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Financial Crisis Threatens To Destroy Eurozone

DAVID GREENE, host: It's MORNING EDITION from NPR News. Good morning. I'm David Greene.

STEVE INSKEEP, host: And I'm Steve Inskeep. Pressure is growing on European leaders to do something they've made it really, really plain they hate to do.

GREENE: For all the billions they've committed to propping up the Greek economy, it may still not be enough, and Greece's trouble has led to questions about Italy and even France.

INSKEEP: So the question is what Europeans will do now. The situation matters enough to the United States that Treasury Secretary Timothy Geithner will make an unusual appearance at a meeting of European finance ministers tomorrow. NPR's Philip Reeves reports on a crisis that's entered a new phase.

PHILIP REEVES: Every word matters in the fragile world of European politics and finance. Markets are panicking. Loose talk throws fuel on the fire. Officials used to seek to play down the crisis that's now engulfing the eurozone. Now their tactics are changing, and so is their language. Listen to the head of the European Commission, Jose Manuel Barosso, addressing the European Parliament in Strasbourg.

JOSE MANUEL BAROSSO: We are confronted with the most serious challenge of a generation. This is a fight for the jobs and prosperities of families in all our member states. This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world.

REEVES: Barosso wasn't alone in sounding the alarm in that forum yesterday. Jan Vincent Rostowski is finance minister of Poland, which holds the rotating EU presidency.

JAN VINCENT ROSTOWSKI: (Foreign language spoken)

REEVES: Europe is in danger, he said. The European Union's widely seen as the foundation stone of stability in post-war Europe. But the eurozone crisis is threatening to destroy the entire EU project, he said. If the single currency zone breaks up, said Rostowski, the EU wouldn't survive, and Europe could eventually become so unstable that it's threatened again by war. And if the current crisis drags on, there could be major repercussions. Even Europe's richest countries could see unemployment double, he warned.

Europe's leaders have long been accused of being ineffective and slow to respond to this crisis. The United States, China, Russia and others are urging them to show leadership. European officials are trying to respond. They hope their stark language will help persuade Greece and other troubled eurozone nations to get serious about enforcing deficit-cutting austerity measures, and also will convince other wavering member countries that they must carry on propping up their weaker partners. Jose Manuel Barosso again...

BAROSSO: The conclusion I draw is crystal clear. The right way to stop the negative cycle and to strengthen the euro is to deepen integration, namely within the euro area, based on the community method. This is the way to go.


BAROSSO: It is also...


REEVES: That message was underlined by German Chancellor Angela Merkel and Nicolas Sarkozy, the president of France. They held a telephone conference yesterday with the Greek prime minister, George Papandreou. Afterwards, Greece said it was determined to meet all the deficit reductions it agreed to in return for its two big bail-outs. France and Germany insisted Greece would remain an integral part of the eurozone.

These terse statements are unlikely to reassure many. Arguments are raging in Europe over whether Greece should be allowed to default and even quit the currency. Political paralysis is gripping the zone, and so is frustration. Barosso insisted yesterday that eurozone leaders had taken feasible and concrete measures to combat the crisis. But he said it's taking too long to implement them.

Events are certainly proving just how difficult it is to move quickly in an area of 17 countries that share a currency but lack political and fiscal union. Parliamentarians in Austria, Slovakia, and Finland are delaying approving a plan agreed in July by eurozone ministers for a much bigger European rescue fund. As the crisis mood deepens, a consensus is growing among analysts that a Greek default is now inevitable.

The issue, says George Magnus, senior economic advisor to the UBS Investment Bank, is not about whether it'll happen, but how.

GEORGE MAGNUS: I think the default can be orderly. Or it can be disorderly. If it is disorderly, we're going to face a collapse of the financial system, great depression, terrible political outcomes. You don't even want to think about them. If it's an orderly default, which I hope is what Angela Merkel and other European leaders are kind of building towards, then it'll be done, you know, obviously in a very messy way, but the system can survive and we can kind of move on after that.

REEVES: Philip Reeves, NPR News, London. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Philip Reeves is an award-winning international correspondent covering South America. Previously, he served as NPR's correspondent covering Pakistan, Afghanistan, and India.