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 1st 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
