The economic mess in Europe is getting messier day by day. Some time back a new term PIGS was coined, to refer Portugal, Ireland, Greece and Spain. These four countries are most financially troubled and debt burdened countries in the Euro area and one among them Greece is almost on the verge of bankruptcy.
European union, IMF etc. have helped them in past by providing additional line of debt to temporarily take care of debt liabilities, but these oxygen supplies have not helped them in long term and the trouble continues.
The deficit in Greece is touching 14-15% levels. Recently Greek government announced austerity measures for civil servants, which faced a lot of opposition in the country. People there are afraid that these austerity measures may soon expand to all business sectors including privatr firms. infact some people have already started planning to emigrate to other countries. The wages and salaries are not increasing, but the inflation is, and so are the taxes. Banks are refusing to lend money fearing that borrowers may not be able to repay. Worse still, the unemployment level is going up gradually.
When Eurozone was created in late 90s, the member economies gained a lot of attention worldwide, particularly on the strength of strong economis such as Germany. The FDI and financial flows increased manifold. This is not the case anymore. There have been allegation that these PIGS countries are affecting other Eurozone economies, particularly on trade performance. There have been some serious suggestions to do away with the Eurozone and the Euro as common currency. So far, the Euro is surviving on the continuing commitment of member countries and as an alternative to the US dollar in Asia and Middle East.
PIGS countries have received significant amount of bailout in the past and continues to receive further bailout packages as and when required. Now Eurozone is planning a permanent baiout fund known as European Stability Mechanism (ESM), which will be operational from 2013/2014. But will that solve the problem, only time will tell. The major problem is that countries like Greece are not capable to repay such huge debt. Therefore without a formal restructuring of their debts, the bailout packages are only providing temporary relief and just delaying the inevitable.
Greece has become insolvent as its debt has reached 160% of its GDP. Economist has been suggesting that Greece can not sustain more than half of its existing debt. The formal restructuring of debt seems more of a preferred option as an austerity drive can not reduce deficit significantly, and would have lot of internal opposition. An otherwise chaotic default would be very harsh not just on lenders to Greece, but would indirectly affect most of the economies globaly. Moreover, in case of default the lenders may not be in position to recover even half of their money, which could be recovered though an orderly restructuring.
European union, IMF etc. have helped them in past by providing additional line of debt to temporarily take care of debt liabilities, but these oxygen supplies have not helped them in long term and the trouble continues.
The deficit in Greece is touching 14-15% levels. Recently Greek government announced austerity measures for civil servants, which faced a lot of opposition in the country. People there are afraid that these austerity measures may soon expand to all business sectors including privatr firms. infact some people have already started planning to emigrate to other countries. The wages and salaries are not increasing, but the inflation is, and so are the taxes. Banks are refusing to lend money fearing that borrowers may not be able to repay. Worse still, the unemployment level is going up gradually.
When Eurozone was created in late 90s, the member economies gained a lot of attention worldwide, particularly on the strength of strong economis such as Germany. The FDI and financial flows increased manifold. This is not the case anymore. There have been allegation that these PIGS countries are affecting other Eurozone economies, particularly on trade performance. There have been some serious suggestions to do away with the Eurozone and the Euro as common currency. So far, the Euro is surviving on the continuing commitment of member countries and as an alternative to the US dollar in Asia and Middle East.
PIGS countries have received significant amount of bailout in the past and continues to receive further bailout packages as and when required. Now Eurozone is planning a permanent baiout fund known as European Stability Mechanism (ESM), which will be operational from 2013/2014. But will that solve the problem, only time will tell. The major problem is that countries like Greece are not capable to repay such huge debt. Therefore without a formal restructuring of their debts, the bailout packages are only providing temporary relief and just delaying the inevitable.
Greece has become insolvent as its debt has reached 160% of its GDP. Economist has been suggesting that Greece can not sustain more than half of its existing debt. The formal restructuring of debt seems more of a preferred option as an austerity drive can not reduce deficit significantly, and would have lot of internal opposition. An otherwise chaotic default would be very harsh not just on lenders to Greece, but would indirectly affect most of the economies globaly. Moreover, in case of default the lenders may not be in position to recover even half of their money, which could be recovered though an orderly restructuring.
