Europe’s economy – still in trouble

Apprehension that Greece’s debt crisis might signal similar episodes elsewhere in the euro zone has not disappeared, despite a €750 billion backstop agreed in May 2010 in concert with the IMF. Sovereign-bond spreads – the extra interest compared with bonds issued by Germany – the safest credit have drifted back up in a handful of other countries, notably Ireland and Portugal. Attempts to tackle budget deficits through public spending cuts and tax increases have offered some reassurance to bondholders, but have also held back GDP growth. In 2009 of the 27 countries in the European Union only Poland saw its economy expand. GDP increased in most countries in the first half of 2010. Germany was especially sprightly in the second quarter. The economies of Austria and the Netherlands have been dragged up in Germany’s wake. But GDP in Greece has slumped, and has been sluggish in Portugal and Spain. In many countries unemployment has not gone up by as much as one might expect given the depth of the crisis. Germany now has lower unemployment than before the crisis, thanks in part to a short-time working scheme and flexible time arrangements in its manufacturing sector. The worst-affected countries have been Ireland and Spain, where a collapse in construction has swollen the dole queues. Britain has fared better because its tight planning laws limited the growth of its construction sector during the global housing boom. Weak growth and high unemployment spell particular trouble for countries that already have high levels of public debt. That explains why Greece was first to lose the confidence of the markets: with a public-debt-to-GDP ratio of 115% and a budget deficit of 13.6% in 2009, it was the euro zone’s outlier country. Other countries are scrambling to avoid Greece’s fate. Ireland, where the economic collapse blasted a hole in tax receipts, embarked on austerity early; Portugal and Spain have had their hands forced. Others still are pruning before the markets exert real pressure: Britain’s debt has the longest maturity of any EU member but it is still aiming to get its finances in order within four years.


3 thoughts on “Europe’s economy – still in trouble

  1. I totally agree with this text, that there is a big problems in Europe. And the economy has rolling in one place for a while… But how we came in this situation?
    All EU Member States form part of Economic and Monetary Union (EMU), which can be described as an advanced stage of economic integration based on a single market. It involves close co-ordination of economic and fiscal policies and, for those countries fulfilling certain conditions, a single monetary policy and a single currency – the euro. The process of economic and monetary integration in the EU parallels the history of the Union itself.
    When the euro came into being, monetary policy became the responsibility of the independent European Central Bank (ECB), which was created for that purpose, and the national central banks of the Member States having adopted the euro. Together they compose the Eurosystem. Fiscal policy (tax and spending) remains in the hands of individual national governments – though they undertake to adhere to commonly agreed rules on public finances known as the Stability and Growth Pact. The problem is that everybody don´t want to undertake to adhere to commonly agreed rules.

  2. It seems that all the eu members must work together on a forward plan to tatcal this economic situation or it will not be resolved in the near future.


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