The turmoil isn’t only in financial markets but also on Europe’s streets. And while politicians consider market tensions a serious problem that has to be solved, Europe’s protests against austerity measures can be described as a wild goose chase. Why are European leaders so fond of saving indebted countries at any cost, and how does it influence ordinary people?
PIIGS: Forced to Drag Down Their Citizens Though Austerity to Pay Their Debts
Portugal, Ireland, Italy, Greece, and Spain: five of the most discussed countries in Europe. Portugal has to reduce its budget deficit from 9.1 per cent of its GDP to 5.9 per cent this year in return for a bailout amounting to €78 billion.
Ireland’s government is set to cut spending by €4.5 billion and increase taxes by €1.5 billion. The austerity programs that they approved after financial help amounts to €85 billion, one of the harshest in history. Although Spain took several austerity measures, including wage cuts for civil servants, raising the retirement age, and hiking taxes, fears that it will sooner or later ask for a bailout are still alive.
The European Central Bank has helped Italians to face their debt crisis by purchasing large amounts of their bonds, but the economy is still in bad shape. Spending cuts, tax hikes (including raising the sales tax from 20 per cent to 21 per cent), and accelerating the reform of the country’s costly pension system are just some of the measures meant to reduce Italy’s deficit over the next three years.
In July 2011, Greece announced a second bailout involving €109 billion of government money plus a substantial contribution from private-sector bondholders in exchange for strict austerity measures. The first bailout amounted to €110 billion. Eurozone leaders agreed in July to expand the so-called European Financial Stability Facility, a pile of cash that Europe’s increasingly desperate leaders hope will be enough to help bail out indebted countries.
The measures are accompanied by huge protests and increasing dissatisfaction in indebted nations. While politicians talke about measures, economists are forecasting a dark future, and ordinary people in Portugal, Spain, Greece, Ireland, and Italy are filling the streets refusing the strict measures. The turmoil is spreading across the developed world, and thousands of people demonstrate against grinding poverty and government cuts.
Although there are a lot of Greeks hoping the country will finally announce bankruptcy, Eurozone leaders are doing their best to save the country. Philanthropy isn’t why, however. French, German, and British banks own a great share of PIIGS debts and if at least one of the countries declares bankruptcy, Europe’s most influential countries would lose too much money. That’s why they’re happy to help indebted countries in spite of citizens’ protests.
More European Countries Facing Troubles
Cluster analysis identified two big groups
of European countries. France and the UK
are among those with threatened economy.
Not only PIIGS countries have experienced economic slowdown. Although the media pays most of its attention to PIIGS, that doesn’t mean they’re the only risky countries in Europe. We made a simple cluster analysis of European countries that are members of OECD using data about their latest GDP growth, unemployment, government debt, inflation, and current account. The analysis compares their economic performance and identifies which countries’ activity is most closely related. The final dendrogram easily divided countries into two groups: those whose economy is more or less stable (e.g. Germany, Switzerland, and Nordic countries) and those with a weakened economy. France and the UK are among the risky economies.
Strength of Public Anger May Surprise
Observers agree that Greece can’t avoid some kind of default, but their opinions about its consequences are divided from Greece declaring bankruptcy and leaving the EU and abandoning the Euro. The second bailout bought some time but didn’t solve the problem.
If Spain asks for a bailout, there won’t be enough money to save Italy and vice versa. It is expected that there isn’t enough money to help Italia’s huge economy anyway. One decision would launch a series of pivotal events affecting the whole European Union. France, Germany, and the UK would be among the most affected countries.
Moreover, Europe’s leaders are paying the debt by increasing their debt, using money paid by tax-payers and sitting on comfortable chairs of the European government. They clearly undervalue the volatile situation in the European streets, where tax-payers are getting more and more dissatisfied. Social tensions are unavoidable.