In recent years, Cyprus and Greece have each experienced a full-blown financial crisis. Unfortunately, other European countries – including Spain, Portugal, and Italy – are on shaky economic footing. The much-discussed gap between northern European countries such as Germany and their struggling southern neighbors has the potential to create serious tensions inside the European Union (EU).
Historically, economically struggling countries could devalue their currencies, which would increase their exports and lighten their debt burden. But countries that adopted the euro thereby lost that ability. Greece and Cyprus have had to agree to creditor-imposed fiscal austerity, which could last for years, and in Cyprus’s case, the creditors (consisting of the European Commission, the European Central Bank, and the International Monetary Fund) actually demanded assets from Cyprus banks as a condition of the bailout. While it is an oversimplification, there is some truth to the view that northern Europeans are tempted to see southern Europeans as lazy and dependent on the northern countries, while the southern Europeans view their northern neighbors as greedy and power-hungry. Dissatisfaction with European integration in general and the EU in particular can be seen in the recent rise of populist nationalist parties in Europe, such as the Golden Dawn party in Greece. Whether the EU survives the next decade is unclear, but the recurring economic problems of the southern countries (including massive looming pension obligations) virtually guarantee that serious tensions will continue to exist within it.