European Flag by Rock Cohen
Europe has to face problems as serious as the US. The recovery has been postponed, stocks fluctuate, and the phrase “return of the recession” is more and more frequently heard. Where did it begin, and what can we expect?
The Greek Debt Crisis
Greece’s economy was the 32nd largest in the world in 2010. It’s a member of the European Union, the Eurozone, the OECD, the World Trade Organization, the Black Sea Economic Cooperation Organization, et cetera. It is also the country where the European debt crisis started.
The Greek economy was one of the fastest growing in the Eurozone from 2000 to 2007. The government was allowed to run large structural deficits due to the country’s strong economy. However, the world crisis negatively affected the country: tourism and shipping, two of the country’s largest industries, both faced the downturn with revenues falling 15 per cent in 2009. Later, when the situation grew more dramatic, the government of Greece misreported the country’s official economic statistics. Their fraud was discovered in the beginning of 2010. In May 2010, the Greek deficit was 13.6 per cent, one of the highest in the world relative to GDP.
Greece was downgraded by all three rating agencies to BB+, and Greek bond yields rose. In March 2010, the Greek parliament was given the Economy Protection Bill, expected to save €4.8 billion through a number of measures. Most of them were accompanied with huge protests in the country. The European Commission set up a committee, the Troika, that prepared a program of economic policies underlying a massive loan of €110 billion. It wasn’t enough. The Greek tragedy continues with the worst possible rating, CCC.
The Greek debt crisis has reduced confidence in other European economies as well.
The Portugal Crisis
In the first quarter of 2010, Portugal’s recovery was one of the fastest in the EU, but in the beginning of 2011, Portuguese news reported:
In the period between the Carnation Revolution in 1974 and 2010, the democratic Portuguese Republic governments have encouraged over expenditure and investment bubbles through unclear public-private partnerships, funding numerous ineffective and unnecessary external consultancy and advising committees and firms, allowing considerable slippage in state-managed public works, inflating top management and head officers’s bonuses and wages, persistent and lasting recruitment policy that boosts the number of redundant public servants, along with the help of risky credit, public debt creation.
In May 2011, Eurozone leaders approved a bailout package for Portugal of €78 billion. Moody’s downgraded their economy almost immediately.
The Ireland Crisis
In 2008, Ireland became the first European state to fall into recession. As well as Greece, in the early 2000s, Ireland had a strong economy that supported an expansion of credit and a property bubble. When the world crisis began, Irish banks came under pressure, emigration rose significantly, sales and house prices collapsed, and Ireland entered into a depression in 2009. In November 2010, Ireland requested financial support from the EU. The request was approved; the loan was about €100 billion.
Other Threatened Countries
Public debt is still highest in Greece (142.8 per cent), then in Italy (119 per cent), Portugal (93 per cent), Ireland (96.2), Germany (83.2 per cent), France (81.7 per cent), and the United Kingdom (80 per cent). In Iceland, the whole banking system fell, and its financial crisis isn’t over yet. However, their financial position is slightly improved. The Spanish economy isn’t doing well: the European Central Bank had to buy Spain bonds to calm down its stock chaos. The Greek debt crisis deepens.
Italy is the newest member of the list of threatened countries. Its economy is one of the biggest in the EU, and according to some specialists, their problems may lead to the economic fall of the entire Eurozone.