By Jessica Chen, CE '14
The European crisis only seems to
become increasingly complicated as the situation continues. The political
climate is extremely hostile with multiple power transfers and government
reforms. Georgios Papandreou, former Prime Minister of Greece, stepped down
after popular demand for a unity government to tackle the debt crisis and was
shortly followed by Silvio Berlusconi, former Italian Prime Minister, who also resigned
this past Saturday after a seventeen year regime due to a loss of support even
from within his own party for similar reasons.
The situation in Italy is proving itself to be
of greater concern than that of Greece. Italy, the third biggest economic
country in Europe, has a public debt of 120 percent of its gross domestic
product, causing investors to lose trust in the Italian financial market and borrowing costs to increase to record highs. The European Financial Stability
Facility was created as a special bailout fund set aside to help nations with
financial crises, however the funds are too minute to bail out a large country
like Italy. Suggestions on using the
European Central Bank as the euro zone’s lender has been strongly resisted by
Germany as it would destabilize the Bank that ties the euro zone together and
increase inflation of the euro. Unlike Greece, Italy poses actual global
economic risks. With an economy too large for Europe to bail out or to allow defaulting,
many economists wonder if the euro crisis has moved on to a whole new level.
The economic troubles have also
caused an increase in tensions within the euro zone with more stable nations
such as Germany and France becoming reluctant to risk their own country’s economy
and financial markets to save those of the nations that are in danger.
Currently, there has been talk of a reevaluation of the idea of a centralized
currency within Europe and whether or not more stringent rules and
qualifications should be necessary for countries to be included in the euro
zone. Germany, France, and other more stable nations have become wary of
supporting their fellow Europeans and are concerned for their own national
economy. However this proposition was quickly dissolved as much opposition has
been made against this idea, as it would create a “two-speed Europe”. The
nations that were in danger of getting dropped from the currency would face a
much more difficult path of reviving their country’s economic stability,
creating a drastic difference in the economic health among European nations.
The world is far from seeing an end
to the euro crisis. Greece marked the global awareness of the seriousness of
the economic situation and need for immediate attention. Italy then followed
with a larger public debt and last Thursday, Standard and Poor’s mistakenly
downgraded France from its AAA rating, which caused a sell-off in French
government bonds. Although a mistake, the incident reflected how France,
considered one of the more stable nations, is also being affected by the crisis
and is at the margin of its credit ratings.
A regional approach is what is required to counteract rising unemployment. But politicians and administrators should turn to professional economic crisis specialists, as already happens in the US, as they invariably lack the competence to deal with these problems. For example, the Orlando Bisegna Index, specialists in the economic crisis, have helped various counties with debt problems and has brought about increased employment.
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