European Union in a FIX

Even as we remember much of what happened in Dubai as the entire stock market crashed and the world market was left lamenting on what has just happened many had speculated this was just the beginning and looks like it is turning out to be....

If the huge bailout of the entire American Economy was not enough, the later funding of the carcass of the Japanese Airlines which still hangs on the string between Delta or American Airlines for bailout support, what we have now next in line is the whole European Union on the verge of mass downturn and bankruptcy.

Well it has become public knowledge for the past few months even after defending their stance on the topic of financial stability that currently the entire European Union in facing a huge downturn and their economies stand on the rocks, and countries like Greece, Spain, Portugal, Ireland and most important of them Italy stands on being a blown up crashed economy.

European Union for the past two decades has been the symbol of financial wisdom and supremacy. With over 500 million citizens, the EU combined generates an estimated 30% share (US$ 18.4 trillion in 2008) of the nominal gross world product and about 22% (US$15.2 trillion in 2008) of the PPP gross world product.

The EU has developed a single market through a standardized system of laws which apply in all member states, ensuring the free movement of people, goods, services, and capital. It maintains common policies on trade, agriculture, fisheries and regional development. Sixteen member states have adopted a common currency, the euro, constituting the Eurozone and making it one of the strongest currencies in the world.

However with the current credit crunch many of the enlightened ones on the EU list are in the path of going bankrupt. Following the giant default in the Dubai when the Dubai world asked to further its payback of the load on about 60 billion dollars timeline by around six months the utter reality behind the situation is coming out.

The entire European regime has been built upon similar credit and much of the money that blew up the system also originated from the taxpayers in the European economies. Seeing this even in the European Union investors are getting worrying remark as the decline in the market is bringing out the hollowness in the system. The Standard & Poor’s has recently cut its credit outlook for Spain to “negative” from “stable,” fanning concerns that sovereign defaults will spread throughout the global economy.

The investors are fleeing away before a re-Dubai can happen. There is an increased fear among investors that the world could see a wave of global credit defaults and maybe it has started showing it ugly face of its beginning.

With the investor money dwindling and no further surging demand the credit system is bound to fall. The deficit with the government and most of the real estate companies stand over evaluated. However, Spain is just one of the region’s troubled economies. Europe’s most vulnerable countries have been nicknamed the “PIGS,” – Portugal, Ireland, Italy, Greece, and Spain. Fitch has even downgraded its outlook on Portugal’s sovereign-credit rating to “negative” from “stable,” as well, citing a deterioration of public finances.

The situation is like the productivity in the system in terms of real growth is zero so there are no way countries like Spain can innovate their way out. The bank cited figures from the International Monetary Fund (IMF) that indicate Spain’s housing sector it still 12% overvalued. At its peak, 20% of GDP was accounted for by the housing sector and construction.

The ratings agency in last year March cut Ireland’s triple-A sovereign debt rating by one notch and downgraded Portugal’s rating in January. Greece however has been an interesting case. It has failed to contain its deficit, which this year is expected to total 12.7% of gross domestic product (GDP). The country’s current account deficit rose to nearly 15% of GDP last year, but probably fell below 9% for 2009. Meanwhile, the European Commission (EC) projects Greece’s total government debt will exceed 112% of GDP. In downgrading the nation’s credit, Fitch said government debt was likely to rise to close to 130% of GDP before stabilizing, and that proposed pension reforms, spending cuts and broadening of the tax base would likely not be strong enough to reduce its debt burden.

If we look it from a different perspective that of the European Union the fiscal deficit of Greece which is the most in question due its thin line situation right now is around 250 billion USD which is not big for countries like France and Germany who still have a very sound financial situation but what complicates the problem is that they cannot bail out Greece.

Even if they bailout Greece how answerable they are going to the next country which is going to default. And leave aside Greece it is the grandmaster England too which is under the clouds. The private sector is slowly deserting these economies due to these negative sentiments are building up and the public sector is being overburdened.

Bailout is just not the answer to the situation. There has to be created a sustainable situation such that the countries are able to turn the wheel of financial system. Standing on their debt of huge amount is increasing the public outcry and the government is looking at the people for over taxation. However even if you overtax the public, on the daily items or other similar services how much more can you generate? Already the entire economy is bleeding and making it ever more vulnerable to a complete collapse can diffuse the setup.

The end is that the entire European Union is in a fix. They maintained solidarity in their triumphant days but with the debt burden what is to watch how they would fair on this front. The economies have maintained harmony till now but would throwing them out can be a question? It is a likely doubt as the situations may force an action. The negative sentiments are affecting the Euro as a whole and with no proposal of Greece bailout and their false belief of a Greece sustainability makes the future wary.

The public is in high discount and has constant complaints against the government but who is there to look after them. Who listens to common man these days......?It is the time of the demise of the commoners!!!!


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