News / Europe

European Bank Move Could Help Economy

DAX board at the Frankfurt stock exchange, September 7, 2012.
DAX board at the Frankfurt stock exchange, September 7, 2012.
TEXT SIZE - +
Al Pessin
— Europe’s central bank made a key announcement Thursday that immediately eased financial pressure on the continent’s troubled economies, lowering interest rates on some of their debts.  But the move is controversial, and will not, by itself, solve the continent's economic problems or end speculation about some countries leaving the joint euro currency.

The head of the European Central Bank, Mario Draghi, announced that the bank will buy bonds issued by Greece, Italy, Spain and other troubled economies.  The move is designed to ensure that the interest rates those countries must pay remain reasonable.  Private investors were insisting on very high rates in order to buy the bonds, and provide cash for the countries to pay their current bills.

It is a move the bank had refused to make for years, but the chief European economist at London’s Capital Economics, Jennifer McKeown, says it is not enough.

"It’s relatively bold action compared to its previous stance of doing very little," he said.  "But I think the fundamental issues for these economies, most notably their lack of competitiveness and the fact that their debt levels are high, are still there.”

The Greek unknown

McKeown’s firm is still predicting that Greece will have to leave the euro this year, and that other countries will likely follow next year. 

The underlying economic weakness of the troubled countries is compounded now by years of austerity forced on them by their euro partners as a condition for new loans.  McKeown says the strong economies, particularly Germany, are concerned that by easing the pressure, the European Bank’s decision opens the door for the borrowers to violate the austerity agreements.

"There are some real concerns in Germany about the ECB’s actions, over whether the peripheral countries are going to go ahead with their austerity programs," he said.

And there are also concerns about at least two other factors - whether the borrowers can possibly stick to the austerity in the face of long and deep recessions and the resulting public outcry, and whether if they do follow the rules they can turn their economies around in any reasonable timeframe, even ten years.

Hard times ahead

Either way, experts say there is a lot of pain ahead for the troubled countries in the form of recession, falling wages and benefits, and widespread unemployment.  And the chief economist at the Center for European Reform, Simon Tilford, says if the stronger countries don’t agree to share that pain, the troubled countries may force them to, by withdrawing from the euro and defaulting on much of their debt.

"This is an argument about money, basically," said Tilford. "Who pays for misallocated capital, profligate borrowers or irresponsible lenders?  The only way of addressing this kind of problem is by both sides taking a hit.  And so far the full burden of adjustment is being imposed on the debtors.  If they continue with this strategy, then ultimately the only way out will be through countries quitting the currency union."

Tilford says the European Central Bank’s decision could be a significant step toward solving the crisis, but only if Germany doesn’t block it, and only if the bond buying program is big enough and lasts long enough.  And he says European leaders need to find a way to enable the weak economies to grow, so they can repay their debts and ease the burden on their people.

You May Like

Multimedia Relatives of South Korean Ferry Victims Fire at Authorities

46 people are confirmed dead, but some 250 remain trapped inside sunken ferry More

War Legacy Haunts Vietnam, US Relations

$84 million project aims to clean up soil contaminated by Agent Orange More

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends 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.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid