European economy is set for shock therapy

Old World is full of troubles

In brief: Europe is in a deep fear of the new tests, future reforms, and the other great issues.

French President Nicolas Sarkozy is not joking when promised market shock therapy in a series of measures aimed at curbing the sovereign debt crisis. Europe received Bazooka, which had always dreamed of former U.S. Treasury Secretary Paulson. Germany’s Chancellor Merkel and President of the European Central Bank’s Trichet responsible for its reliability. What are the implications for the liquidity and solvency? For the single currency and U.S. dollar?

Decisions are staggering – according to available data, confined to a wheelchair Germany’s finance minister Schäuble was taken to hospital with asthma attacks on a background of negative reaction to the new measures to save everyone and everything. Whoever decided that Germany would weaken the grip of extraordinary circumstances, was not right: the Minister of Internal Affairs of Germany, de Mezieres was even more stubborn mediator. As the package of care for the weak euro-zone member countries, Germany dug their spurs, demanding that every country, requesting support to meet the requirements of the International Monetary Fund (that is inculcated austerity). Germany insisted on the fact that those countries that contribute to the mechanism of emergency should not only guarantee the debt of the weaker countries, and, in fact, give them credit. Total budgetary commitments amounting to approximately 770 billion euros or $ 1 trillion, according to our estimates, considerably above the requirements for funding for all the weak euro zone countries in future years. In addition to existing commitments to Greece and (the older mechanism), Eastern Europe, we’re talking about the new obligations amounting to 500 billion euros from the government and over $ 100 billion for the IMF to.

Whoever said that Europe can not act, was wrong. Over the weekend Europe actually have established a central fiscal authority. Germany seeks to ensure that the control mechanism will remain in the euro area member states, ie Germany must give consent on how its money will be spent, but over time it may well become an independent agency spending. It is essential that part of the package is a tough new measures announced by the weak euro-zone member countries (except Ireland), in the amount of 0.5% to 1.0% of the GDP of the country this year in addition to similar cuts in budget spending next year . For example, in Portugal this year, will tighten its belt to 1% of GDP, among other things, reducing the cost of public infrastructure; Italy announced measures to reduce budget spending by 0.7% of GDP and in this and next year, Spain will cut costs by 0.5 % this year and by 1.0% next year.

Ukrainian Globalist
2010-05-12 00:33, Economics.

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