The European Central Bank looms large over the Euro debt crisis. Photo: soumit (flickr)

As Europe attempts to thwart a broader global recession, it is facing what many economists refer to as a trilemma, and poorer countries could be the victims.

A financial trilemma is comprised of three goals that policy makers try to achieve: (1) a stable/fixed exchange rate; (2) an economy open to international flows of capital; and (3) a sound monetary policy to stabilize the economy.

Here's the catch: In reality you can only achieve two of these goals, not all three.

In 1999, the Eurozone decided to give up the third goal, independent monetary policy. In exchange, they enjoy a common currency across 17 member nations and the freedom to exchange money and goods across borders. Though the European Central Bank creates monetary and fiscal policy for the European Union, each member nation relinquishes its own control.

This becomes an issue when a country gets into financial trouble and must defer to the European Central Bank or greater European Union. This was recently evidenced with the bailout and continuing debt problems in Greece.

Potential for problems arise due to our ever globalized, interconnected world. Eurozone policies are far-reaching, extending their grasp to neighboring emerging markets dependent on foreign dollars. With austerity measures becoming the norm, lenders are avoiding risk and could cut foreign lending in favor of keeping business in their own backyard. The Economist references a speech by the Financial Stability Board head, Mark Carney, in which he warned about the damage if the European bank were to deleverage on the world economy.

Many emerging economies in Eastern Europe depend on both foreign aid and outside investment. If the Eurozone's financial well runs dry the effect will ripple throughout Eastern Europe, even the U.S. Poorer E.U. members worry that they'll emerge the victims. French president Nicolas Sarkozy rocked the political world after his comments at a University of Strasbourg debate on November 8, where he described a proposal for a two-speed Europe, presumably divided between richer and poorer nations.

What part does the European Central Bank (ECB) play in this? That’s the question everyone is asking. Similar to the U.S. Federal Reserve, the ECB has the power and leverage to swoop in and bail out E.U. members on the brink of collapse. They are hesitating, however. Germany feels the ECB should step in only as a last resort. Many policymakers in Germany believe that the current crisis is forcing reform and thus serving a purpose, as recently expressed in The New York Times.

With optimism waning on debt solutions for the U.S. and abroad, tensions mount and consensus becomes imperative. Politics need to be set aside before any sort of real dialogue can exist. Will the E.U. decide on a two-speed Europe? Will any countries abandon the Euro? The implications for emerging markets are considerable; several outcomes could result in global recession.

View of Istanbul from Bogazici Universitesi. Photo: Cemnaz (flickr)

I'll be waking up at 3:30 tomorrow morning to begin my journey from Portland, Oregon, to Istanbul, Turkey, where I'll be based for the next several months while I embark on a trip of a lifetime.

My move to Istanbul is for a short-term study abroad program at Bosphorus University's school of International Relations and Political Science. Though I have traveled to Istanbul before, living there will be a completely new experience. I'm excited to live in the city that boasts being in both Europe and Asia.

I'll be taking advantage of Istanbul's central location and taking several side trips as part of an independent study on post-Soviet economies. My itinerary is pretty diverse -- everywhere from Estonia to Georgia is on the list.

My trips to these places will have an academic focus at the core, but I plan to interviewing people I meet along the way to get the local take on the state of affairs -- which is the part I'm most excited to bring to the blog.

Right now I'm preparing for the 20-hour fight, so I'm jamming my favorite books and snacks into the little space I have left in my carry on... That and a pocket Turkish dictionary, since at the moment my Turkish language skills are still very basic. Now it's back to packing and preparing for the early morning wake-up...

Evallah, or goodbye for now!