The sovereign debt crisis in Europe has crippled economies, nations and financial institutions and is threatening to destabilize global markets. Yet one woman may hold Europe's — and the world's — fate in her hands: German Chancellor Angela Merkel.
Merkel's stark vision of austerity has come under intense scrutiny and has been increasingly challenged as the euro zone falls deeper into recession. A restive populace, frustrated with budget cuts and rising unemployment, is fighting back, ousting former Merkel allies like France's Nicolas Sarkozy and electing government leaders that oppose harsh austerity measures.
On June 17, Greek voters will answer the question that has rattled global markets for months: will it stay or exit the 17-member euro zone?
Greece's problems are not endemic; Portugal and Ireland have received billion dollar bailouts and Spain announced over the weekend that its teetering banking sector would be injected with up to $125 billion in EU funds. Euro zone banks may be at risk of tipping the region into financial ruin but this crisis has already deeply impacted the lives of millions of Europeans since the crisis began two years ago. Unemployment in the euro zone was 11 percent in April, the highest it has been since 1995. Spain's labor market has experienced unprecedented losses and half of the nation's young adults cannot find work. The EU's debt crisis threatens not only Europe's economic future but the financial destiny of the U.S. and Asia too.
"Europe is really the single-biggest uncertainty hanging over the world economy and one country more than any other country has the power to kind of dispel that shadow and that's Germany," says Zanny Minton Beddoes, economics editor for The Economist. "[Merkel] is the single-most important person in terms of where the world economy is going in the next few months."
In the accompanying video, Minton Beddoes provides a blueprint for what she believes could be the solutions Merkel and her political partners need to embrace.
Merkel's austerity approach has broadened to include more growth initiatives over the past few months Minton Beddoes notes, but the German Chancellor still insists that austerity will produce the desired results.
Instead, Minton Beddoes says Merkel should be encouraging the euro zone to create a banking union with euro-wide deposit insurance. She also recommends debt mutualization — or limited euro bonds — that would allow lagging countries like Greece and Italy to reduce their debt burdens and allow their economies to grow gradually.
On paper these ideas may sound like the right solutions, but convincing an intensely skeptical electorate that they're best for everyone may be the toughest challenge yet for Merkel.
"Will she have the political courage to put forward policies that aren't popular with a large chunk of her electorate?" asks Minton Beddoes. "In Germany, the sense of crisis is not imminent. There is still a prevailing sense in Germany that this is a crisis in southern Europe which a whole load of profligate people had coming to them."
Merkel has insisted that she does not want to break up the euro zone. "I have the will, the determination to keep Greece in the euro zone," she said in an interview with CNBC last month. "I think it would be good for Greece, it would be good for all of us."
Merkel's rhetoric may be resolute, but her mixed messages and indecision have allowed the euro zone to fall further into despair.
"She hasn't stepped up to the plate and taken on that position leading Europe forward," Minton Beddoes adds. Germany has "no sense" of a looming catastrophe and "what the costs would be if the euro falls apart."
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