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Growth Stimulus and Bank Rescues
Growth stimulus and bank rescues appear to be the consensus of G 8 leaders in response to a worsening euro and increasingly likely Greek debt default. Several European economies are in danger of defaulting on their national debt obligations. If this situation is not fixed the Euro could go into free fall and, in fact, the European Union could lose several members. Greece was the object of global attention for months as European leaders hammered out a debt bailout package meant to cover payments on Greek debt. Conditions for the continuing bailout included severe austerity measures that were driving Greece further into recession. The ink was barely dry on the Greek bailout package when Greek elections threw the deal into a tailspin.
Trouble in Greece Again
The political party that negotiated the deal lost in recent elections. It appears that voters disagree with the terms of Euro Zone debt resolution. No one has been able to put together a coalition government so the country returns to elections next month, after they were scheduled to initiate strict austerity measures that will probably now not happen. There is already a run on Greek banks as depositors take out their Euros before the banks go bankrupt. It turns out that growth stimulus and bank rescues are needed instead of increasingly strict austerity measures in the Euro Zone. The Euro has jumped up and down over the last couple of years as the debt dilemma has played out on the public stage. Now the Euro is decidedly downward as both governments and banks are at risk. It turns out that European banks are the prime investors in government debt.
Voters in various European nations are not happy. Germans have been little by little voting against the political party of Chancellor Merkel, the leader in piecing together the various debt solutions in an effort to save the European Union. Greeks threw the bums out and cannot find anyone to govern. France elected a socialist and threw out the other leader, Sarkozy, who partnered with Merkel in Euro Zone rescue efforts. Germans are angry about footing the bill and others are angry at the economic downturn caused by increasingly strict austerity measures. Spain, the next on the list of possible defaults, has a twenty-five percent unemployment rate! The argument put forward by those opposed to strict austerity is that governments need people working and paying taxes in order to pay their debts. It appears that austerity measures across Europe and the Greek debt write off requirements were too strict. Voters seem to agree in many nations and now, it appears, that the G 8 leader agree that growth stimulus and bank rescues are needed to keep the Euro Zone afloat and, by the way, support the Euro.
Where Goes the Euro?
A continued low European Central Bank rate will be needed to help provide growth stimulus and bank rescues.