The worsening debt crisis in Europe has spread from the relatively small peripheral economies of Greece and Portugal to engulf significantly larger economies in the core of the European Union: the borrowing costs on Spanish and Italian debt are also increasing precipitously. Meanwhile, Germany, the principal economic power of the EU, has up until now remained relatively untouched; their competetive export-led economy has continued to grow, putting Prime Minister Merkel in the position of passing bailouts for struggling countries in return for imposing severe austerity measures. However, with 40% of its exports going to Eurozone countries, the crisis has even caught up with Germany; with a massive decrease in consumption from its European neighbors, German growth ground to a halt last quarter.
Economists and commentators had already pointed out that the EU was facing a choice between the disintegration of the eurozone or the establishment of common institutions of economic and fiscal governance. Today, Angela Merkel and Nicolas Sarkozy (President of France) revealed a bold proposal meant to demonstrate the sort of leadership that this debt crisis has been asking for. A proposal that amounted to the forced economic suicide of the Eurozone:
In what may likely be the most ambitious proposal, Mr. Sarkozy and Mrs. Merkel outlined a plan for each of the euro zone governments to enact legislation that would constitutionally bind their governments to balancing their budgets. This “golden rule” would be expected to be enshrined in the constitutions of all euro members by the middle of next year, the leaders said.
