With every passing week, the state of the Eurozone crisis grows more and more desperate. Recent discussions converged on the establishment of a three-pronged attack on the debt crisis: the acceptance of a fifty percent loss by banks holding Greek debt, a requirement for banks to raise capital to protect against future losses, and most importantly, increasing the monetary value of the Eurozone bailout fund to one trillion Euros. While the agreement bolstered the belief of many shareholders in the capacity of the European Union and associated parties to manage the crisis, it also raised questions regarding the acquisition of funds. Rumor has it that the Eurozone is sending emergency flares into the sky, hoping to catch the attention of emerging world powers. Will the BRICS (Brazil, Russia, India, China, South Africa) come to the rescue of the PIGS (Portugal, Italy, Greece, Spain)?

Since its founding in 1992, the Euro has yet to face a monster as combustible as the current debt crisis. Greece adopted the Euro in 2002, and it was not until 2008 that the European Union used funds to stimulate the region’s economy, following the global financial crisis. It was in 2009 that the economic situation in the European region became serious. European Union requirements state that member nations that use the Euro must restrict their deficits to three percent of GDP. As early as April 2009, the European Union charged France, Spain, the Irish Republic, and Greece to work towards reducing their budget deficits. According to the Report on Greek Government Deficit and Debt Statistics by the European Commission, a deficit of five percent of GDP was reported in April 2009; however, information emerged that there had been weaknesses in the calculation of this number due to modification of the data, and by October 2009, the “true” Greek deficit was released at 7.7 percent of GDP. At the same time, public outrage over government spending and corruption ousted the Greek government, and swept the Socialist party (led by George Papandreou) into power amidst promises of economic reform and control. Just two months later, Greece announced that its debt had reached a fat three hundred billion Euros.

The year 2010 featured a series of hair-raising debt figures from a range of European nations. In response to austerity measures designed to reign in their burgeoning debt, Greeks in Athens and other Greek cosmopolitan centers flooded the streets, protesting measures such as a one-third increase in excise taxes on fuel and an increase in the retirement age to sixty-five years of age. Amidst repeated claims by Papandreou that Greece was not in need of a bailout, it grew apparent that emergency loans and safety nets alone would not be able to catch the plummeting Greek economy. In response, the European Union, in partnership with the IMF, agreed on 110 billion Euro bailout of Greece, and a smaller, 85 billion Euro bailout of the Irish Republic.

In early 2011, the European Stability Mechanism was established, a permanent bailout fund worth about 500 billion Euros. The establishment of the mechanism is meant to quarantine decaying economies from infecting other Eurozone economies. Early after its inception, the fund was used to bailout Portugal and also provided a second bailout to Greece. In September, the frazzled “troika”- the name given to the triumvirate of the European Commission, European Central Bank, and the IMF - convened to discuss the logistics of appropriating further bailout funds to Greece and dismissed the growing fear that Greece would become the first nation forced to leave the European Union. Yet even as the next batch of bailout funds was delivered to Greece in October, there was a fearful understanding that this would ultimately not resolve the sovereign debt crisis. President of the European Commission, Jose Manuel Barroso summed up the struggles and the seriousness of the matter in his passionate declaration that “this is going to be a baptism of fire for a whole generation.”

It may be a baptism of fire, unless the Eurozone nations can find some relief to douse their burning economies. Ultimately, two controversial solutions have come forward with regards to resolving the issue on a long term basis. The first is a system of Euro bonds, a more regionally focused solution proposed by Manuel Barroso. The Euro bond system would collectivize the sovereign debt of all European Union nations, using the stronger EU nations, such as Germany, as a leverage mechanism for weaker nations, such as PIGS, to obtain financing at reasonable rates, thereby facilitating the repayment of loans. This solution, which is seeing increasing support from many key leaders, ultimately places a great deal of responsibility and risk on strong nations, namely Germany, which has so far remained relatively immune from the crisis. Germany, the linchpin in the Eurobond scheme, remains disdainful of the current proposition, citing not the scheme, but the current EU rules and regulations as points of contention.

Alternatively, the current three-part solution mentioned earlier involves raising one trillion Euros in order to, ironically, stabilize the European Stability Mechanism. Klaus Regling, the Chief Executive of the European Financial Stability Facility, released vague statements suggesting the possibility of negotiations towards securing Chinese investment into the Eurozone debt. Although both European and Chinese leaders have repeatedly stressed that these are preliminary discussions, not decisive conclusions, the idea of an outside nation buying out the European Union has raised many questions.

Chinese assumption of a portion of the Eurozone debt would in many ways be similar to the situation in the aftermath of World War II, when the United States implemented the Marshall Plan. Although US$3 trillion in Chinese reserves could help alleviate some of the pressure felt by the European economies, it is clear that such support by the Chinese would not be forthcoming without incentives. Some cite that saving the European economy is in China’s best interests, as economic downturns would inevitably make their way across to one of Europe’s major trading partners. However, this may not be enough for Chinese investment into the area. It is likely that in a nation where over 200 million continue to live in severe poverty, a move to support much richer nations would not be well received by the populace. Statements from citizens revealed a common belief that China should focus on problems at home before addressing those in foreign nations.

Some say that even a Chinese or BRICS bailout would not be enough to save Europe from its debt crisis. These critics argue that the economies of these emerging nations are too meager to be able to support Europe. China’s economy, although growing at an astounding rate, only makes up 8.5 percent of the world economy, with India and Brazil at a fledgling 2.2 percent and 2.7 percent respectively. From this viewpoint, the Eurobond scheme would be most apt to resolving the crisis.

Brazilian Secretary of International Affairs Carlos Cozendey affirmed the interest of BRICS nations in assisting the debt crisis, but stressed that they would be interested in “reinforcing the IMF to help…Europe…if needed.” Supporting the IMF during such times would increase the influence of the emerging nations in the IMF, which has long been reigned by the United States and European nations. As it stands, there are not many options on the table for the European Commission. Whether it chooses to opt for Eurobonds, chooses to “outsource” its debt, or perhaps adopts some combination of the two, it will have to be a decision made in haste, as the plummeting economy will wait for none. If not contained, the European debt crisis is a fire that may consume the world.

Staff Writer Divya Seth