Dr. I. Bournakis from Middlesex University on 3 pillars of Eurozone's debt crisis, Germany and the E

The current ECB bond system entails two crucial limitations. The first one is that the quantitative easing endeavored with issuing bonds is not enough to tackle the liquidity problems encountered by European economies. The second problem is that the way that money liquidity diffused in European economies is rather problematic as the main conduit is always commercial banks. It is now common knowledge that the European banking system has been bankrupt and any expansionary open market operation that is supposed to increase money circulation goes through the black holes of the private banks. These funds never reach the so-called real economy and thus this scheme of printing money looks like not operating effectively. An obvious modification here would have been to totally isolate banks from any rescuing program that operates in weak economies like Greece, Ireland etc. For instance, from the bailout given to Greece money given to banks must be excluded from the national debt. The banking system in most European economies should be recapitalized under a public ownership scheme for a limited period of time till to ensure that banks are healthy and robust again before being resold to private entrepreneurs again.

That's really a very long question and cannot be answered within few lines. I will try to summarize some of my key points that highlight the root of the problem and potential steps that need to be taken in order to improve the sustainability of Eurozone. The current crisis of the Eurozone has three pillars: first, it is the distorted architecture of the Eurozone since its initial establishment, second it is a failure to regulate effectively the international financial system and third it is a loss of competitiveness in the European periphery. The previous order is not random but highlights the degree of importance of each aspect of the problem. The bailout packages applied in Greece, Portugal and Ireland attempt to heal only the third problem.  Admittedly, Greece has been the weakest link of the European architecture but other peripheral countries are also in a severe debt crisis and this is not because of their wasteful public sectors. It is impressive that during a period of a severe recession for the European periphery, the European center (Germany, Holland, Belgium) experience positive growth rates. This is a clear symptom of asymmetry indicating further the lack of a mechanism that can recycle surpluses among member states ensuring that growth gains in Europe are distributed as equally as possible. Over the last decade, European peripheral countries experience growth in nominal wages while Germans in purpose keep their nominal wages freeze in order to maintain competitiveness. Symmetry is a strong prerequisite if European policy makers seek to proceed towards a higher degree of European economic integration. Real convergence must be mostly succeeded in wages and productivity and not only in nominal macroeconomic fundamentals (i.e. budget deficit, inflation and sovereign debt as stated in the Maastricht treaty). Only if there is symmetrical growth then it also becomes meaningful to have a pan-European ministry of finance that can use effectively the traditional policy tool kit (fiscal stimuli, taxes, and interest rates).

With regard to the second pillar, the lack of regulation in the financial system and the absence of a powerful ECB have made speculative attacks to bonds of peripheral European countries incredibly easy. This problem still remains, as the ESFS is not a sufficient mechanism to eliminate the tendency of financial traders to gain huge profits gambling on the borrowing ability of the weakest European members.  The idea of collective borrowing seems to be now more vital than ever. ECB needs to issue bonds the soonest both for financing investment projects in deficit countries as well as sharing the risk derived from individual country borrowing. The argument that a euro-bond will weaken the will of deficit countries to undertake reforms is not valid anymore watching the European periphery to sink into depression. The key European players (i.e. European commission, and governments of surplus countries) should stop face the current crisis in a hazardous manner. The conservative governments of Europe have been severely suffering over the last three years from the diseases of erroneous stereotypes about peripheral countries. Policies implemented for the shake of punishing the "naughty" periphery endanger the solidarity and the cohesion of Europe.

Turning to the third pillar of the problem, Greece needs to restore growth via investment. Reforms cannot generate growth without new funds to be circulated in the economy. Therefore, Greece needs either domestic or foreign investors. This is the only recipe for restoring economic confidence. A crucial issue at this point is that domestic entrepreneurs are incapable of undertaking long term investment projects. This represents the pathogenesis of the Greek business world which has been state fed all these years. As public finances collapse and government cannot co-fund anymore public projects, private initiatives are automatically disappeared.  Foreign investors also seem reluctant to invest in Greece. Interestingly, this is not only due to political instability, demonstrations and riots as one can easily argue but mainly because foreign investors cannot see any market potential in the Greek economy. Foreign investment is always driven by the degree of economic activity in the host country. The weak purchasing power of Greek consumers discourages foreign investors. 

The political game played in European Union at the moment is a "give and take" game. Political leader of the surplus countries (i.e. such as Germany) in order to offer more European and economic integration (i.e. with what ever that means) need to see from deficit countries (i.e. Greece but not only Greece) tough programs of fiscal discipline and consolidation to flourish.  Austerity means lower standards of living for citizens in deficit countries but this is a standard trade-off if governments want to achieve the consent of Germany for a series of matters such as: collective borrowing (i.e. euro bonds), a mechanism of recycling surpluses among countries, a common tax office for the whole Eurozone etc. In other words, the game played now is tough austerity and lower standards of living in exchange of greater political and economic integration. When this game will come to an end it is difficult to say as there are many factors involved. Definitely, this situation will carry on for at least two- three years as the austerity programs imposed into peripheral European countries have been badly designed without tackling the problems appropriately plunging economies into a more severe recession and thus making countries to fall even more behind in their fiscal consolidation targets.