European Crisis

Current European crisis: Europe is experiencing a debt crisis that stretches all along from 2008, after the US financial crisis that shook the global economy. The struggle to clear the debt accumulated over the years continues in some European countries that have been affected by the slow down in global economy growth, exposing the unsustainable fiscal policies of European countries just like it is doing around the globe. Portugal, Spain, Italy and Greece are amongst the countries that have not managed to generate enough economic growth to be able to pay back bondholders the guarantee they meant to; hence have been called to embrace strict austerity measure (Alessi cfr.org).  Current European debt is attributed to governments’ spending in the last decade supported by the artificial low interest rates on premiums provided by the European central bank (ECB).  Greece appeared in the limelight first, than other nations after been detected that it had substantial usage and consumption of resources, combined with high wages and government benefits after a period of adoption of the Euro; though it was 1^st bailed out with a total of $163 billion loan, and later $178 billion, with a hope that the country would implement strict spending cuts and tax hikes, there exist doubts that the bail out will restore Greece back to its former fiscal stability; hence, the IMF has called on Greece's official creditors (including Germany and the ECB) to bear losses on their holdings of Greek debt ( Alessi cfr.org).

Following the housing bubble collapse in 2008, the bank default crisis encouraged Ireland’s debt crisis while Portugal’s reliance on foreign debt, as expressed by the current account deficit made it vulnerably prone to the crisis. Both the two countries have received bail outs of $112 billion in 2010 (Ireland) and $116 billion in 2011 (Portugal) through the EU-IMF rescue package as they struggle to implement EU-IMF-mandated budget cuts and privatization plans (Alessi cfr.org).  Spain and Italy are also on the verge of crisis where a rescue program is not an option for Italy that holds public debt of over $2.5 trillion. The entire situation has put forth uncertainty on the future of the euro and feasibility of (EMU) European Economic and Monetary Union which led to the formation of the fiscal union as a step to reformation giving the European Union a right to control state budgetary policy of European nations that accepted the agreement.

 

OECD. OECD Economic Outlook Vol.2012/1. Paris: OECD Publishing, 2012. ilibrary. Web. 4 October, 2012.

Alessicfr.org