Economy: Link between Green Continent and Beijing

IRD: The Euro crisis worsened in Greece, and other European Union member countries are facing it. What has the solution been to handle the crisis so far, and how successful has it been?

FK: The Euro was introduced in 1999, and now is used by 17 member countries of the EU, while others like England have so far refused to use it. The purpose of this introduction was to share European trade among the European countries by using a composite monetary unit.

The problem arisen after the introduction of the Euro was that Germany, and later France, having the strongest economies, were the backers of the common curency. It was supposed that the annual budget deficits of the Euro unofficial member countries like Greece not be more than 3 percent of their GDP and the overall debts of the governments, annual accumulated debts of the Euro member countries, not exceed 60 percent. But many countries like Greece, Portugal, Italy and Ireland did not take this seriously.

The first crisis arose in Greece, the country having high annual debts and budget deficits. The solution proposed was to ask for help from the IMF, the European Central Bank and some rich countries outside the region like China, Japan and Saudi Arabia to buy the Greek government bonds and they cooperated. But recently, as the investigation revealed, Greece is still in crisis and cannot pay its debts.

Another solution was to force Greece leave the Eurozone, and this may temporarily solve the problem, but it is not the absolute solution and politically it would be considered as creating a domino effect; i.e. it paves the way for other countries having the same problem to leave the zone, while Germany and France want to increase the number of the Euro member countries. Therefore, it was decided by Sarkozy and Merkel to come up with other solutions.

As you may know, Chinese and German and French banks have agreed to purchase more bonds. One of the reasons behind the dramatic decrease in the worth of the five important French banks was the collection of the banks’ (like Societe de France) bonds and their purchase of Greek worthless or low-valued bonds, but later it was understood that their shares are not of great interest and they suffered losses.

IRD: Germany opposed the proposal of printing European bonds. What is this proposal and why did Germany oppose it?

FK: The European Central Bank takes money from the European countries and gives it to Greece for the Greek bonds. The side dealing with Greece is the ECB. I suggest the formation of a fund like the IMF to play the same role in the continent and save the countries in crisis.

IRD: Have the adopted methods not been effective so far?

FK: No. it should not be expected that those issues be effective in a short run, as it is a long process. Greece should compensate for its budget deficit with the received money and should pay its debts. Greece’s problems will not be solved by other countries, and it needs to control the opposition and strikes against the government by devising an economic austerity program.

IRD: How does China play a role in tackling the crisis in Europe?

FK: China has a big surplus in its international payments balance; i.e. its exports are greater than its imports. Therefore, it can collect foreign currencies like the dollar. As there is a serious relation between Chinese and European trade, all attention is drawn to these two entities. Therefore, if China does not help solve the crisis, its economy will firstly be affected.

IRD: Do these crises affect the Iranian economy?

FK: No, because Iran does not have close relations with Greece and other European countries, and there is no link between the Iranian financial market and financial and exchange markets of Europe and the US.