Will
the EU Fail?
The simple answer to that is, nobody knows, and this is what is
causing most of the problems. Greece has already had most of it’s
debt written of, and has failed to get its spending under control
as demanded by Germany and France, which effectively means Greece
looks unlikely to get any more money from the EU. There is talk
of Greece leaving the EU, and going back to the Drackma devaluing
their currency by about 30%, and also the possibility of Germany
refusing to lend more money. Sir John Gieve of the Bank of England
sums it up by saying "In both cases, the authorities that
could step in to rescue... don't want to commit."
The
Greeks complain that spending cuts are killing their economy,
which in turn pushes their tax revenues down, fuelling the need
to borrow yet more. But Germany and other lenders believe southern
Europeans have lived beyond their means for years and must learn
discipline. The same attitude is adopted by our Coalition government.
German and French banks have both invested heavily in Greece,
and a default by Greece would be costly, and could cause a global
meltdown. If Germany, with France hanging on Germanys coat tails,
allows a default, this will set precedence for other countries
to follow suit. Similarly if Greece leaves the EU and pays its
debts in Drakmas, this will also set precedence for other countries
to follow.
Prime Minister George Papandreou has said that rejection of the
bailout would mean an exit from the euro, and the Euro zone. The
French leader, Nicolas Sarkozy, told Greeks: "Abide by the
Euro zone rules or leave."
Being in the Euro, Greece is unable to devalue its currency, the
country is hobbled with crippling debt payments it can't afford.
Many economists think leaving the euro is the best way to get
out of this mess.
The recent summits agreed a Growth and Stability Package to limit
budget deficits of the member states to 3% of the countries total
economy. It just happens to be the same as the one agreed back
in 1992. The first countries to violate the original package were
France and Germany.
Hungary has asked or a bail out loan, but has failed to implement
austerity measures, resulting in a probable refusal for the bail
out.
Germany is the powerhouse of the EU and will probably have to
stump up the most cash. When Germany adopted the Euro, it effectively
devalued the German mark, which gave Germany an advantage with
its exports. If the Euro is discarded Germany will suffer most,
as it is expected that the return to the German Mark will push
the value of the Mark so high and so fast that it will make exports
very expensive, and damage their economy.
Currently most of the EU is seeing interest rates for their bonds
rising, Germany on the other hand have seen their rates dropping
to a negative interest rate. Meaning lenders are actually paying
Germany to hold their money
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Vic
Farron RFT
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Tags: Will
the Euro collapse : EU
in Crisis : EU
Problems : Austerity
for Years : Austerity
- The Answer : UK
Isolated :
EU and UK Econony:
