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> Debt crisis in Europe How long will the nightmare last?

Debt crisis in Europe  How long will the nightmare last?

On October 12, 2011, the President of the European Commission, Jose Manuel Barroso had proposed a road map to resolve the economic crisis in Europe but the bottom line is still very fraught and there are still many uncertainties. A few days earlier, three major international credit rating agencies, had lowered the sovereign credit ratings of two European giants – Spain and Italy. The Finance Minister of the Euro zone had mentioned that the decision on granting a loan and saving Greece would be delayed until November. The matter of fact is that the situation in Europe continues to be very serious.

It now seems like the weaker links in the chain want to not only maintain the same high standards of living as in the other more stable, stronger countries but also shy away from their responsibilities. Well, the country in question here is definitely Greece. Let us think about the possible outcomes of this economic turmoil that Greece has driven itself into and try to look at the possible way outs. One may try to be realistic and sound pessimistic in doing so but looks as if only a miracle can save Greece now. What are the two global outcomes we can imagine of here? The first one suggests that Greece indeed is saved but at the expense of others, be it Germany, the IMF or for that matter even investors from China. The second scenario revolves around letting Greece try to battle it out on its own only to fail eventually and in doing so increasing the existing misery of the economic affairs in Europe. To be honest, it really does not seem believable that the so-called developed Europe will let the second scenario turn into reality!

Now let us dig a little deeper and try to consider all possible sources of funding, if the first scenario is what has to be the logical course of action. Now even if the IMF comes into the frame and tries to help the ailing Greece, anyone would know that it is in fact the member states’ money that is being channelized. This source of fund is a restricted one. The IMF can bail someone out once, or twice or maybe even thrice. Moreover, who amongst the member States would want to shed their pockets out to indirectly, give a loan to an ailing neighbor, which does not really show the promise of returning the loan! In the best outcome scenario, it might happen so that IMF or for that matter even the member States of the Euro zone bail out Greece. However, this option seems very weak in theory, let alone the practical part of it.

You may think about going the Euro stabilization fund way, but again as discussed earlier, this option does not suggest from where and how a stable flow of capital into European bonds is going to take place. Of course, one has to look at France or Germany but even for them to be able to give such massive loans, they will surely have to raise their own stakes and borrow money in the market inevitably at higher than usual interest rates. Who will give them this money for Greece?

The European Central Bank can also play its part in helping the member European States fight this economic crisis. However, it is a known fact that no establishment can try to maintain a debt extended over a period without any impact. With all the possible help been already organized and efforts made, more than 150 billion Euros already pumped into Greece and with Greece’s debt only increasing, the light at the other end of the tunnel for Greece and other struggling States like Portugal and Ireland, does look a bit dim!

Is there something else that could be done to save the whole of Europe? This problem with Greece, Portugal and Ireland is somewhat like a cancer. It just keeps on spreading, affecting the other relatively healthy parts of the system. So what is the solution? Are we going to witness a miracle or are we headed towards another collapse? We shall get all the answers; it is just a matter of time!



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