News / Europe

Europe’s Economic Struggles Continue Despite Greek Deal

A woman walks past the window of a clothes store announcing 50 percent discounts in downtown Milan, Italy, November 7, 2011.
A woman walks past the window of a clothes store announcing 50 percent discounts in downtown Milan, Italy, November 7, 2011.

Europe is continuing to struggle with its financial crisis, which is threatening to result in a prolonged period of slow or negative growth and more economic fallout for the rest of the world. 

Just as Greece appears close to resolving its domestic political dispute and accepting a financial rescue package from the European Union, Italy is edging closer to an economic crisis of its own.

Italy’s large debt and concerns about the stability of its government drove up the interest rate on its bonds to more than 6.5 pecent.  That makes it more difficult for the Italian government to borrow money to finance its operations and make payments on its debt.  Experts say a rate of 7 percent would be more than the country could afford and could trigger the need for a bailout by its European Union partners.  

The problem is, experts say Italy is too big to bail out.

The chief economist at London’s Centre for European Reform, Simon Tilford, says the European Central Bank must step in - something its top officials are reluctant to do.

“The problem at the moment is that we’re in a period of exceptionally weak economic growth.  We’re going through unprecedented economic weakness.  And that, I think, requires unorthodox action on the part of central banks,” said Tilford.

Tilford says if the central bank buys some Italian bonds, it will give other investors the confidence to do the same, and at affordable interest rates.  He believes that is a more practical and effective approach to the troubled European economies, arguing that austerity packages like the one being forced on Greece will not actually solve the problem.

“The budget cuts they’ve been asked to make are unfeasible," said Tilford. "If they do attempt to push them through, all they’re going to do is compound the weaknesses.  The current policy response guarantees just almost indefinite stagnation, recession in the Greek economy and ongoing debt servicing problems.”

Research fellow Benedicta Marzinotto at the Bruegel Institute in Brussels agrees that a bailout based on austerity alone may not be the way to solve Greece’s problems, or Europe’s.

“I’m not sure if they are the right way to go.  Some austerity is needed.  I believe it should be complemented with other measure, such as growth-enhancing measures,” said Marzinotto.

Meanwhile, other European countries, notably Portugal and Ireland, are also implementing restructuring plans, and Spain is working to reassure investors that it is a reliable place to put their money.

Marzinotto says Spanish leaders are doing a better job of that than their Italian counterparts, and the coming days will determine whether Italy’s current government or a new one can succeed in calming the bond markets.  That is important because Italy’s economy is nearly three times the size of the economies of Greece, Ireland and Portugal combined.  

“Greece is a serious case but is one that but it is one that can be solved easily because it is a small country," said Marzinotto. "If you have financial markets betting against Italy, that it is as if the financial markets were betting against the euro zone as a whole.”

The European countries depend on each other to be strong export markets, as do many of the world’s developing countries.  That means long term economic problems in some European countries will drag down the growth prospects for the rest of the continent, and for much of the world as well.

The evolving uncertainty about the strength of key European economies made for a volatile and ultimately down day on most world financial markets Monday.  And experts say that is likely to continue unless European leaders agree soon on new, perhaps unprecedented, steps to prevent the fragile financial state of some eurozone countries from spiraling out of control.

You May Like

Polls Open in Scotland Independence Vote

As race to persuade undecided voters continues, 'No' voters say they believe life in Scotland will slowly improve, 'Yes' vote not worth the risk More

China to Invest $20 billion In India Amid Border Dispute

Border spat between armies of two countries in Himalayas underlines mutual tensions despite growing commercial ties highlighted by Xi Jinping's high profile visit More

Ukrainian Activist in Despair About Future of Her Country

IrIna Dovgan, accused of being a spy and tortured by pro-Russian separatists, is appealing to UN Human Rights Council to support her country More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
A Dinosaur Fit for Land and Wateri
X
September 17, 2014 8:44 PM
Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.
Video

Video NASA Picks Boeing, SpaceX to Carry Astronauts Into Space

The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video Future of Ukrainian Former President's Estate Uncertain

More than six months after Ukraine's former President Viktor Yanukovych fled revolution to Russia, authorities have yet to gain control of his palatial estate. Protesters occupy the grounds and opened it to tourists but they are also refusing to turn it over to the state. VOA's Daniel Schearf reports from Mezhigirya, just north of Kyiv.
Video

Video China Muslims Work to Change Perceptions After Knife Attacks

China says its has sentenced three men to death and one woman to life in prison for a deadly knife attack in March that left more than 30 dead and 140 injured. Beijing says Muslim militants from China's restive western region of Xinjiang carried out the attacks. Now, more than six months after the incident, residents in the city are still coping with the aftermath. VOA's Bill Ide has more from Kunming.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid