Euro Finance Ministers Discuss Radical Ideas to Avert Global Crisis

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Finance ministers from the euro zone’s 17 member nations have converged on the European Union headquarters in Brussels today in a desperate bid to save their currency and to protect the global economy from a debt-induced financial crisis.

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The ministers were discussing ideas hitherto unthinkable, now being considered in a moment of utter desperation. Among the previously taboo ideas being mentioned today are: countries ceding fiscal sovereignty to a central authority; some sort of elite group of euro nations that would guarantee one another’s loans but require strong fiscal discipline from anyone seeking membership.

German Chancellor Angela Merkel reiterated her support today for changes to Europe’s current treaties in order to create a fiscal union. “Our priority is to have the whole of the euro zone to be placed on a stronger treaty basis,” Merkel said today in Berlin. “This is what we have devoted all of our efforts to; this is what I’m concentrating on in all of the talks with my counterparts.”

Merkel acknowledged that changing the treaties won’t be an easy task, as not all of the European Union’s 27 member states “are enthusiastic about it.” However, she dismissed reports that said the 17-nation single-currency bloc might go it alone with a swifter treaty between governments.

With the entire global community relying upon Europe’s survival, aggressive action has become a matter of extreme urgency, as euro zone governments have 638 billion euros in past debts coming due in 2012, of which 40% needs to be refinance in the first four months of the year, according to Barclays Capital. Recent debt auctions have seen yields climbing in some of the euro zone’s largest economies, including Italy, where yields shot up Tuesday to above 7%, an unsustainable level on par with rates that forced Greece, Portugal, and Ireland to seek bailouts.

At the top of today’s agenda is finding a means to more fully integrate the euro zone’s disparate nations — ranging from the miniscule Malta to the powerful Germany. French Finance Minister Francois Baroin said on France-Info radio that countries should integrate their budgets more closely and monitor one another’s spending.

“We have to modify euro zone governance,” Baroin said on Tuesday. “We definitely have to move toward more integrated budgetary consolidation, fiscal convergence with our neighbors.” France and Germany will make proposals on how euro-zone countries can monitor one another under such a system, said Baroin.

Another issue of discussion today will likely be the joint-issuance of eurobonds. It is thought that having stronger countries like Germany stand behind the general European debt would lower borrowing rates for at-risk countries like Italy, helping them avoid a debt spiral that leads to national bankruptcy, though it would increase borrowing costs for the countries with the region’s strongest economies.

Germany, which pays a yield of about 2% on its debt, has been fiercely opposed to the eurobond proposal. However, the region’s second-largest economy, France, may propose joint bonds among a subset of euro-zone countries, according to a French official.

Proponents of the joint bonds say the proceeds could be used to help the euro zone’s weaker countries deal with their debt in exchange for strict conditions being imposed on their budgets. However, critics argue that they would further fragment the euro zone into strong and weak countries.

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The world is watching Europe, waiting upon a solution. It’s not just the euro that’s at stake. If the euro fails, so too does the 27-nation European Union. Bank lending would freeze, stock markets would likely crash, and Europe’s economies would follow. Nations in the euro-zone would see their economic output decline, though temporarily, by as much as 50%, according to UBS forecasters. That economic meltdown would then spread to the U.S. and Asia, who would find themselves caught up in the credit freeze while their exports to Europe would collapse.

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