What is the Euro Crisis?
The Euro Crisis: What is it, how did we get there and what's the solution? This article reveals my opinions on the Euro Crisis. Feel free to comment below and argue with by view point.
What is
the Euro Crisis?
The Euro crisis refers to the problem amongst the
Euro zone countries and their extremely high levels of Government Debt. High
debt in itself is not the problem. The problem is the doubt cast on these
governments to service such high debt to GDP ratios. This has resulted in a
down grading of Government debt in many of these Euro zone countries. This
makes it even harder for countries within the Euro to borrow to help balance
their budgets and to service the current levels of debt. This in turn may lead
to many of the Euro zone countries defaulting on their debts. The main
countries to worry about are Portugal, Ireland, Italy, Greece, and Spain,
affectionately and collectively termed the PIIGS.
Picture from freedigitalphotos.net
How did we reach this Euro Crisis?
The Euro Crisis came about as a result of may
factors. I have identified two key problem areas. The first is that being in
the Euro means that the PIIGS have little or no control over it's own interest
rate. Interest rates for the Euro zone are set in Brussels and assume a
one-size-fits all policy. The lack of control over a countries
own monetary policy meant that it had one less tool with which to
control the economy. Some countries will want high interest rates to slow their
economy down as inflation creeps in and others want low interest rates to speed
their economy up as they risk recession. Without that level of control,
countries have to rely more and more on their tax and spending to control the
economy. The problem with that is that if a country runs a deficit (spends more
than it earns) and the economy is facing slow growth, in order to speed up the
economy, it takes on debt to finance that deficit. This means that debt
payments increase. Now that is generally not a problem when the economy is growing
but when in 2007 recession struck, deficits increased and countries needed to
borrow more and more money in order to restart the economy. This then developed
into the Euro Crisis as regulators start to question a countries ability to
ever pay back it's debts.
The second major problem is of course the incessant
spending of countries. Even today at the height of this Euro Crisis, many
countries are still running budget deficits including the UK (a deficit of
about £126bn for 2011-12 --> REMEMBER:
that's just the deficit, don't get me started on the size of the debt).
It just seems to be logical to me that an obviously bad way to get out of debt
is not to keep adding to it!
What's
the solution to the Euro Crisis?
The solution to the Euro Crisis is obvious,
although not easy. We need to address the two problems I outlined above.
To solve the first problem the Euro zone needs to
go one of two ways. The poor solution is greater integration of the Euro
countries with aligned politics and a fiscal union. However, it is my belief
that countries will always differ for fundamental reasons such as culture and
language and so many of the problems we face today shall remain. Instead, a
better solution is for the Euro to break up and return to being a trading
union. Yes, there will be a lot of pain along the way as countries will have to
readjust to new currencies and businesses to the new climate but in the end we
will be out of this mess. At least we will get away from this current stalemate
of tinkering here and there whilst debts continue to increase.
The second is that countries need real austerity. 'But
we're in austerity now!' some of you will claim. My response to this
is that the problem is simple. We are spending too much. People can complain
all they want when the government tinkers with this tax and that benefit but at
the end of the day we are spending way too much! Spending needs to be slashed
in all areas and borrowing cut to zero. I wouldn't touch taxation unless the
government planned to reduce taxation. This is because taxation affects
people's incentives to work. Any more tax may increase unemployment above its
high levels.
Yes it's all very radical. I know this. However,
desperate times call for desperate measures and in my opinion Governments in
Europe have got it wrong for now. They have clearly tried and failed to sort
the crisis over the last 5 years. It is time for a radical change.
Readers, what do you think the solution to the Euro Crisis is? So you agree with my view?
Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.
What is
the Euro Crisis?
The Euro crisis refers to the problem amongst the
Euro zone countries and their extremely high levels of Government Debt. High
debt in itself is not the problem. The problem is the doubt cast on these
governments to service such high debt to GDP ratios. This has resulted in a
down grading of Government debt in many of these Euro zone countries. This
makes it even harder for countries within the Euro to borrow to help balance
their budgets and to service the current levels of debt. This in turn may lead
to many of the Euro zone countries defaulting on their debts. The main
countries to worry about are Portugal, Ireland, Italy, Greece, and Spain,
affectionately and collectively termed the PIIGS.
Picture from freedigitalphotos.net
How did we reach this Euro Crisis?
The Euro Crisis came about as a result of may
factors. I have identified two key problem areas. The first is that being in
the Euro means that the PIIGS have little or no control over it's own interest
rate. Interest rates for the Euro zone are set in Brussels and assume a
one-size-fits all policy. The lack of control over a countries
own monetary policy meant that it had one less tool with which to
control the economy. Some countries will want high interest rates to slow their
economy down as inflation creeps in and others want low interest rates to speed
their economy up as they risk recession. Without that level of control,
countries have to rely more and more on their tax and spending to control the
economy. The problem with that is that if a country runs a deficit (spends more
than it earns) and the economy is facing slow growth, in order to speed up the
economy, it takes on debt to finance that deficit. This means that debt
payments increase. Now that is generally not a problem when the economy is growing
but when in 2007 recession struck, deficits increased and countries needed to
borrow more and more money in order to restart the economy. This then developed
into the Euro Crisis as regulators start to question a countries ability to
ever pay back it's debts.
The second major problem is of course the incessant
spending of countries. Even today at the height of this Euro Crisis, many
countries are still running budget deficits including the UK (a deficit of
about £126bn for 2011-12 --> REMEMBER:
that's just the deficit, don't get me started on the size of the debt).
It just seems to be logical to me that an obviously bad way to get out of debt
is not to keep adding to it!
What's
the solution to the Euro Crisis?
The solution to the Euro Crisis is obvious,
although not easy. We need to address the two problems I outlined above.
To solve the first problem the Euro zone needs to
go one of two ways. The poor solution is greater integration of the Euro
countries with aligned politics and a fiscal union. However, it is my belief
that countries will always differ for fundamental reasons such as culture and
language and so many of the problems we face today shall remain. Instead, a
better solution is for the Euro to break up and return to being a trading
union. Yes, there will be a lot of pain along the way as countries will have to
readjust to new currencies and businesses to the new climate but in the end we
will be out of this mess. At least we will get away from this current stalemate
of tinkering here and there whilst debts continue to increase.
The second is that countries need real austerity. 'But
we're in austerity now!' some of you will claim. My response to this
is that the problem is simple. We are spending too much. People can complain
all they want when the government tinkers with this tax and that benefit but at
the end of the day we are spending way too much! Spending needs to be slashed
in all areas and borrowing cut to zero. I wouldn't touch taxation unless the
government planned to reduce taxation. This is because taxation affects
people's incentives to work. Any more tax may increase unemployment above its
high levels.
Yes it's all very radical. I know this. However,
desperate times call for desperate measures and in my opinion Governments in
Europe have got it wrong for now. They have clearly tried and failed to sort
the crisis over the last 5 years. It is time for a radical change.
Readers, what do you think the solution to the Euro Crisis is? So you agree with my view?
Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.
 |
| Picture from freedigitalphotos.net |
Readers, what do you think the solution to the Euro Crisis is? So you agree with my view?
Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.
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