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Why the Eurozone Crisis is Far From Over

by admin on February 11, 2013

 

 Protest in Madrid

During the last two financial quarters of 2012, there was genuine reason to believe that the worst of the eurozone crisis was over. As European equity and bond markets began to perform particularly well, there was growing belief that the European Central Bank and the regions most influential political leaders were finally taking adequate policy decisions.

Even the value of the Euro rose against the U.S. Dollar, and the accompanying growth of economic power house Germany seemed certain to inspire a rousing recovery. Despite these portents and the protestations of Europe’s major players, however, it appears as though the financial crisis is far from being over.

The Primary Issues: Why Europe Cannot Escape the Clutches of Debt

One of the primary issues hindering the long term recovery of the eurozone is an inherent lack of available financial resources. While the European Stability Mechanism (ESM) boasts lending capacity of an estimated 500 billion Euros, for example, the crippling debt facing nations such as Greece, Spain, Ireland and Portugal means that additional financial assistance is likely to be required in the pursuit of long term regeneration. With the UK now also facing the threat of a triple dip recession, the members of the European Union are likely to encounter further financial pressure.

The issue facing Britain embodies the crisis in the eurozone, primarily because its political leaders are torn between stimulating economic growth and implementing austerity measures. While this balance is undoubtedly hard to achieve, the UK chancellor George Osborne has recently come under fire for placing too much of an emphasis on reducing spending and raising taxation. As quantative easing is proposed as a potential solution, there are growing concerns that the UK economy may soon grind to a sudden and ungainly halt if it remains on its current course.

The Problem with Quantitive Easing

The problem with quantitive easing is that it remains a short term fiscal solution, which can stimulate economic growth without ever resolving the underlying issues facing a country or region. The condition of the U.S. economy provides a relevant case in point, as Barack Obama currently strives to agree on short term budget cuts as a way of offsetting more damaging restrictions scheduled to be implemented on March 1st. Although such a philosophy may have its merits, it is doing little to drive the global economy forward.

In terms of the eurozone, the future is far from clear. With the UK and Italy also faced with being drawn into the ongoing crisis, the total bailout fund may soar to upwards of 3 trillion Euros. This would be the estimated sum required to implement a credible and sustainable fiscal plan, which enables stricken nations to drive their individual economies and lay the foundations for a more secure financial future. The fact remains that the available resources simply do not support such an investment, which only perpetuates the continual cycle of debt, borrowing and recession.

The Last Word

This destructive cycle provides an interesting paradox, as while it prevents the eurozone from collapsing it also prevents political leaders from thrashing out a viable, long term financial solution. The truth remains that while borrowing and quantitive easing is used to stimulate growth and rescue failing banks, the eurozone and its individual members are unlikely to enjoy a significant recovery.

Author Bio: The post was written by Denis on behalf of Complex Search. To compare the top rated banks and financial service providers throughout the U.S., visit the website today. 

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