Crisis in Ireland, Europe is safe?
The EU is helping Ireland, but the crisis does not seem resolved. Saved lay the foundations of future crises? What are the remedies for the ills that plague the Union? Meets Armando Carcaterra
Armando Carcaterra of AnimaSgr
Q1: Why, despite the announcement of aid to Ireland by the EU, the crisis is not resolved?
Starting from 2009 the markets have taken a serious vulnerability in the institutional building of the Euro and, unfortunately, until the European governments will put no remedy in appropriate and credible, the risk of a chain of sovereign debt crises continue to be air.
To permanently quell the turmoil, the markets must be convinced that the governments of the countries are substantially more willing to provide financial support for countries in trouble and that European Central Bank, banks are ready to supply all the liquidity of the Eurozone necessary.
This is what they did the U.S. and the Fed. Obviously aid and liquidity can not be ends in themselves and must be delivered in time to accompany the adjustment of public accounts and the reorganization of insolvent banks
. But, as we taught each other Lehman Brothers, is a road with no alternative.
Francesco Giavazzi, one of the most prominent Italian economists in 2008 had greeted the failure of Lehman Brothers as "a good day for capitalism." He recently wrote in the Corriere della Sera, that his statement was nonsense: the cost of the penalty may be too high to bear and to justify.
Today that cost, for Europe, may be the end of the single currency. It is no coincidence that the Greek crisis has been buffered in May 2010, when European governments and the IMF launched a fund to stabilize Europe 750 billion Euros. E 'enough for the announcement effect. Similarly it took some doubt on the chancellor Merkel
loss coverage of bonds, to unleash a new violent crisis Irish
D2: Germany would like the less virtuous countries would pay for their mistakes. Saved lay the foundations of future crises?
It 's true that there is risk. The German recipe for Europe is that countries "unruly" to reduce their debt immediately by taking drastic fiscal restraint to fix their finances.
The paradox is that precisely the crisis of Ireland is the clear demonstration that the German recipe for keeping Europe together is at least insufficient.
Ireland, in fact, before the financial crisis of 2008-09, was one of the most virtuous entire European Union. The public accounts were in surplus (even when those Germans were in deficit) and debt to GDP was only 25% (65% of the German). In addition, the Irish Government was the first in 2009 to adopt measures of fiscal adjustment in order to finance the public support given to its banks. Adopting the German point of view, Ireland was a
the "super-virtuoso . The problem is not insignificant, was the "mismanagement" of the financial system, banks have gradually engaged in real estate projects are unsustainable without adequate oversight by the Supervisory Authority.
The German recipe, which acts only on the public debt, could reasonably be applied to Greece, Portugal and Italy, but does not explain the Irish crisis, nor that of Spain (whose story is similar in many respects to that of Ireland). The crisis in Europe is therefore more complex than might appear.
Q3: What, then, the remedies for the ills that plague the Union?
understandably the subject is very complex, but can be summarized in three areas complement each other:
1. willingness to refinance (if necessary) the European Sustainability Fund was launched in May and to strengthen the supranational coordination of fiscal policies in European Union countries (as a guarantee of prevention of insolvency of the member)
2. the emergence of all damages is still latent in European banks and the adoption of common instruments for the orderly conduct of insolvency cases
3. the determination of the ECB to maintain the system, all the liquidity needed in the banking consolidation
The paradigmatic crisis in Irish to understand why these three aspects are all important at the same time.
Irish public finances are in fact gone out of control because the government of that country had to save its banks, in turn rendered insolvent explosion of the housing bubble. The losses of the Irish banks have proved, however, too large for the economy of Ireland alone (almost 1 / 3 of its GDP). The same account at the same time only 5% of the eurozone banking system: what appear minor if Europe was one thing, however, is an insoluble problem for the governments individually. This is true even for the strongest countries: if Ireland went into default, even German banks would be in danger (because they hold 140 billion, an entity of more than 4% of German GDP).
Leave the peripheral countries Union isolated, without resources and without now also the possibility to devalue its currency, the markets evokes a single perspective: that of insolvency causing the flight of investors. And 'this perverse game of expectations that excites the appetites speculative panic spreads and the risk of contagion in the direction of much larger countries like Spain and Italy.
If Europe had rather common tools available for intervention, the size of the imbalances of the peripheral countries to the markets appear quite manageable and the spectrum of the disease does not face either. From crisis to crisis, European governments (even the German one), are taking note of this reality. Despite the inertia, fear and resistance, from this long chain of crisis, Europe can emerge stronger.
Q1: Why, despite the announcement of aid to Ireland by the EU, the crisis is not resolved?
Starting from 2009 the markets have taken a serious vulnerability in the institutional building of the Euro and, unfortunately, until the European governments will put no remedy in appropriate and credible, the risk of a chain of sovereign debt crises continue to be air.
To permanently quell the turmoil, the markets must be convinced that the governments of the countries are substantially more willing to provide financial support for countries in trouble and that
This is what they did
. But, as we taught each other Lehman Brothers, is a road with no alternative.
Francesco Giavazzi, one of the most prominent Italian economists in 2008 had greeted the failure of Lehman Brothers as "a good day for capitalism." He recently wrote in the Corriere della Sera, that his statement was nonsense: the cost of the penalty may be too high to bear and to justify.
Today that cost, for Europe, may be the end of the single currency. It is no coincidence that the Greek crisis has been buffered in May 2010, when European governments and the IMF launched a fund to stabilize Europe 750 billion Euros. E 'enough for the announcement effect. Similarly it took some doubt on the chancellor Merkel
loss coverage of bonds, to unleash a new violent crisis Irish
D2:
It 's true that there is risk. The German recipe for Europe is that countries "unruly" to reduce their debt immediately by taking drastic fiscal restraint to fix their finances.
The paradox is that precisely the crisis of Ireland is the clear demonstration that the German recipe for keeping Europe together is at least insufficient.
Ireland, in fact, before the financial crisis of 2008-09, was one of the most virtuous entire European Union. The public accounts were in surplus (even when those Germans were in deficit) and debt to GDP was only 25% (65% of the German). In addition, the Irish Government was the first in 2009
the "super-virtuoso . The problem is not insignificant, was the "mismanagement" of the financial system, banks have gradually engaged in real estate projects are unsustainable without adequate oversight by the Supervisory Authority.
The German recipe, which acts only on the public debt, could reasonably be applied to Greece, Portugal and Italy, but does not explain the Irish crisis, nor that of Spain (whose story is similar in many respects to that of Ireland). The crisis in Europe is therefore more complex than might appear.
Q3: What, then, the remedies for the ills that plague the Union?
understandably the subject is very complex, but can be summarized in three areas complement each other:
1. willingness to refinance (if necessary) the European Sustainability Fund was launched in May and to strengthen the supranational coordination of fiscal policies in European Union countries (as a guarantee of prevention of insolvency of the member)
2. the emergence of all damages is still latent in European banks and the adoption of common instruments for the orderly conduct of insolvency cases
3. the determination of the ECB to maintain the system, all the liquidity needed in the banking consolidation
The paradigmatic crisis in Irish to understand why these three aspects are all important at the same time.
Irish public finances are in fact gone out of control because the government of that country had to save its banks, in turn rendered insolvent explosion of the housing bubble. The losses of the Irish banks have proved, however, too large for the economy of Ireland alone (almost 1 / 3 of its GDP). The same account at the same time only 5% of the eurozone banking system: what appear minor if Europe was one thing, however, is an insoluble problem for the governments individually. This is true even for the strongest countries: if Ireland went into default, even German banks would be in danger (because they hold 140 billion, an entity of more than 4% of German GDP).
Leave the peripheral countries Union isolated, without resources and without now also the possibility to devalue its currency, the markets evokes a single perspective: that of insolvency causing the flight of investors. And 'this perverse game of expectations that excites the appetites speculative panic spreads and the risk of contagion in the direction of much larger countries like Spain and Italy.
If Europe had rather common tools available for intervention, the size of the imbalances of the peripheral countries to the markets appear quite manageable and the spectrum of the disease does not face either. From crisis to crisis, European governments (even the German one), are taking note of this reality. Despite the inertia, fear and resistance, from this long chain of crisis, Europe can emerge stronger.
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