1999-Euro was introduced. December-2011, questions are already raised about continuing with this giant. Why it is a giant- Because Euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. The euro zone is the second largest economy in the world.
Following the US financial crisis in 2008, fears of a sovereign debt crisis developed in 2009. Greece, Portugal, Iceland became forerunners in the sovereign debt crisis that is spreading like a bonfire through the states of Euro zone.
A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full. It may be accompanied by a formal declaration of a government not to pay (repudiation) or only partially pay its debts. In layman’s term, the government can no longer hold its own economy together and washes its hands off from the economic crisis. (See more in Wikipedia).
A dramatic rise in the interest rate faced by a government due to fear that it will fail to honor its debt is sometimes called a sovereign debt crisis. Governments may be especially vulnerable to a sovereign debt crisis when they rely on financing through short-term bonds. They may also be vulnerable to a sovereign debt crisis due to currency mismatch if they are unable to issue bonds in their own currency.
Governments may face severe pressure from lending countries. In the most extreme cases, a creditor nation may declare war on a debtor nation for failing to pay back debt, in order to enforce creditor's rights. This then promotes the basic tenet of economy- NOTHING IS FREE.
Now it is Italy’s turn to make sure the boat that it happily climbed on, now stays afloat.
The Italian Prime Minister has declared an Austerity package to ward off the evil.
Prime Minister Mario Monti unveiled a 30-billion-euro ($40.3 billion) package of austerity measures on Sunday, raising taxes and increasing the pension age in a drive to shore up Italy's strained finances and stave off a crisis that threatens to overwhelm the euro zone.
The measures followed growing pressure for sweeping measures to restore confidence in the euro zone's third-largest economy.
In a mark of the emotional impact of the cuts, Welfare Minister Elsa Fornero broke down in tears as she announced an end to inflation indexing on some pension bands, a move that will mean an effective income cut for many retired people. And it is not easy to stay rich in a rich country….
"… the next 10 days will decide whether the euro survives or not," Emma Marcegaglia, head of Italy's main business lobby Confindustria said before the package was announced
So, what does it spell in near future- More unemployment, less money, more loans, more debts and raising inflation. This would make things like food, medicine, clothes, education costlier. Already, IATA has announced that next year this zone will face greatest air traffic crisis if the situation is not fixed.
History shows that Goliath always goes down with a lot of noise- the question is have we already heard it or is it yet to come.. Italy is now the crusader for Euro. If the austerity measures work, Euro is saved for another 3-5 years. If it fails, Euro zone goes back to what it was before- Each one to their own.
I personally see the Euro zone as a chain of iron walls coming up behind which each country mends its flaws, develops itself in whatever way possible and then gets ready to meet the world again.
Gandhiji had long ago proposed “self realization” of our villages- each one wholly sufficient in itself. Should Europe learn that lesson or wait for its doomsday or is it too early for a paranoid “sky is falling” like me to announce its obituary… The fact remains that nobody can promise a bright future right now. The world economy as we know it at present may not remain the same in the coming years.
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