The most pressing difficulty weighing on the world's economy right now (and this phrase understates its enormous size and difficulty) is the Eurozone/Euro problem. The Eurozone is an artificially created conglomerate of disparate European nations, each with its own strengths and weaknesses, all sharing the same currency, the Euro.
I find the growing problem of the Euro difficult to understand. Turned to the Journal yesterday to find out why investors were panicking and credit spreads widening by the minute. Here goes:
Not all countries are created equal. Some countries have stronger economies than others (Germany and France versus Ireland and Italy). The weaker countries suffer from a combination of too much debt and too little wherewithal to ever repay it, particularly at a time of global recession. This is creating huge panics across the board. Weaker countries have to pay enormous sums in interest to attract investors to its bond offerings, and sometimes they have no takers. The Euro, the world's second largest currency, is in danger of collapse.
The Finance Minister of Germany (the most prosperous country) , Wolfgang Schauble, has hinted it will lead the way to preserve the Euro. This shows a certain amount of bravery on his part. A lot of Germans have the not uncommon feeling, "Why should we have to pay for the profligacy of the Italians or Irish, not to mention the Spanish?" Well, they may not share common national boundaries but they do share a currency, just like the collar, in which they traded, sold, bought, borrowed, stole and now there's got to be solutions on the table.
I've written about this not too long ago in Cassandra but I wanted to get my two cents out faster than I wanted to locate the darned post.