Forbes
May 11, 2010
The “shock and awe” bailout package announced by the European Union--a $955 billion bailout for member governments--is an attempt to defy the centrifugal forces of past fiscal profligacy and subterfuge on capital markets. It is clearly provoked by the most obvious symptom of the failure--a steady depreciation of the euro on world currency markets, from $1.51 in December 2009 to its current value of just $1.30.
This decline in the euro’s value reinforces the lesson that the consequences of flouting the fiscal ground rules of a monetary union are inescapable. The Maastricht Treaty founding the eurozone laid down these rules, limiting member nations’ debt-GDP ratios and annual deficit-GDP ratios. But after several rule violations during the early 2000s, including some by major eurozone countries, and unwillingness to acquiesce to the pact’s tough penalties during economic recessions, eurozone members gradually weakened the pact’s fiscal stability conditions. The current crisis, starting with Greece but clearly imminent in Portugal, Spain and Italy, is just the latest episode reflecting the difficulties of operating a monetary union without reasonable and strictly enforced government spending and debt limits.
More
No comments:
Post a Comment