Debt Puts The Euro On Alert

By Author: PAOLO BRERA
Total Articles: 62
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The euro comes into tension for the crisis in Greece and Ireland and to a lesser extent for the situation in Spain, Portugal and Malta. "We are concerned about the increase in spreads on debt levels, particularly in Greece and Ireland," said EU Commissioner for Economic Affairs Joaquim Almunia. "Every day we see an increase in spreads," he said, noting that 'in some cases the increase in debt due to the policies of fiscal stimulus makes it more difficult to preserve fiscal sustainability. " That's why we need "to reassure markets that the fiscal position of the medium term over the next three or four years is sustainable."
Recently, we began to discuss the effects of fiscal policies of individual countries on the common currency and whether or not to help the Eurozone countries that end up in trouble. The Maastricht Treaty does not have it, indeed, it excludes. The logic is that if a country spends and borrows too, must lift ourselves out with his own strength, making the sacrifices necessary. Otherwise there is a strong incentive to break the fiscal discipline, so to pay would be the European pant. The problem is that ...
... if the country decides fluffy instead of doing nothing, nowadays will not face a particular disadvantage. The impact is if anything on the euro, which could lose some 'of his Serene stability. The increase in interest rates, which would be likely, spreads its effects on the entire Eurozone, with sacrifices for the country uncaring certainly smaller than if he had acted.
Precondition for this is that you can not force a country to have joined the euro to withdraw (which is absolutely correct) and that anyway it is too expensive to leave the currency system on its own initiative. This is not entirely safe, even if you know that the immediate cost would be high and perhaps deferred high.
The two countries have made the euro more to worry about are Greece and Ireland. In the first the bubble burst when the new Socialist government has discovered that the figures released by the previous government were totally false: in 2009 the budget deficit had been 3.7% of GDP, but even the 12.5% with a public debt equal to 113%. (This situation has caused a heavy sentence earlier this year by Eurostat, which said that data from Greece are not reliable because of political interference statistical institutions.) The 'front greek "to use a military metaphor, he put everything in motion in a short time, breaking even the appreciation of the euro against the dollar. It was aired a save from the European Union, partly because of a statement by Angela Merkel, has spoken of an intervention of the IMF, which has actually sent a delegation to Athens - but, they say, only to provide technical assistance, not to discuss a possible loan.
The Socialist government has given broad assurances about their willingness and ability to reverse course and travel to fiscal stability. Through a series of measures including cutting public salaries, Athens plans to reduce the deficit by 3.6 percentage points of GDP and to stem the debt around 120%. "This is to recover our credibility," said Prime Minister Iórghos Papandreou. But even if the new president del'UE Herman van Rompuy said that Greece is already taking the necessary steps, the market has some reservations and ask for debt financing Greek interests always higher than in Germany. This price increase would bring the country to a default that would have a domino effect on many other states of the Eurozone and on the same dollar. This could be avoided by a concerted support of the EU, but such support would cause the application to control the Greek government spending, which is the most typical on which exercises sovereignty.
Ireland is experiencing a crisis as deep, but without falsifications. Zero years of the housing bubble burst, the economy fell into crisis and the budget deficit rose from 12.7 billion euros to 24.6 billion. Aware of the need to re-establish the reliability of the country, the government introduced expenditure cuts and savings of salaries, with the aim of bringing the deficit to 18.7 billion euros. The close involve a decrease in GDP of 1, 5% from -7.5 last year. The financial markets are still watching closely not only Greece and Ireland, but also - and this is serious - Portugal, which risks downgrading by Moody's and Fitch. The deficit in 2009 has tripled to 8%, while the economy contracted by 2.5% and the debt reached 77% of GDP. Mol-to depend on your budget for this year. Meanwhile, the spreads with German bonds are rising.
Paolo Brera