The Current Debt Crisis
Over the past month, a palpable sense has grown that the global economic crisis triggered by the 2008 banking crash may only now be getting into its stride. The brinkmanship in Washington over the lifting of the US debt ceiling exposed the fragility of the world's economic powerhouse.
Even more troubling for the markets has been the euro zone's sovereign debt crisis. The emergency Brussels summit on July 21, which approved a further bailout for Greece and agreed new measures to prevent contagion, was supposed to have drawn a line in the sand. It did no such thing.
Yesterday, the first whiff of panic emerged from Brussels. With equity markets tumbling everywhere, Commission President Jos Manuel Barroso fired off a letter to all European governments, demanding urgent action to prevent the crisis spreading from the periphery to the rest of the euro zone. Mr Barroso's language was extraordinarily blunt.
He said the markets were taking fright because of slow growth and the US debt fiasco, but "first and foremost" because of the "undisciplined communication and the complexity and incompleteness of the July 21 package".
Such intemperate language is rare in the EU and will only increase nervousness. Mr Barroso's frustration has clearly been fuelled by the tardy way in which national governments are ratifying the new rescue machinery (although what does he expect in August?).
He also thinks that the EU's bailout device, the European Financial Stability Fund (EFSF), is scarce to the task of providing aid to Italy and Spain, respectively the third and fourth biggest economies currently in the euro zone and the latest countries to be targeted by the markets. Analysts say the yet-to-be ratified bailout fund of 440 billion should be up twofold.
To add to the apprehension, the Barroso letter received short shrift from the German finance ministry, which said that member states should focus on passing the EFSF, and not to change it.
A ministry spokesman said it was not clear how reopening the debate only two weeks after the summit would help calm the markets, a point with which it is hard to argue.
With the single currency being tested to destruction, its members are struggling to work out which levers to pull - or indeed, whether there are any levers that will work.
If only the uncertainty was solely affecting the euro zone. The US economy has just been badly hit by a slew of poor indicators, while Japan was yesterday forced to intervene in the currency markets to devalue the yen in an attempt to shore up its own ailing recovery, showing that there is now an portentous feel that the crisis is only just getting started.
Article Source: FxTradingStock.com
About the Author
Michael Fielding writes articles on behalf of CBC International. CBC provide debt collection and debt recovery to a worldwide audience.
by: Michael Fielding
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Word Count: 460
Date: Thu, 25 Aug 2011
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