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.
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

South Korea Divided on Response to North’s Cyber Attack

In past five years, officials in Seoul have accused Pyongyang of hacking into banks, government websites, causing chaos and inflicting millions of dollars in damages More

Video Calm Amid Fear in Daily Life in S. Sudan’s Bentiu

Residents have been trying to regain some sense of normalcy, but planning for the future remains uncertain as fear of attacks looms More

2015 Could Be Watershed for Syria Conflict

Republican control of US Senate in January could lead to more aggressive policy against IS militants in Syria - and against regime of Bashar al-Assad 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.
Ugandan Doctors Aid Victims of Sudan's Civil Wari
X
Adam Bailes
December 22, 2014 3:45 PM
In Sudan's state of South Kordofan, the number of amputees as result of civil war is in the thousands, but few have access to sufficient medical help. Adam Bailes recently visited the area and says a small team of Ugandan doctors has been providing remote help, producing new prosthetic limbs for those in need.
Video

Video Ugandan Doctors Aid Victims of Sudan's Civil War

In Sudan's state of South Kordofan, the number of amputees as result of civil war is in the thousands, but few have access to sufficient medical help. Adam Bailes recently visited the area and says a small team of Ugandan doctors has been providing remote help, producing new prosthetic limbs for those in need.
Video

Video Jane Monheit Christmas Special

Chanteuse Jane Monheit sings the holiday classic “Have Yourself a Merry Little Christmas,” and explains why it’s her favorite song of the season.
Video

Video Calm Amid Fear in Daily Life in S. Sudan’s Town of Bentiu

Six months ago, Bentiu was a ghost town. The capital of northern Unity State, near South Sudan’s important oil fields, had changed hands several times in fighting between government forces and rebels. Calm returned in November and since then, residents of Bentiu have been trying to regain some sense of normalcy. Bentiu’s market has reopened there are plans to start school again. But fears of new attacks hang heavy, as Benno Muchler reports from Bentiu.
Video

Video US Business Groups Press for Greater Access to Cuba

President Barack Obama's decision to do all he can to ease restrictions on U.S. trade, travel and financial activities with Cuba has drawn criticism from some conservatives and Republicans. People who bring tourists to the island and farmers who want to sell more food to Cuba, however, think they can do a lot more business with Cuba. VOA's Jim Randle reports.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.

All About America

AppleAndroid