameron, Angela Merkel, Nicholas Sarkozy and other EU Dignitaries. 2. European Union Member State Flags. 3. The European Union Flag.

Euro Collapses

1.) Meltdown (Worst Case Scenario)

• 2008 again, but without the last-minute bailouts:
  

​
Financial markets lose confidence that the eurozone's problems are solvable. The eurozone's plan - stricter controls on government borrowing - is not credible. Anyway, government borrowing wasn't the real reason the euro got into trouble. It was all the private-sector borrowing that did the real damage. Workable solutions to the economic problems are not politically acceptable. And politically acceptable solutions make no economic sense. Investors stop lending to all eurozone banks and governments alike - except perhaps Germany. Banks collapse. Governments run out of money. Stock markets and the euro plummet. And the politicians run out of ideas and time.
The outcome? Think of Russia in the early '90s.

2.) Unravelling

• The weaker countries drop out one-by-one:
  

​
Fearing exit from the euro, ordinary Greeks empty their bank accounts in droves. The European Central Bank insists that Athens freezes people's accounts, or else it will pull the plug on the Greek banks. The Greek government falls, and its replacement decides enough is enough, announces a stop to all debt payments and a unilateral exit from the euro. The newly reintroduced drachma plunges in value.
With widespread anger at spending cuts and recession, there are growing calls in other, bigger, southern European countries, led by Italy's former prime minister, Silvio Berlusconi, to follow Greece's example. That sparks bank runs in the other countries, who in course do end up following Greece. At best a rump eurozone of Germany and France - and possibly Finland, the Netherlands and Austria - is all that remains. There is a risk this could lead to a "meltdown" scenario.

3.) Divorce

• The eurozone decides break-up is the only option:​

Any solution that might save the euro proves impossible to agree. Irish voters would block any treaty change put to them in a referendum. Along with the southern Europeans, they want to escape the seemingly endless cycle of spending cuts, tax rises, wage freezes and recession. They are angry at the seeming lack of solidarity from the northern Europeans.
Meanwhile, voters in Germany, the Netherlands, Finland and elsewhere are incensed by the spectacle of their tax money being used to rescue southern Europeans from the consequences of what they see as laziness and overspending. Governments eventually agree this cannot continue, and negotiate a controlled break-up of the eurozone - perhaps a split into northern and southern European currencies. But this will be hard to do without triggering an "unravelling" scenario.

Euro Survives

1.) Phoenix from the ashes (Best Case Scenario)

• The least-bad outcome, where everything goes to plan:
  

​
This is the scenario that Germany and France are hoping for. All eurozone governments agree and stick to the strict new borrowing rules. Italy and Spain get bailouts financed by the European Central Bank.
Most importantly, confidence returns. Financial markets are willing to lend to eurozone governments and banks again. In turn, the banks start lending more. Consumers (especially German consumers) start spending again. Businesses start investing again. Europe suffers only a light recession, but then recovers, and slowly but painfully grows its way out of its debt problems.

2.) Union

• The European Union turns into a political federation:
  

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As the financial malaise keeps doggedly returning, so the eurozone governments call more and more summits and come up with more and more proposals for closer union.
Eventually they agree a complete political union - a democratically-elected government in Brussels that can borrow with the backing of all 17 member countries, and can spend money wherever needed - rescuing banks, paying unemployment benefits, financing investment in the more recession-mired countries. The UK and other EU countries not signed up to joining the euro are asked to exit the EU altogether and join a looser free trade area, with much less political influence.

3.) Inflation

• The ECB prints money, prices rise, debts and savings wither away:
  

​
The euro plummets, making the cost of imported goods much more expensive. A strong recovery in the rest of the world pushes up the price of energy, food and raw materials even more.
Meanwhile, the European Central Bank prints money to pay for one government or bank bailout after another. The ECB tolerates higher inflation - breaking its mandate - as its bankers secretly believe this is the only way to make the eurozone's enormous debts more repayable. They also want to see wages rise rapidly in Germany, so that workers in struggling southern European countries can regain a competitive edge. But governments continue to spend freely, expecting the ECB to keep lending them newly-printed euros. When a big government breaks the borrowing rules, the rules are simply abandoned. And so the inflation gets out of control.

4.) Depression

• The eurozone stays together, but the price is years of economic hell:​

Governments stick to their commitments, and all cut spending at the same time. This causes a deep recession. Consumers and businesses lose confidence in the economic outlook and cut back their own spending, making the recession worse. The European Central Bank cuts rates to zero, but still finds it almost impossible to stimulate the economy.
The recession makes it very hard for governments to actually cut their borrowing, because they are spending more on unemployment benefits and earning less in income tax. Companies and mortgage borrowers find it harder to pay their debts, putting the banks in trouble, who cut back their lending even more, undermining the economy further. Eventually borrowers, including governments, have to write off their debts, and many banks and businesses go bust.


Sources:
http://www.bbc.co.uk/news/business-16098582
http://www.bbc.co.uk/news/world-europe-16377010

[Catta]

The Union scenario aint going to happen... EVER...

[Ynna]

The Union scenario aint going to happen... EVER...

Why not? It's a logical (if a bit extreme) progression of the increasing political power the EU has gotten.

OT: I don't see the unraveling happening, personally. It would be a bad idea for everyone involved. It's at times like these that I regret the European Union not having strong, visible leaders. We need someone who tells us, very clearly, that these are tough times, one of the toughest, but that we can get out of it. It will be hard, it might be painful, but together we can get out of this.

[Deleted]

The Union scenario aint going to happen... EVER...

Yeah, that has an eerie one world government/illuminati vibe to it.

The illuminati doomsday theory has always said that the global economy will be thrown into disarray purely for the purpose of ushering in a one world government, currency and so forth. These are the first signs of the impending 'United States of Europe' I assume.

This touches on it:
http://adventofdeception.com/eurozon...ank-deception/

/removes tinfoil hat

[Deleted]

Why not? It's a logical (if a bit extreme) progression of the increasing political power the EU has gotten.

OT: I don't see the unraveling happening, personally. It would be a bad idea for everyone involved. It's at times like these that I regret the European Union not having strong, visible leaders. We need someone who tells us, very clearly, that these are tough times, one of the toughest, but that we can get out of it. It will be hard, it might be painful, but together we can get out of this.

Because the UK for one would pull out before that ever happened, and seeing the state we're currently in, the UK (hell any country) leaving the EU would probably cause it to collapse.

[Jackmoves]

Sell Greece to Qatar.

[Ynna]

Because the UK for one would pull out before that ever happened, and seeing the state we're currently in, the UK (hell any country) leaving the EU would probably cause it to collapse.

I'm not saying it's going to happen any time soon, since currently any major changes that are not economical will be hard to pass. But a couple of years/decades down the line, it might not be so unrealistic.

[Pancha]

I'm glad I've voted a big "NO" the last two EU elections in Norway.

[Catta]

Why not? It's a logical (if a bit extreme) progression of the increasing political power the EU has gotten.

OT: I don't see the unraveling happening, personally. It would be a bad idea for everyone involved. It's at times like these that I regret the European Union not having strong, visible leaders. We need someone who tells us, very clearly, that these are tough times, one of the toughest, but that we can get out of it. It will be hard, it might be painful, but together we can get out of this.

half the european countries are still rocking monarchies and you think we can unite the freaking thing? Isnt it belgium which is almost at the brink of getting split up because the flemish and the french cant get along

[Sunseeker]

You left out the elephant in the room: War.

Disintegration followed by anger, poverty and depression in many southern and eastern European nations is a sure-fire recipe for another continental conflict. Given that every European nation is a US ally, the USA would likely stay on the sidelines, but a rising Russia may seize this as an opportunity to take the Europe it's always felt it's deserved. Or if not, use it as a distraction to reclaim former soil in south-eastern Europe and Middle-Asia.

[Deleted]

half the european countries are still rocking monarchies and you think we can unite the freaking thing? Isnt it belgium which is almost at the brink of getting split up because the flemish and the french cant get along

While I logically agree with everything you're saying. The powers that be will not allow the EU to fail even if the people want out.

The embaressment for EU leaders and the founders of the organisation would just be too high.

The people protecting the EU are very, very powerful. That's why the EU exists despite everyone seeing how much of a failure it is.

[Catta]

You left out the elephant in the room: War.

Disintegration followed by anger, poverty and depression in many southern and eastern European nations is a sure-fire recipe for another continental conflict. Given that every European nation is a US ally, the USA would likely stay on the sidelines, but a rising Russia may seize this as an opportunity to take the Europe it's always felt it's deserved. Or if not, use it as a distraction to reclaim former soil in south-eastern Europe and Middle-Asia.

France and the UK spending more coin on military than Russia would prolly be a deterrent - besides there is still the UN - and a war of conquest is unlikely to garner much support

[Ynna]

Half the European countries are still rocking monarchies and you think we can unite the freaking thing? Isn't it Belgium which is almost at the brink of getting split up because the Flemish and the French cant get along

Monarchies in the EU are meaningless. The monarchs have no actual power. And Belgium is doing okay now. It was a tough, but we got through it. And if Europe got actual political power, a lot of problems that could lead to Flemish independence would be gone. And, as I said above, I'm not seeing the EU as a political power happening anytime soon.

You left out the elephant in the room: War.

Unlikely. War costs money. War would cause even more damage, economically speaking, than any other solution.

[Deleted]

I don't like the euro collapse gloaters. Fair enough if that's your politics, but gloating over human misery is a bit sick.

[Jackmoves]

You left out the elephant in the room: War.

Disintegration followed by anger, poverty and depression in many southern and eastern European nations is a sure-fire recipe for another continental conflict. Given that every European nation is a US ally, the USA would likely stay on the sidelines, but a rising Russia may seize this as an opportunity to take the Europe it's always felt it's deserved. Or if not, use it as a distraction to reclaim former soil in south-eastern Europe and Middle-Asia.

Not gonna happen in our lifetime, if ever.

[Catta]

Monarchies in the EU are meaningless. The monarchs have no actual power. And Belgium is doing okay now. It was a tough, but we got through it. And if Europe got actual political power, a lot of problems that could lead to Flemish independence would be gone. And, as I said above, I'm not seeing the EU as a political power happening anytime soon.


Unlikely. War costs money. War would cause even more damage, economically speaking, than any other solution.

you might think the monarchies meaningless - others obviously wants to keep them hence why they are still there

[Exodeus]

The EU is a corrupt cesspool of idiotic polititians trying to make a new soviet union where only the big countires prosper and the small fall ( Greece, Ireland, Spain, Portugal and more) the sooner the EU and the euro dies the better for europe.

[Deleted]

The EU is a corrupt cesspool of idiotic polititians trying to make a new soviet union where only the big countires prosper and the small fall ( Greece, Ireland, Spain, Portugal and more) the sooner the EU and the euro dies the better for europe.

I'm not sure Spain can be considered a 'small' country. But I otherwise agree with you.

[Exodeus]

I don't like the euro collapse gloaters. Fair enough if that's your politics, but gloating over human misery is a bit sick.

Not gloating at all but if you would watch some coverage from the EU parliment you would see the Eu is all about greedy fat cat politians lining their own pockets at the expense of the rest of europe

---------- Post added 2012-01-01 at 07:17 PM ----------

I'm not sure Spain can be considered a 'small' country. But I otherwise agree with you.

As an economic power it is yes compared to Britain, France and Germany

[Ynna]

You might think the monarchies meaningless - others obviously wants to keep them hence why they are still there

What I meant was that the national government could easily be replaced by a federal, European one, and it would have zero effect on the role, power or function of the monarchies that still exist.