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

    Multimedia Obama Calls on Americans to Help the Families of Its War Dead

    In last Memorial Day of his presidency, Obama lays wreath at the Tomb of the Unknown Soldier at Arlington National Cemetery

    The Strife of the Party: Will Trump Permanently Alter Republicans?

    While billionaire mogul's no-holds-barred style, high-energy delivery are what rocketed him to nomination, they also have created rift between party elites and his supporters

    China's Education Reforms Spark Protest

    Beijing is putting a quota system in place to increase the number of students from poor regions attending universities

    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.
    Chinese-Americans Heart Trump, Bucking National Trendi
    X
    May 27, 2016 5:57 AM
    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Chinese-Americans Heart Trump, Bucking National Trend

    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Reactions to Trump's Success Polarized Abroad

    What seemed impossible less than a year ago is now almost a certainty. New York real estate mogul Donald Trump has won the number of delegates needed to secure the Republican presidential nomination. The prospect has sparked as much controversy abroad as it has in the United States. Zlatica Hoke has more.
    Video

    Video Drawings by Children in Hiroshima Show Hope and Peace

    On Friday, President Barack Obama will visit Hiroshima, Japan, the first American president to do so while in office. In August 1945, the United States dropped an atomic bomb on the city to force Japan's surrender in World War II. Although their city lay in ruins, some Hiroshima schoolchildren drew pictures of hope and peace. The former students and their drawings are now part of a documentary called “Pictures from a Hiroshima Schoolyard.” VOA's Deborah Block has the story.
    Video

    Video Vietnamese Rapper Performs for Obama

    A prominent young Vietnamese artist told President Obama said she faced roadblocks as a woman rapper, and asked the president about government support for the arts. He asked her to rap, and he even offered to provide a base beat for her. Watch what happened.
    Video

    Video Roots Run Deep for Tunisia's Dwindling Jewish Community

    This week, hundreds of Jewish pilgrims are defying terrorist threats to celebrate an ancient religious festival on the Tunisian island of Djerba. The festivities cast a spotlight on North Africa's once-vibrant Jewish population that has all but died out in recent decades. Despite rising threats of militant Islam and the country's battered economy, one of the Arab world's last Jewish communities is staying put and nurturing a new generation. VOA’s Lisa Bryant reports.
    Video

    Video Meet Your New Co-Worker: The Robot

    Increasing numbers of robots are joining the workforce, as companies scale back and more processes become automated. The latest robots are flexible and collaborative, built to work alongside humans as opposed to replacing them. VOA’s Tina Trinh looks at the next generation of automated employees helping out their human colleagues.
    Video

    Video Wheelchair Technology in Tune With Times

    Technologies for the disabled, including wheelchair technology, are advancing just as quickly as everything else in the digital age. Two new advances in wheelchairs offer improved control and a more comfortable fit. VOA's George Putic reports.
    Video

    Video Baby Boxes Offer Safe Haven for Unwanted Children

    No one knows exactly how many babies are abandoned worldwide each year. The statistic is a difficult one to determine because it is illegal in most places. Therefore unwanted babies are often hidden and left to die. But as Erika Celeste reports from Woodburn, Indiana, a new program hopes to make surrendering infants safer for everyone.
    Video

    Video California Celebration Showcases Local Wines, Balloons

    Communities in the U.S. often hold festivals to show what makes them special. In California, for example, farmers near Fresno celebrate their figs and those around Gilmore showcase their garlic. Mike O'Sullivan reports that the wine-producing region of Temecula offers local vintages in an annual festival where rides on hot-air balloons add to the excitement.
    Video

    Video US Elementary School Offers Living Science Lessons

    Zero is not a good score on a test at school. But Discovery Elementary is proud of its “net zero” rating. Net zero describes a building in which the amount of energy provided by on-site renewable sources equals the amount of energy the building uses. As Faiza Elmasry tells us, the innovative features in the building turn the school into a teaching tool, where kids can't help but learn about science and sustainability. Faith Lapidus narrates.

    Special Report

    Adrift The Invisible African Diaspora