European Crisis

Topics: Eurozone, Italy, Germany Pages: 7 (2157 words) Published: August 25, 2013
Eurozone Debt Crisis: The Exit|
Subject: Money and Banking|
Instructor: Dr. Nguyễn Thị Hoàng Anh|

Name: Hoàng Trung Khánh
Student ID: 1001036095
Class: K49CLC2

Eurozone Debt Crisis:
The Exit

Content

I. The debate over salvation
II. The narrow escape for Europe
1. Seeking for the cure
2. The half-finished dream of ‘Eurobond’
3. The ‘Grexit’ plan
4. The return of Deutsche Mark
III. The judgment time

I. The debate over salvation
The world has spent nearly 4 years discussing about the Eurozone Debt Crisis, figuring out its causes and measuring its impacts. Meanwhile, it has greatly magnified its intensity as well as its scale; Italia, Portugal, and Spain have recently become its next victims after Greece and Ireland. An apt and practical remedy is what we desperately need at this time of harshness.

In the scope of this essay, the three most commonly accepted solutions to the Crisis will be presented and discussed. Germany, the only European country having a growth in economy during the previous year, plays the central role in two of them. Greece, on the other hand, might also have the chance to resolve its shameful ‘legacy’. Despite the diversity of routes and methods, all these strategy have the same objectives: save the Eurozone from a possible break-up and bring prosperity back to the Continent. II. The narrow escape for Europe

1. Seeking for the cure
Since the collapse of Greek economy in 2009, two bailout loan packages for this country, which valued €110 billion and €130 billion, respectively, have been signed off by European leaders. In addition, a €85 billion loan to Ireland and another €78 billion to Portugal were made shortly afterward. While these loans’ expected effects are still miles away, its counter effect has been so obvious to Europe: the enormous burden borne by other members will pull even financially healthy countries back into crisis. The toll has been taken on Italia, Spain and Portugal, as the creditworthiness of these governments is on its way down. In the worst scenario, if Italia goes defaulted, the needed bailout loan for the fourth largest economy in Europe is estimated to cost more than €1,000 billion, a terribly huge number which surpasses many countries’ GDP and amounts to over a half of French GDP in 2011. Bailout now appears to be only a temporarily fire-fighting solution, because if things keep going on this way, the Eurozone will, sooner or later, find it getting trapped in the vicious circle of crisis-bailout-more crisis. An ultimate rescue plan for the Eurozone is now more desirable than ever before.

2. The half-finished dream of ‘Eurobond’
One of the most concerned and most controversial proposals was about the ‘Eurobond’ – a bond issued by the whole Eurozone countries as an effort to share debts among members in a more comprehensive way. If exist, that new bond would be guaranteed by the confidence in the powerful economic engine of Germany. The risk premium on that bond would reduce significantly, which could translate into a lower interest rate and a more acceptable burden, whereas it would also be more attractive to investors than separate governmental bonds of Greece, Italia or Spain. In case the bonds grow to maturity, the peripheral countries would not have to bear the obligation of payment alone, as the whole region’s economies would share that indebtedness. In brief, ‘Eurobond’ is a way of transferring the abundant wealth from rich countries to troubled countries which are in need of that money, and simultaneously, sharing the burden among Eurozone members more equally. Of course, this requires a high level of solidarity and mutual trust within Europe, since it may turn the Eurozone into the most fiscally and politically cohesive union in the human history. The idea of ‘Eurobond’ was immediately in favor of new French President, Francois Hollande, and IMF President, Christine Lagarde. These...

References: * Germany and its Eurobonds resistance by Nils Pratley, The Guardian, published May 23, 2012
* Euro exit and depreciation would bring economic gains by Roger Bootle, The Telegraph, published July 21, 2012
* To Save the Euro, Leave It by Kenneth C. Griffin and Anil K.Kashyap, the New York Times, published June 26, 2012
* Germany, not Greece, should Exit the Euro by Red Jahncke, Bloomberg News, published June 10, 2012
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