J. D. Heyes
June 11, 2012
Europe’s economies have been on a fiscal collision course for years, what with more people taking from the various socialist systems around the continent than paying into them. But Greece and Spain are probably the closest to the abyss, economists warn, and are liable to plunge off the cliff any day now.
In Athens, where elections on June 17 will decide the country’s place in the eurozone and, maybe, its future as a viable nation, the choices are not good. Voters and politicians must decide to accept painful, deep austerity measures aimed at reducing the country’s massive debt or dropping Europe’s shared currency. But so far the only thing certain about Greece is its paralysis and indecision, both characteristics of which could plunge it into chaos and calamity any day now.
“Evidence of a state tottering on the edge of complete dysfunction is apparent everywhere in Athens,” says a report byThe Economic Times(ET). “Traffic signals work sporadically; a sign giving the shortened hours of one of the world’s great museums, the National Archaeological Museum, is haphazardly taped to the door; police officers in riot gear patrol the perimeters of the universities, where a growing population of anarchists, disaffected young people and drug addicts congregate in communal hopelessness.”
Living in hell
Worse, perhaps, is the fact that most Greeks don’t have any idea where they are headed as a nation. Nearly half – 48 percent – of all Greeks under the age of 24 are unemployed. Some Greeks are describing life there as “hell.” And most Greeks realize that, for the foreseeable future, life in their country will remain that way.
“There is no good solution to the current crisis. Austerity will damage us for years to come, and so will the return of the drachma. Either way it will get much worse before it gets better,” one Greek told ET.
Spain, meanwhile, is not in much better shape. By the second weekend in June,International Monetary Fundofficials were predicting Madrid would need 40 to 100 billion euros injected into a number of banks just to remain solvent.
As Spain’s fiscal crisis worsens, analysts expect the government to ask the eurozone for assistance to help recapitalize its depleted banks,Reutersreported, bringing to four the number of eurozone countries to seek assistance since the continent’s debt crisis first began.
As in the case of Greece, Spain’s immediate future also looks bleak. In conducting a study on how much capital Spain would need, “the IMF assumed that the Spanish economy would contract by 4.1 percent in 2012 and by 1.6 percent in 2013, unemployment would climb to 26 percent by end 2013 and that real estate values would decline by an additional 24 percent,”Reuterssaid.
Where it all began
How did once-vibrant European economies get in such bad shape economically?
A number of economists believe the problem all started when the 16 European nations all began using the same currency in 2002.
“The shared use of the Euro caused interest rates in Spain and Ireland to plummet while the housing market continued to grow at an astonishing rate,” writes consultant and political scientist Hugh Barnes. “The prices of homes increased, and many home buyers borrowed large amounts from banks that they could not afford to return, all of which created considerable instability in the banking system. Financial pundits, government leaders and banks were forced to face the fundamental reality that financial institutions cannot function if the debtors stop paying them.”
Europe’s debt crisis will only get worse. There’s no way to avoid that. But before you worry too much about that continent, consider that U.S. debt is also spiraling out of control, and that our politicians, like those in Europe, seem incapable of stemming the fiscal hemorrhaging.
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This article was posted: Monday, June 11, 2012 at 2:03 am