European debt crisis: Difference between revisions
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European Union leaders have made two major proposals for ensuring fiscal stability in the long term. The first proposal is the creation of a common fund responsible for bailing out, with strict conditions, a EU member country in the brink of default. This ''reactive tool'' is sometimes dubbed as the '''European Monetary Fund''' by the media. [http://euobserver.com/9/29623] The second much older proposal is the construction of single authority responsible for tax policy oversight and government spending coordination of EU member countries. This ''preventive'' tool is dubbed as the '''European Treasury'''. [http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/international+economy/ari31-2009] The monetary fund is to be financially supported, at least initially by EU member governments, and on the other hand, the treasury is to be financially supported by the [[European Commission]]. |
European Union leaders have made two major proposals for ensuring fiscal stability in the long term. The first proposal is the creation of a common fund responsible for bailing out, with strict conditions, a EU member country in the brink of default. This ''reactive tool'' is sometimes dubbed as the '''European Monetary Fund''' by the media. [http://euobserver.com/9/29623] The second much older proposal is the construction of single authority responsible for tax policy oversight and government spending coordination of EU member countries. This ''preventive'' tool is dubbed as the '''European Treasury'''. [http://www.realinstitutoelcano.org/wps/portal/rielcano_eng/Content?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/international+economy/ari31-2009] The monetary fund is to be financially supported, at least initially by EU member governments, and on the other hand, the treasury is to be financially supported by the [[European Commission]]. |
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However, strong [[European Commission]] oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it have been described as infringements on the sovereignty of eurozone member states <ref>{{en icon}} {{Citation |url=http://www.canadianeuropean.com/yahoo_site_admin/assets/docs/Greece__the_EU_Debt_Crisis_VN__Al-Nahar_Feb-March_2010.7383827.pdf |accessdate=2010-03-15 |title=see M. Nicolas Firzli, 'Greece and the EU Debt Crisis'}}</ref> and are opposed by key EU nations such as France and Italy, which could jeopardize the establishment of a '''European Treasury'''. |
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==Criticism by global leaders== |
==Criticism by global leaders== |
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Revision as of 11:59, 20 March 2010
In early 2010, fears of a sovereign debt crisis developed concerning eurozone countries such as Greece, Spain, Ireland, and Portugal.[1] This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other eurozone members, specifically Germany and France.[citation needed] At the beginning of February 2010, a €500 million government bond auction in Portugal only successfully raised €300 million, raising the cost of insuring against a Portuguese debt default. [1] The failed Portuguese bond auction further intensified the fear that the emerging sovereign debt issues could become a global contagion. These fears led to a weakening of the euro and a widespread global stock and commodity selloff in February 2010.[1]
Global context
Niall Ferguson writes that "the sovereign debt crisis that is unfolding ... is a fiscal crisis of the western world".[2] Financing needs for the Eurozone in 2010 come to a total of €1.6 trillion, while the US is expected to issue US$1.7 trillion more Treasury securities in this period,[3] and Japan has ¥213 trillion of government bonds to roll over.[4]
Greece was the focal point of the crisis through mid-March 2010. Greek government debt was estimated at €216 billion in January 2010.[2] On March 5, 2010, the Greek parliament passed the Economy Protection Bill, expected to save €4.8 billion [3] through a number of measures including public sector wage reductions. Passage of the bill occurred amid widespread protests against government austerity measures in the Greek capital, Athens.[4]
Germany, which can borrow at the lowest interest rates in the E.U. and has the Union's largest economy, has been looked to as the source of a potential bailout for the Greek government should it fail to raise the necessary money to fill its budget gap through the credit markets. A potential Greek bailout has proven unpopular in Germany, and with upcoming elections German Chancellor Angela Merkel has been reluctant to promise Greece a cash bailout, though on March 5, 2010 did promise that Germany would "stand by Greece."[5] Greek Prime Minister George Papandreou's suggestion that his country seek relief from the International Monetary Fund was met negatively by the President of the European Central Bank, Jean-Claude Trichet. [6]
Proposed corrective policies
Some European think-tanks such as the CEE Council have argued that the predicament some Mainland EU countries find themselves in today is the result of a decade of debt-fueled Keynesian policies pursued by local policy makers and complacent EU central banker,[5] and many economists have recommended the imposition of a battery of corrective policies to control public debt- such as drastic austerity measures and substantially higher taxes.
But other experts argue that an abrupt return to “non-Keynesian” financial policies isn’t a viable solution for Southern EU countries and predict the deflationary policies now being imposed on countries such as Greece and Spain might prolong and deepen their recessions.[6]
Some senior German policy makers went as far as to say that emergency bailouts should bring harsh penalties to EU aid recipients such as Greece.[7]
Regardless of the chosen corrective measure to solve the current predicament, long term stability in the eurozone requires a common fiscal policy, or else the euro could always risk breaking apart after every crisis.[8]
European Union leaders have made two major proposals for ensuring fiscal stability in the long term. The first proposal is the creation of a common fund responsible for bailing out, with strict conditions, a EU member country in the brink of default. This reactive tool is sometimes dubbed as the European Monetary Fund by the media. [7] The second much older proposal is the construction of single authority responsible for tax policy oversight and government spending coordination of EU member countries. This preventive tool is dubbed as the European Treasury. [8] The monetary fund is to be financially supported, at least initially by EU member governments, and on the other hand, the treasury is to be financially supported by the European Commission.
However, strong European Commission oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it have been described as infringements on the sovereignty of eurozone member states [9] and are opposed by key EU nations such as France and Italy, which could jeopardize the establishment of a European Treasury.
Criticism by global leaders
Angela Merkel has stated that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere". [9]
See also
Notes and references
- ^ a b Brian Blackstone, Tom Lauricella, and Neil Shah (5 February 2010). "Global Markets Shudder: Doubts About U.S. Economy and a Debt Crunch in Europe Jolt Hopes for a Recovery". The Wall Street Journal. Retrieved 6 February 2010.
{{cite web}}: CS1 maint: multiple names: authors list (link) - ^ "A Greek crisis is coming to America". Financial Times. 10 February 2010.
- ^ "Deconstructing Europe: How A €20 Billion Liquidity Crisis Is Set To Become A €1.6 Trillion Funding Crisis". Zero Hedge. 9 February 2010.
- ^ Grice, Dylan (8 March 2010), Popular Delusions newsletter, Société Générale
- ^ Template:Fr icon see M. Nicolas Firzli, 'Bank Regulation and Financial Orthodoxy: the Lessons from the Glass-Steagall Act' (PDF), retrieved 2010-01-04
- ^ 'Greek tragedy won’t end in the euro’s death', retrieved 2010-02-15
- ^ 'Merkel Economy Adviser Says Greece Bailout Should Bring Penalty', retrieved 2010-02-15
- ^ 'Failure is not an option when it comes to Greece', retrieved 2010-02-24
- ^ Template:En icon see M. Nicolas Firzli, 'Greece and the EU Debt Crisis' (PDF), retrieved 2010-03-15