Monday, December 13, 2010

The Dire Eurozone Crisis Part II

To pick up from my previous post, German Finance Minister Wolfgage Schauble's comments about how to deal with the growing crisis of nonpayment of debt "suggest Germany is prepared to go much further than many observers had expected to defend the euro." They may be ready to establish some sort of federated system to transfer money from fiscally sound to struggling countries.

Some background: Ireland was in dire straits recently and received a 70 billion euro ($93 billion) bailout/rescue package which failed to calm the markets. In fact, observers are worried about a domino effect, because other Eurozone countries (as is true for many countries in the world without shared currencies) are on shaky ground. They're especially worried that the crisis will hit Spain, one of the region's largest economies suffering from high debt levels and sky-high unemployment.

A Spain rescue would largely exhaust the EU's nearly trillion-dollar bailout fund and focus attention on the sustainability of government debt in countries at the core of the eurozone economy, especially Italy.

At that point, the cost of the bailouts would be too high to keep the euro zone together, some economists warn.

There's still more to come. I'm actually merely critiquing the article by Marcus Walker and Matthew Karnitschnig in the weekend Journal, "Germany Vows Defense of Euro", so if you see me misrepresent your work, let me know.

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