Economic rules have always pointed out that the best way to fight recession is by indulging in spending, so that the slack outlays by under-pressure consumers and businesses are compensated for. But the global credit crisis and the harsh terms of an EU-IMF bailout to rescue Greece from bankruptcy have turned that principle on its head across Europe. From Madrid to Athens, governments are unveiling emergency budgets that slash tens of billions from their economies, under pressure to control their soaring deficits, popularly known as the European Austerity Drive. But such a coordinated attempt towards austerity may result in a step down for this group of countries, rather than a way out of the current crisis.

One of the major questions raised here is the future of the Euro. Analysts are still debating about the currency and whether the hype around its recent ‘downsizing’ is warranted or not. Even though some analysts and views are not painting the complete picture about the Euro, the fact remains that had the problem remained confined to one country, Greece; questions would not have been raised. But with Spain, Portugal and Ireland entering the fray, tougher questions are now being raised, and are necessary. The entry of Italy into this issue is an important one. If these countries defaulted, because they represent together such a big chunk of the Euro zone, about 20%, it would knock the single currency and severely dent its credibility. These countries together represent a sizeable share of the currency zone, about 20%. If they default it will not only prove detrimental to the stability of the Euro, but raise questions about its durability. 

The Euro has always been championed as a success story for the past decade, one that other regions can learn from. But the current fiscal year has thrown up new and difficult questions, exposing its weakness. The major issue being raised is that it is simply one currency, with one central bank, and the same interest rate - but being employed by 16 different countries, all pursuing their own public spending policies.. This disconnect has become the largest problem during the recent recession. A downturn in any country normally leads to high taxes for the richer segments of society. But this basic rule cannot be implemented in 16 countries at the same time, thus making it difficult to force a blanket rule of spending cuts and taxes across the zone. 

The possibility of the Euro collapsing is a real one. There are several ways that this could come about.  One is that Germany may become disgruntled with the whole affair and pull out of the Euro Zone and go back to the Deutschemark. The country is better shape than its neighbours, but is being forced into austerity because of its commitment to the Euro. The southern countries may decide to pull out from the Eurozone given the fact that they are forced to cut their spending and look towards more tax cuts, even though they feel that spending will be a much better alternative. 

On the other side, since German and the French banks have  lent a substantial amount to the struggling countries, a pull-out may not favour their investments, and hence they may be forced to hang on to the dying currency. Germany has already lent more than 20 billion euros to bail out Greece, and a further 100 billion to the Euro zone-wide bailout package. In the present circumstances, it is extremely unlikely that Germany will be willing to open its purse again. 

The austerity drive across Europe will also have a negative impact on the people; these austerity packages are creating a situation where economies can't grow and unemployment will rise. The cuts in spending will affect those economies which are already fragile in nature, particularly in the South of Europe. This will result in mass protests, strikes and other problems in these countries. The Euro’s current woes are also a cause of concern for the other major players in the world markets, especially the United States. Europe accounts for a large chunk of their market and any economic mayhem would spell grave problems for the US, as it will push the dollar sky high, and affect exports directly. 

The time has come for Europe to sit down together and think about its future - whether they wish to remain united under one currency or have national currencies. These countries may still ride out of their current problems, though the recovery time is likely to be around 3-5 years for the rock-bottom countries. Even after recovery, the question over the future of Euro will still remain, and this might well be the best chance, if Europe has to dismantle the current system and develop a new system of separate national currencies. The flaws of the Euro were exposed in just over a year and this is a clear sign that the planning which went into devising the single currency had its loopholes, which were neglected. The decade of Euro domination is indeed over and if Europe wants to abandon the currency, it should do it as soon as possible. The next time the Eurozone falls into such troubles, they may not be lucky enough to escape again.