Throughout the last 4 years, the world has been obsessed with the word “crisis.” Newspapers, magazines, websites, TV shows and many others were portraying the reality of the world based on the different connotations that the magical word crisis have. For some people the word means opportunities in the market and for others just accumulated losses and risk.Well, I could say that I am lucky because I have lived in a period of crisis because it has shaped my knowledge about the financial sector and its mechanisms. The sub-prime crisis that started in the US was a very challenging moment in the history of modern world, which showed that the capitalist system is weak because of greed aspects that surround it. Irrationality of choices and crazy profitseeking techniques made the world goes into a deep recession as a consequence of humans’ deeds. Thanks to the effort by the governments around the world, this crisis has been neutralized in some degree, but its leftovers are still hitting the world market and especially the European one.
When all the world was recovering from the big crisis of 2007, Europe was hit with a news that would change itsfuture expectations. The news was about Greece whose budget deficit reached 12.7% of GDP. This reality have had an effect on the bond market since the yield on ten-year Greek government bonds arched to 7.1%, the highest since the country joined the euro area and about four percentage points more than that on German bunds, the euro zone's safest investment. This was a reaction to the decline in theratings of the major agencies due to the default risk that might hit the bond market in Greece. All Europe was concerned about restoring confidence in that miserable country. Greece is not the only country about which the bond markets are troubled. On the same day as the commission approved the Greek plans, investors were selling Portuguese bonds.
The Europe region appears to be lagging behindbased on the predictions by the IMF of 1% growth in the euro zone compared to 3.1% for U.S. The Europe of yesterday is not more existing because of the political divisions, economic rivalries and income gaps between the member countries. This puzzled situation is hard to be solved because of the low investment’s confidence in the old continent. Bailouts decisions are not very effective because theirlong term goals success could not be predicted. Therefore, Europe needs a fundamental reform in all sectors to usher it into a new era of prosperity. The group that is called the PIIGS, which comprises Ireland, Italy, Portugal, Greece and Spain are the countries that have to run drastic fiscal adjustments to avoid defaulting in the future because of their high public debt ratio. Financialausterity is a practical solution that could tackle the problem by decreasing government spending and increasing frugality.
If I am to talk about Spain’s financial condition at the moment, I would not say that it is better than Greece when it was bailed out. This is true because total debt (government debt and private indebtedness) rises to 232% of total GDP which is higher than Greece. The differentlaws that are about job market regulations are too strict that they have made companies unwilling to hire employees for permanent jobs because of the high hiring costs.
Well, Government debt as a percentage of each country's GDP
Furthermore, themarket is concerned with the possibility of having a monetary crisis that could harm the Europian Union’s economy. The euro has depreciated powerfully against the dollar, which caused a decline in world trade. Europeans’ fear from a repeated recession as the one from the Great Depression rise every day and this could be driven from the falling prices of basic materials and increasing prices of...
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