Below I've attempted to simply explain the European Sovereign Debt Crisis.
P = Portugal
I = Italy or Ireland (take your pick)
G = Greece
S = Spain
The above 5 countries are the weakest link in the Eurozone. The Eurozone are the 17 countries within the 27 country European Union that use the Euro as their single common currency. Monetary policy for the Eurozone can only be decided with a unanimous vote of the 17 member countries (nearly impossible), however
fiscal policy is completely independent. The 5 PIIGS have borrowed and spent more than they can repay and could default on their debt. A default by one of the PIIGS could cause the collapse of the other 16 countries in a domino fashion. The other 12 countries certainly don't want to bail out the PIIGS.
With all the uproar in the U.S. about the "bailout" of our own banks, can you imagine how upset German or French citizens could be if they have to bail out a country like Greece who has spent too much and lied about its economic statistics in order to join the Eurozone in the first place?
Click here for a more detailed overview of the problem created by Jason Voss of the CFA Institute.
No comments:
Post a Comment