A Look into Europe Debt Crisis

Debt crisis in Europe continues as Standard and Poor s downgraded the United States credits. Compounding the situation is the economic recession in China, indicating that global economy would go into slowdown in future months.

Having extended to core members of eurozone, this debt crisis bears some resemblance with Subprime crisis in 2008 and it is considered a typical currency crisis. But the problem this time seems to be much more difficult to deal with. In response to economic crisis in 2008, America launched emergency budget through financial supervision authorities to react to difficulties. However, the condition in eurozone is totally different because each member of EU must hand over financial authority to a uniform organization. This is the reason why crisis becomes increasingly serious at present.

To tackle the crisis, eurozone establishes European Financial Stability Facility, which virtually turns into an exclusive organization providing bailout for Greece, Portugal and Ireland. The scale of EFSF is too small as it only issues Ebonds and any action of EFSF will have a big impact on credit rating of other European countries.

German, used to be in favor of euro, keeps a skeptical attitude towards monetary bailout. As the major economy house in EU, German however witnesses the latest declining of economic growth for two consecutive months. According to statistics of INE, Spain, as the fourth biggest economy in euro is likely to fail annual economic growth. Fortunately, both German and France, two of biggest leading economies, say they would not pull out of euro-zone. Their comment lowers to some extent the possibility of Greece debt crisis. Also improving the condition is the statement from Premier Wen who declares China will give a hand in Europe debt crisis by increasing investments. Nevertheless, word from Premier Wen is not the ultimate solution.

The current solution is that member countries of eurozone inject one trillion euro into EFSF and approve the 50% reduction of Greece debts. Angela Merkel, Germany Chancellor comments this resort: we always tell ourselves that this is the last time to offer help.

To resolve the crisis, George Soros thinks that it is imperative to modify current mechanism and to establish a set of fiscal transfer system. Firstly preparations should be made to handle Greece and Portugal pulling out of euro-zone and some measures should be taken to prevent financial system breakdown:

1 Deposits in banks should be protected;
2 Keeping banks of debt defaulted countries running to prevent economic collapse;
3 Increase capitals in European banks and get supervised by EU;
4 Stop crisis extending and government bonds of deficit countries.