2
THE EUROPEAN SOVEREIGN DEBT CRISIS
The fable of the grasshopper and the ant presents the adverse effects of globalization
and integration of economies, which guarantee free movement of goods and services, as well
as capital flow across borders. Economies such as Japan and China in Asia, or Germany and
Italy in Europe are fundamentally superior that their counterparts (Wolf, 2017). In effect, they
are characterized by relatively low costs of production leading to a shift of manufacturing of
commodities to those countries. Those goods are then exported into service-based economies
such as the United States or Greece in Europe. As the strong, wealthy economies continue to
generate wealth through a positive trade balance, they experience saturation in respect to
return on investment making them lend money to the grasshopper nations which are mainly
service based (Wolf, 2017). Eventually, countries such as Greece default on their loans,
leading to a discussion on who should bear the cost of debt restructuring in Europe.
The debt crisis in Europe should be viewed as a systematic crisis which requires
collaborative efforts from all the countries within the European Union. While the
governments in Portugal, Greece, and Spain should reduce the fiscal deficits in the short term,
a structural adjustment would be to help the fiscally challenged economies improve their
productive capacities. To this end, the cost restructuring the current debt levels should be
distributed across the European nations on pro rate basis. The metric of distribution should be
the size of the economy as measured by the Gross Domestic Product. The recommendation is
based on the fact that the wealthy, or ants, countries have much to lose if Europe slides into a
deeper recessionary period (Wolf, 2017).
A bankruptcy of debt-ridden countries such as Spain and Greece would be catastrophic
to wealthy nations because they have traditionally lent to money to banks in these countries as
a form store of wealth. Thus, a bankruptcy would mean a default on the debts. Also, wealthy
countries have sufficient productive capacity to produce surplus goods and services which are
then exported to the developing countries which lack the necessary infrastructure (Wolf,
