Greece’s debt crisis is seeing no end

The European political problem :

The horrible irony and fundamental flaw in this whole issue around debt crisis is people having brought into an idea at all costs. The idea is this, that the deficit will fall if we peruse the slash and burn approach that in theory would tackle large deficits and spiraling debt… Unfortunately as many including myself said at the time austerity would cause pain, and a slowing of growth. This view has been vindicated and even in the UK economists agree austerity has slowed growth and set the economy back, in fact outside of a select few cases and strong economies fiscal tightening particularly spending cuts and scaling back of capital spending has only caused an exasperation of the issue.

Currency mismatch:

The Eurozone has been exporting a staggeringly high 300bn euros more than they have been importing, not a bad position to be in with a balance if payments surplus that sizable debt should be no problem at all.

The problems lay with the imbalance in where those exports come from, this imbalance has meant that the overall value of the Euro has remained undervalued. If this was one economy; then this would not be such a big issue as the Eurozone is made up of many smaller economies, structural problems become political ones and this becomes even harder to fix.

If TTIP does go though and we start trading as a block with the USA they are not going to appreciate this level of currency manipulation (deliberate or in this case structural). Why would the USA operate in a free trading block with a group of countries that undervalue and therefore gain a competitive edge over them. This you could argue is even more of a problem as the US has the opposite problem where the price of the Dollar remains artificially high because Oil is primarily traded in Dollars and it acts as a reserve currency.

This relatively unmentioned piece of information may force the Eurozone to make the adequate changes it needs to make. But it cannot wait until then or the damage to every single economy in the Eurozone will be felt and the main players in a far weaker place to do what’s needed.

Setting up decent structural investment platforms and institutions, financed by those who are benefiting from the undervaluation in a desperate attempt to equalize the economies now seems the only positive outcome for all involved. This will be no easy task.

Imbalances :

The issue being that the cuts in one part of the union be that Spain, Greece, Italy, Ireland or other Eurozone members has deflated the price of the Euro and made exports in countries already doing well appear even more attractive. The lower value of the Euro as mentioned above is part of the issue here, but the problem does not have an easy answer.

Cuts across the board are why we are now seeing Quantitative Easing of 1trillion euros being pumped into the Eurozone economy, to try and revive an economy drastically starved of cash. It has also led to a scenario where collective austerity has led to a fall in exports between the countries. The fact that austerity also negatively affects growth has been damaging to many of the smaller economies in the Eurozone.

These economies for their good and the Eurozone as a whole are trying to catch up with the heavy weights like Germany and France. In some of these countries it has actually not just slowed growth but shrunk the size of the economies considerably such as Greece and the figures mentioned above.

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