Recent economic concerns over Greece’s debt problems have made the markets extremely nervous. But Greece is not alone in its debt woes. Italy, Portugal, Spain and Ireland are also in the frame. There is talk that the EU may have to use its emergency powers under Article 122 and issue an EU guarantee on Greek debt in order to stop the spread of sovereign debt worries, which could domino across Europe and end the whole Euro project.

But whilst most attention is focussed on Greece, the Nobel economist Paul Krugman points his finger at Spain as the “biggest trouble spot”. Elena Selgado, the Second Vice President and Minister of Economy and Finance of Spain says that Krugman did not understand the Eurozone and that comparing Spain with Greece was simplistic. But she was not helped in this after fellow Spaniard Joaquin Almunia, the European Commissioner for Economic & Financial Affairs, inadvertently let slip that both Spain and Portugal were in just about as much trouble as Greece.

Jean-Claude Trichet, head of the European Central Bank, is of the opinion that these countries had an easy ride into the EMU and could not expect their deficits to be paid off by the rest of the club now. They should curb their own spending and sort it out internally. But there are many that believe this will make certain countries ungovernable. The Portuguese Prime Minister, Jose Socrates, has failed to get enough votes to implement austerity measures, which means the debt will have to keep going up. According to Daniel Gross of the Centre for European Policy Studies both Portugal and Greece need cuts of 10%, but this might lead to street protests.

The Euro has tumbled recently and the FTSE slipped back as the EU brinkmanship between the ECB and these riskier countries continued. At the end of the day the Euro and EU are now ‘too big to fail’ and some sort of deal will have to be struck. Countries like Greece and Portugal will need to take some pain of their own, but a lot of the pain will have to be shared out across the rest of the club in the form of EU guarantees for their debt.

Whilst the Europhiles are silent and keeping their heads below the parapet at the moment, they will come out in force once the deal has been struck and the problem ‘solved’. Then, in order, to prevent a similar event in the future we will have a whole new tranche of regulation across the board tying the EU together even closer in political, legal and financial matters. And as ‘committed’ Europeans as our politicians always say we are, this will of course heavily involve the UK.

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