EUs Financial Crisis

7/27/2019 EUs Financial Crisis

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Europes financial crisisintensifiesProblems in Portugal, Greece and Spain weigh heavily on global economy

BRUSSELS Fears of another crisis spiral for the world economy deepened Friday

after the Portuguese parliament defeated a government austerity plan, triggering

renewed concern that the financial crisis in that country and in Greece could spread

through the eurozone and spill across its borders.

Spooked investors worldwide were fleeing risky assets like stocks. And from Shanghai

to Sao Paolo, people were awakening to the reality that what is happening in these

European minnow states has vast implications for the fate of the fragile global economic

recovery.

Stocks fell in Asia and Europe as governments in Portugal and Greece pushed against

fierce political resistance at home to cutbacks aimed at getting their deficits under

control.

Markets fear Greece may default or require a costly bailout from already strapped

European governments, and those concerns are spreading to other financially troubled

governments such as Portugal and Spain.

Portugal's position looked even weaker Friday after opposition parties defeated a

government plan for austerity measures that the country needed to pass to soothe

markets and reduce the soaring cost of insuring its debt, a measure of investor fear.

"Portugal is next in line with ... what is now a very timid attempt" to bring its deficit down,

said Marco Annunziata, chief economist at UniCredit.

Top EU officials, the economy commissioner Joaqin Almunia and European Central

Bank head Jean-Claude Trichet, tried Wednesday and Thursday to reassure markets of

the strength of the eurozone and Greece's determination to bring down spending. But

markets haven't listened.


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The reason is a growing reassessment of government finances worldwide, and

knowledge that a Greek default would tear new holes in banks' already battered

finances if they hold Greek bonds, most of which were sold to west European investors

outside Greece.

The Athens government has outstanding securities of euro290 billion, more than twice

those of the U.S. investment bank Lehman Brothers, whose bankruptcy brought the

world financial system to its knees.

Those fears have pounded stock markets in recent days, with German, French and

British stocks closing down 1.8, 3.4, and 1.5 percent down Friday. What would have

been a bounce on Wall Street from positive jobs figures remained flat.

On Friday, the Portuguese opposition passed their own bill, which the government says

will punch a euro400 million ($550 million) hole in its budget over the next four years.

The government says it is "irresponsible" and that it will try to annul it, risking new

political friction.

"The risk of contagion now is very very serious. By the end of next week, if things

haven't calmed down or if they have actually intensified further, then it will be a matter of

a short while before some steps are being taken," Simon Tilford, chief economist at the

Centre for European Reform, said.

European officials have said there is no need for a bailout for Greece and that it will be

able to borrow the euro54 billion it needs to plug its budget gap this year.

They say Greece must climb out of the crisis by itself, warning against a financial rescue

that would reward Athens' decades-old failure to make its sluggish economy more

competitive.

But Tilford said those worries are now swamped by worries of contagion within the

eurozone.

"We could get into the position where we have a serious crisis in Spain which might not

be containable because Spain's a bigger economy," he said. "It's possible for the


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eurozone to cope with a bailout in Portugal or Greece but Spain would present a

problem of a whole different order."

Governments around the world are going to issue huge amounts of debt this year,

making it hard even for countries with good prospects to attract investors who can pickand choose bonds to buy.

That environment will also hike the cost of borrowing for other debt-laden EU members

that don't use the euro such as Britain and Hungary, and making their debt troubles

harder to climb out of. However, Greece and Portugal "are right at the bottom of the

developed country pile," says Tilford.

Together, Greece and Portugal make up less than 5 percent of economic output in the

16-nation eurozone and would be far less expensive to bail out than Spain, where the

economy is a much larger 11.7 percent of eurozone GDP.

Spain has tried to shrug off a comparison with Greece and Portugal but markets

were dubious following comments by EU Economy Commissioner Joaquin Almunia who

said Wednesday that high wages and low productivity in all three make them less

competitive against other European nations.

Changing that would mean wide economic reforms such as making labor conditionsmore flexible and opening up markets for goods and services. Greece is promising to do

this but markets doubt that it can in time to generate growth.

In the meantime, hefty public spending cuts could wreck any chance of economic

recovery.

"The reason why investors are so scared is that they find it difficult to see how these

economies are going to return to reasonably robust growth or any growth," said Tilford,

adding that a devaluation usually accompanies such cuts.

Euro countries no longer have their own currency to devalue, which boosts exports and

makes them more attractive manufacturing destinations. So instead they have to force

wages down by other means, in part by cutting them for public sector workers.


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They also have to work toward getting back below the strict EU limits on debt and

deficits that the financial crisis has forced them to break, as they spent billions to rescue

banks and boost economic growth with extra spending and welfare payments.

Ireland has been widely praised for a harsh budget program to curb its deficit which,

unlike the Greek plan, contains big public sector pay cuts. But Greece faces problems

that Ireland doesn't an aging population, few foreign exports and a credibility problem

after it falsified economy statistics last year to make its deficit look smaller.

Greece has pledged to bring its deficit down to the EU limit by 2013 but there are

serious doubts about whether it can, given the huge economic reforms that the EU says

are needed and growing public opposition to an austerity program that aims to slash

public spending.

Greek tax and customs officials were on strike for a second day Friday while civil

servants will walk off the job next Wednesday. However, the government had some

relief on Friday as farmers scaled down highway blockades despite not winning the

extra subsidies they want.

Tilford said the eurozone also needs to think about the divide between northern export-

led countries and its southern big spenders. Germany and the Netherlands "need to

consume more" to lead the demand needed to propel Europe out of a long period ofstagnant growth.

Financial Crisis in Europe

Most European stock markets have opened down almost 3%, with some down almost 4%. US stocks

down about 3.5% there, the equivalent of almost 400 Dow points. The 30-year bond yield is now a

hair above 4%.

I heard people yesterday speaking of a bit more calm in US credit markets than has been the case in

recent days. There are good signs here and there in various markets. The US is looking better than

the rest of the world at this point. Europe is Europe. China fears the loss of export markets as the

euro falls. Meanwhile, Japan, Korea and China all face war warnings from the Dear Leader.


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This situation has a very different feel from the summers of 2007 and 2008. In my view, there isnt

nearly as much risk of widespread insolvency, as many financial institutions have spent the past year

and a half buying mostly government-guaranteed assets and repairing their balance sheets. But

theres very little reason to expand risk-taking activities as the global economy deflates, and there is

much fear of continued volatility. The volatility by itself increases market spreads and makes tradingharder to do.

Therefore, capital markets have taken on a certain look of frozen-by-fear. But its not so much the

fear of unknown and unhedged counterparty risk as in the last crisis, that gnawing worry about

which gold-plated name youll hear bankruptcy rumors about tomorrow.

The basis of asset valuations is the benchmark credits issued by sovereigns, and were resetting those

basic valuations downward. This process is actually the next phase of the last financial crisis, which

was defused by shifting losses from private entities to governments. The governments wont fail in a

nominal sense, but markets never really took into account the loss of value that the bailouts

represented. Thats what were doing now.

The question that markets face is: can this be managed in an orderly way? Or will we have problems

on the way down?

US capital markets have been remarkably free from significant disruption. The stock market is

basically doing the right thing. Its been discounting a very strong economic recovery for many

months now. As the limitations of that sanguine view become clear, stock prices are resetting to

more realistic levels.

It also has to be said that the prospect of government crackdowns on market activity is adding

greatly to the problems. Angela Merkels recent announcement of bans on certain kinds of short-

selling, took away a critically important tool that markets use to adjust to rapidly changing

conditions. The fact that her ban wasnt copied by other European states set off a flurry of shifting

exposure away from German markets.

Merkel basically tried to make it illegal for markets to trade down. She ham-fistedly added to the risk

of adverse regulatory action, right in the teeth of crisis, gabbing about how promises were made tothe people to stop the bailouts. This is quite frightening. Its smart to take some of your chips off the

table now, rather than have your government take away your ability to do so at the worst possible

moment. This adds to the overall deflationary pressure.

And the government risk gets even worse with a major regulatory effort underway in Washington. US

authorities have been entirely frank [sic] about their desire to score political points by being tough


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on Wall Street. Senator Blanche Lincoln inserted a provision in the just-passed Senate legislation

that, by restricting derivatives trading, will probably reduce financial industry profits significantly.

And why did she do that? Because she faced a primary challenge from her left.

When the job security of a powerful woman from eastern Berlin and another from Arkansas mattermore than the stability of the financial industry, thats potentially a lot more risk than you really

want to be exposed to. Ive heard talk of moving industry operations from New York and London and

Frankfurt to Hong Kong.

Thankfully, there is no talk of a widespread meltdown, as there was at several points in 2008. Its

fully expected that central banks and governments will step up with taxpayer bailouts and asset

guarantees as they did then.

But its not possible to go through a long period of uncertainty and risk-aversion in capital markets

without leaving a mark on industry and trade. The overall impact of the Euro-crisis will be economic.

You should expect less growth in Europe, even less than the already weak expectations than had been

in place before the crisis bloomed.

And this creates a challenge for the nascent US recovery, which has been led by growth in

manufacturing and exports. The lower euro allows Europe to effectively import demand that they

cant generate internally. That demand has to be taken away from someone else. The Chinese will

keep their currency undervalued, shielding them from some of the impact.

But we have less freedom to maneuver, with US interest rates already at zero. The dollar will

strengthen. This helps us in some ways by making imported commodities less expensive. But it also

makes our exported goods less attractive. This will put some pressure on our economic growth.

A final point: our current government came to power brimming with confidence, promising hope and

change. At that time, many of us recalled Harold Macmillans phrase Events, my dear boy, events.

The possibility of events has taken a frightening turn with the rise of tensions, and now war

warnings, on the Korean peninsula. With an untested hand in the White House, this situation

presents a risk that I have no clue how to hedge.

The Protest Movement. Financial Fraud in

IcelandGlobal Research, October 5, 2010As proceedings begin against Icelands former Prime Minister, Geir Haarde, for thebanking crisis of 2008, at least two thousand Icelanders took to the streets in two days


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of protest this weekend. Iceland joins over a dozen other nations protesting economicmeasures taken out on the public while banks and large corporations receive bailouts.Class war is on, and its gone global.Mass protests were also held in Greece, Portugal, Spain, Ireland, Germany, Italy,France, Slovenia, Lithuania, Latvia, Czech Republic, Cyprus, Serbia, Romania, Poland,

and the U.S., according to reports from several sources. Folks around the world rejectcorrupt banking practices and bailouts, while social services are cut and tens ofmillions have been forced into joblessness and homelessness.Dori Sigurdsson, an Icelandic blogger, reports that when Parliament returned fromrecess on October 1st, they were met by a loud, angry crowd who tossed eggs, bread,dairy products and keys at them. People slept outside the Parliament building thenight before its return session. Hes posted videos and several images.Dori notes, because of the lack of help from the Government for the public, manyare now losing their houses and cars. In a nation of only 317,000, 12 percent (or40,000) have lost or are about to lose their homes, he says. Icelanders condemn theinjustice of large companies and their CEOs having had their debts forgiven by

government, while theirs are not.Three other officials were charged with misconduct in the lead up to, during andfollowing the banking crisis, reports Ice News. Parliament voted to prosecute onlyHaarde for negligence, under a 100-year-old law that has never before been used.

Icelanders are also angry that only the former PM is being charged. One commenteron the Ice News article noted, Is this not a total betrayal of the people? Andcriminal, to reasonable minds.Eggs hit Prime Minister, Jhanna Sigurardttir, who rode into power as Icelandsmost beloved political leader with a 75% approval rating. She was installed in January

2009 after a coalition of Social Democrats and Left-Greens formed to replace theIndependence Party-led coalition government, headed by Haarde, which wasterminated. Should other nations terminate their corrupt governments?The Guardian notes widespread protest across Europe amid growing fury at austeritymeasures being imposed... Disruption in more than a dozen countries this weekincluded a national strike in Spain and a cement truck driven into the Irishparliaments gates. Press TV also reported on protests planned in several nations lastweek. (See cement truck video here.)
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Even in the US, thousands recently protested in Washington, D.C. for jobs instead ofwars.ANSWERCoalitions Brian Becker told reporters that the US spends a billion dollars every twodays for its military invasions. Thats much lower than the trillion dollars a year that

Robert Higgs of the Independent Institute calculates. We do know that Congressspends 58 percent of its discretionary budget on the military.Many economists note that unemployment in the US is two to three times higher thanwhat the Labor Dept. reports. In July, economists put the number at 28 percent,compared to the 9.5 percent rate reported by the feds. For September, the ChristianScience Monitor showed unemployment at 16.7 percent, while the feds reported 9.6percent.In the US where 95% of the public rejected both Wall Street bailouts (under Bush andunder Obama), we learned that banksters then rewarded themselves with milliondollar bonuses. The boldness of their depravity is sure to have its rebound effect. Is ittime to terminate this government, too?

The Guardian also reported that a UN agency has warned of growing social unrestbecause of a long labour market recession that could last until 2015. 2015!

Thank goodness mortgage squatters are growing in number in the US. This is evenbefore it was discovered that foreclosure mills fabricated documents to seizepeoples homes. Some of those mills do not even hold legal title, Ellen Brown reports.In Iceland, the Guardian noted, Birgitta Jnsdttir, one of three MPs to join theprotesters, said: There is a realisation that the IMF is going to wipe out our middleclasses. Thats true of every nation sucked into the greed of banksters, the US

included.Protesters are out again right now, Monday night, Dori told me (6 pm Eastern, 10 pmIceland time). The protest is still on, and it is peaceful but with lots of noise thatcan be heard in the Parliament building.

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Greece TodayUSA Tomorrow - Under

ObamaGreek protests are led by government employee labor

unions, Labor unions have destroyed manufacturing in

AmericaBy JB WilliamsFriday, May 7, 2010http://canadafreepress.com/index.php/article/22878

As Rasmussen reports NewJersey and California are just two of the states that are wrestling with high numbersof well-compensated unionized public employees as they try to reduce growingbudget deficits. But a new Rasmussen Reports national telephone survey finds that

Americans are generally favorable toward these unionsDow Jones Newswire reports Greek Police Clash With Protesters As March TurnsViolent - police have fired tear gas and stun grenades as groups of angry youthsrampaged through the city center smashing shop windows, overturning garbage bins,and setting fire to at least two businesses.The Greek protests are led by government employee labor unions. In the states, weknow SEIU (Service Employees International Union) under the AFL-CIO. And as the NewYork Times reported back in January, most U.S. union members now work for thegovernment.The clashes come as tens of thousands of protesters gathered to protest thegovernments recently announced austerity measures in one of the largest protests inrecent years, and coinciding with a nationwide general strike that has paralyzed thecountry.Overtaxed and still over spent, Greeces public sector labor unions are revoltingagainst government cutbacks. Obama and SEIU have the good ole USA poised to followthat utopian trail into national bankruptcy. In both countries, the majority of unionemployees now hold taxpayer funded government jobs, the only kind of jobs thatgovernment can create.
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The labor union protests in the streets of bankrupt Greece are in opposition to forcedcutbacks in government spending and related services, all necessary to securingadditional bailout funds from the EU and IMF in excess of $100 billion to keep Greecefrom sinking into complete anarchy.Protesters who have already bled the nation dry of resources in their endless demand

for socialist government handouts, are angry over the fact that it is government jobs,protected by public employee labor unions and paid for by Greek taxpayers, that mustbe cut in order to stop the excessive deficit spending that left Greece the first ofmany nations to collapse under the weight of socialized economics.California and New Jersey are the first to follow in the economic-suicide footsteps ofGreece and if it werent for ongoing multiple federal bailouts of these two states, allat U.S. taxpayer expense, streets in the U.S. would look just like the streets ofAthens.

To no surprise, states with the most labor union influence

are first to belly up in America

To no surprise, states with the most labor union influence are first to belly up inAmerica. So-called right to work states (aka, states where workers can reject laborunions) seem to be faring much better, even in the economic downturn.Still, according to Rasmussen, 53% of U.S. citizens support labor unions for publicemployees, without connecting the dots between labor union demands for evershrinking worker productivity and ever increasing pay and benefits, and the fact thatthe U.S. economy is only months behind Greece, Iceland and much of the EU, atbest

Americans Had Better Connect the Dots Soon!

Labor unions have destroyed manufacturing in America. They made U.S. students themost under-educated lot on earth. Now they are driving the cost of governmentthrough the roof, just like in Greece and there is NO way for this to end well.When labor unions demand every increasing wages and benefits for governmentemployees, the taxpayer takes a direct hit every time. When the economy stumbles,and tax revenues shrink, the cost of government and welfare services in particular,become unsustainable.
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Protesters in Greece are right about one thing - it is the lowest people in theeconomic pecking order which will get hurt the most when oversized government hasno choice but to shrink in size and scope. Said another way, government dependentsdont know what to do when the public trough runs dry.But they fail to make the connection between lack of productivity, increasing cost

and shrinking resources. The end is inevitable for any government that tries tobecome all things to all people, while robbing the most productive members ofsociety of their rightful earnings to keep it all afloat.In the end, no nation has access to a bottomless well of resources.For the record, Greece was already one of the highest taxed nations on earth, with33.5% of GDP burned up in taxes. The United States is not far behind with 28.2% ofGDP swallowed up in taxes, while red ink still runs all over the page in unfundedpromises as far as the eye can see, with more unfunded promises made daily.Only a handful of communist/socialist nations have a higher tax rate than Greece, yetGreece was unable to sustain its government no matter how much money they robbedfrom their productive members of society.

Yet many Americans dont seem to have the critical thinking skills to connect thesedots and predict their own demise, even as other nations begin to collapse under theweight of excessive government and related taxation without real representation fortaxpayers.

No FREE Lunch

The FREE-LUNCH mentality of theentitlement generation in America is driving the United States right off the samecliff that Greece just fell off.However, Americans, unlike any other people on earth, have an equal birthright NOTto big screen TVs, fancy cars and homes they cant afford, but to thrive, survive orfail of their own choosing. To live FREE, making their own life choices, be they good,bad or indifferent.
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The effort to trade freedom for a free-lunch will always fail in the end, no matter themomentary euphoria from a utopian campaign promise to destroy the rich in favorof the poor.The Unites States was once the most prosperous and powerful nation on earth, largelybecause it was the only nation on earth that didnt fall for the false promise of equal

free stuff. But today, our entitlement generation has fallen for the lie and theywont be set free until they are once again able to separate fact from fiction.Bottom line if we dont do away with public sector labor unions, we cannot reel inour runaway government or the high cost of bailing out the unions while the nationgoes under.Just ask the folks in Greece!

credibility problem after it falsified economy statistics last year to make its deficitlook smaller.Greece has pledged to bring its deficit down to the EU limit by 2013 but there areserious doubts about whether it can, given the huge economic reforms that the EUsays are needed and growing public opposition to an austerity program that aims toslash public spending.Greek tax and customs officials were on strike for a second day Friday while civilservants will walk off the job next Wednesday. However, the government had somerelief on Friday as farmers scaled down highway blockades despite not winning theextra subsidies they want.Tilford said the eurozone also needs to think about the divide between northernexport-led countries and its southern big spenders. Germany and the Netherlands"need to consume more" to lead the demand needed to propel Europe out of a longperiod of stagnant growth.

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Portugal near political crisis over debtBy Peter Wise in LisbonPublished: February 4 2010 22:24


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http://www.ft.com/cms/s/0/76aa4a50-11d9-11df-b6e3-00144feab49a.html

Portugal moved towards a political crisis onThursday night as its finance minister appealed to opposition parties not to defeat theminority Socialist government over a regional finance bill that he said wouldundermine the countrys international credibility.In a televised address, Fernando Teixeira dos Santos said opposition proposals toallow the Portuguese islands of Madeira and the Azores to increase their debt wouldhave grave consequences for Portugals public accounts and send the worstpossible message to financial markets.Fernando Teixeira dos Santos said opposition proposals to allow the Portuguese islandsof Madeira and the Azores to increase their debt would send 'the worst possible

message' to financial marketsHis warning came as Portuguese bonds and shares came under fire for the second dayrunning as concerns over sovereign debt spread from Greece to other high-deficitcountries in the eurozone.The Lisbon stock market fell almost 5 per cent on Thursday, the biggest daily fallsince November 2008, and bond yields rose to new highs amid doubts over the abilityof Portugal to consolidate its public accounts.
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The cost of insuring Portuguese debt against default also rose to a record high.

Mr Teixeira dos Santos said approval of the bill would involve an increase of 50m(45m, $70m) in funding for the islands this year, rising to an increase of 83m in2013. This would make it impossible for the government to meet its commitment tothe European Commission to cut the budget deficit from 9.3 per cent of GDP in 2009to less than 3 per cent in 2013.The centre-right Socialists were re-elected to a second four-year term in September,but lost their overall majority in parliament. The contested bill is supported byopposition parties on the left and right who together have enough votes to defeat thegovernment.

Opposition parties accused the government of irresponsibility and deliberatelycreating a crisis to ensure the bill was defeated.Earlier on Thursday, Mr Teixeira dos Santos said strong and credible measures to bepresented the European Commission this month would be no less ambitious than theGreek plan to consolidate public finances endorsed by Brussels on Tuesday.He said Portugal had taken over from Greece as the main victim of the animalspirits of financial markets that were often irrational. The concern in the case ofPortugal, he said, was not justified.

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Mafia makes most of Italy's financial woes to

push profits up 8%By Stephen Brown and Paolo Biondi in RomePublished Date: 28 January 2010http://news.scotsman.com/world/Mafia-makes-most-of-Italy39s.6020731.jp
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ITALY'S mafia crime syndicates bucked the recession in 2009 to raise "profits" byalmost 8 per cent, with the financial crisis making companies and even the stockmarket more vulnerable to cash-flush mobsters."Mafia Inc is reinforcing its position as the number one Italian company," said a reportpublished by a body whose members bear the brunt of mafia extortion, the smallbusiness and shopkeepers' association Confesercenti.It estimated the mafia's impact on business equalled about 7 per cent of Italy'seconomic output, in a year when the Italian economy shrank by almost 5 per cent.

Experts had predicted whenthe crisis began that Calabria's 'Ndrangheta, with its huge slice of the global drugstrade, Sicily's Cosa Nostra, Naples' violent Camorra and Puglia's Sacra Corona Unitawould see more demand for loan-sharking.But the report said mobsters had also been able to launder their earnings by buyingup cheap assets and had found a low-cost and willing workforce among the newlyunemployed. "In times of crisis, the mafia's money, even though it is dirty, makespeople's mouth water," it added.Confesercenti's research arm, SOS Impresa, citing data from police, mob informants,magistrates, government agencies and its own network, said the boom had been sostrong organised crime might target the stock market to launder its money. "There is

a risk the mafia could take advantage of the difficulties of some large business groupswho are undergoing a liquidity crisis to attempt to get into the stock market behindthe scenes in a big way," its report said.
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It estimated the mob's joint turnover last year at 135 billion (117bn), topped bytrafficking in drugs, people, weapons and contraband, which raised just under 68bn.Second came "business" interests such as public contracts, gambling, forgeries andsupplying illegal labour at 25bn, then extortion and loan sharking, on 25bn.Robbery and fraud represented 1bn and prostitution brought in 600 million, said SOSImpresa. The mob laid out 1.17bn in wages and 2.75bn on corrupting officials,

invested 26bn and laundered an estimated 19.5bn, the researchers said. Total"profits" ran to an estimated 78bn.SOS Impresa said there was a risk that, with the prices of property, stocks and bondsand companies themselves brought down by the crisis, mobsters could use profitsfrom recession-proof activities such as drugs to "go on a financial shopping spree".It portrayed an increasingly sophisticated mafia business environment.While the mob is still essentially clan-based, in Sicily there was "a sort of criminalcareer" where a bodyguard could become a godfather, and in the slums of Napleschild drug runners grow up in gangs where "pushing is considered a real job givingthem independent economic status"

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Iceland Goes Bankrupt - Is the U.S. Next?By Kimberly Amadeohttp://useconomy.about.com/od/worldeconomy/p/Iceland_economy.htm
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Iceland Financial Crisis Causes Government to Collapse:

Iceland's nearly bankrupt economy caused the government to collapse in January. Thecollapse occurred because Prime Minister Geir Haarde resigned due to cancer, andthe minority party insisted that one of its members fill the position. Haarde insistedthat his party's member, Foreign Minister Ingibjorg Gialadottir, take the post.

Commerce Secretary Bjorgvin Sigurdsson resigned due to bankruptcy-related stress .Protesters have taken to the streets in response to soaring unemployment and risingprices caused by the bankruptcy. (Source: AP, Iceland's government topples amidfinancial mess, January 26, 2009)

What Caused Iceland's Bankruptcy?:In early October, Iceland nationalized its three largest banks - Kaupthing Bank,Landsbanki and Glitner Bank - which were defaulting on $62 billion of foreign debt. Asa result of the banks' collapse, foreign investors fled Iceland, prompting the value ofits currency, the krona, to drop 50% in one week.

Iceland's banks used $100billion in debt to finance foreign acquisitions, dwarfing Iceland's GDP of $14 billion.When the global credit crisis shut down lending, these banks' financial collapsebrought down the country's economy. (Source: AP, Iceland teeters on the brink ofbankruptcy, October 7, 2008)Haarde and Gialadottir negotiated a $10 billion bailout from the IMF to insureIceland's bank deposits. Iceland asked its neighbors Luxembourg, Belgium, and the UK
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to insure bank deposits of the branches in their countries. (Source: Guardian, Icelandsees IMF decision with a week, October 16, 2008)

Iceland's Bankruptcy Aggravated the Global Financial

Crisis:

Iceland's economic collapse affected the rest of Europe, since Iceland's banks bothexpanded their retail services in Europe and heavily invested in foreign companies.Iceland's Baugur is the largest private company in Great Britain. Icesave, the onlinearm of Landsbanki, froze withdrawals during the crisis, affecting depositorsthroughout Europe.

Since the government has been unable to maintain the value of the krona, many havesuggested Iceland join the EU and adopt the euro as its currency. Iceland is already amember of the European Economic Area, a trade association that follows many EUrules. However, Iceland's fishing industry is opposed, since it has clashed withEuropean countries over fishing rights.

Why Iceland's Homeowners are Protesting:

Before the crisis, both inflation and interest rates were in the double digits. Thiscaused many Icelanders to add second mortgages using foreign currencies, sinceinterest rates were lower. Now that the krona has dropped, they are suddenly facingmortgage costs that are double the price in krona at the same time housing prices arefalling. (Source: IHT, Iceland is all but officially bankrupt, October 9, 2008)

Could Iceland's Bankrutpcy Happen in the U.S.?:
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The U.S. government has invested a total of $5.1 trillion in stemming the bankingcrisis. This is more than one-third of annual production and, if left unfunded, wouldsubstantially raise the U.S. debt, currently over $10 trillion. Furthermore, it is stillunclear if the amount invested will be enough.Although this is not as bad as Iceland's situation, it will have similar effects on the

U.S. economy - a declining dollar, less trust in U.S. financial markets, and a muchslower-growing economy for decades to come. (Source: IHT, U.S. consolidatesfinancial risk-taking in Washington, October 18, 2008)Is it possible for the U.S. economic situation to create a collapse in government likeIceland's? Probably not, since our economy is larger and more resilient.However, much of the outcome depends on the resiliency of the American people.Will we take to the streets if unemployment skyrockets? Or will we show our truenature as a people, and cut our personal spending, take on an extra job, and helpeach other? This economic crisis is a wake-up call for each of us to decide who weare, and whether we will accept responsibility for our own economic situation.

*******

Another Greek Lesson: As Always Hard ButInspiringby Carlo BastasinPosted in Global Financial CrisisDecember 16th, 2009http://www.piie.com/realtime/?p=1101Greece faces the most difficult situation that has ever confronted a eurozone countrysince the birth of the common currency in 1999. Without draconian measures by theAthens government the fiscal situation of the country will soon become unsustainable.

A failure to pay off its debt, though remote, cannot be completely ruled out with risksof contagion for the rest of the euro area.

For all its difficulties theGreek lesson, as at gymnasiums, is hard but inspiring. Everybody in the European
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Union seems to be scared and is learning fastboth within and outside the euro area.Ireland and Lithuanialike Greece, threatened by the crisisare taking the rightcourse. The perception of a common problem is growing. What is still missing is thecourage to set up a new institutional arrangement for the euro area.The main problem for Greece is to restore its credibility. It will not be easy. Since its

bid to enter the euro area, Athens has been responsible of cooking the figures of itseconomy. Since its adoption of the euro in 2001 it has never, even during years ofrobust growth, managed to comply with the deficit threshold mandated by theStability and Growth Pact of the European Union Treaty.Greeces governments have been misleading the world and especially their Europeanpartners in the financial area. In March the European Commission forecasted that theGreek public deficit would be more than 3 percent in 2009 and more than 4 percent in2010. Nobody was prepared for the shock unveiled by the new government elected inOctober: according to the latest Commission projections, the deficit is around 12.7percent this year and 12.2 percent next year. The final figures could be higher.Furthermore, and in contrast to those of most other EU countries, Greeces deficits

are due in only small part to the financial crisis. They are structural and they havehad a long period of incubation.

Unfortunately, Greeces main economicproblems require a strongand crediblepolitical will. They are all politically costlyto be tackled: pension reform is unavoidable; wages have to be reducedhavingsoared 33 percent more than German wages since 1998 (see graph); and the requiredbudget primary surplus (i.e., the budget that does not include interest rate paymentson the debt) will have to come close to 10 percent of GDP. Without such credibility,even steps in the right direction will not help the country to finance its debt. One
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aspect is particularly relevant in this regard: when the current account deficit is at 15percent of GDP (in 2008), credibility must be established far beyond the countrysborders.But even this is not enough. It is not only Greeces credibility that is on the line. Alsoat stake is the credibility of a European mechanism unable to defend itself from

felonious behavior by its country members. The lack of credibility of Greeceundermines the credibility of Europe. And the two must be restored together.Greece has been monitored by the European Union for years. The Economic andFinancial Affairs Council (Ecofin) must make a determination that Greece has failed toimplement the measures called for by the European Union to correct its deficit. Sucha finding would then enable further steps to be taken in the excessive deficitprocedure, as the mechanism of enforcing fiscal discipline in the European Union iscalled. If Greece does not comply with the Commissions recommendations byFebruary 2010 it could be given notice by the Ecofin. If once again no effectivecorrective measures are taken, sanctions could be imposed four months later (June2010): Greece would then have to lodge a noninterest-bearing deposit equal to at

least 0.2 percent of its GDP for two yearsand this would ultimately be retained as afine by the Commission after two years of further inaction.

But in the past this sanctioning procedure has been marred by discretionaryapplication and politics. Indeed it has never been enacted. Even so, it is doubtful thatsanctionsor the threat of sanctionscan function as discipline once the damage isdone on such a large scale. The same is true for another kind of sanction that has

been evoked recently: the conditional support coming from the EU Cohesion Fund.The EU Council could decide in the next months to freeze 3.7 billion that Greeceexpects to receive from the European Union between 2007 and 2013. But, again, doessuch a punitive measure make any sense? The process of fiscal re-equilibrium will bepainful enough and protracted by itself. It will have to cut deep into the structure ofthe Greek economy and society. This is not a matter of a one year U-turn, but of afive-year-long political strategy, at the least. For reform to occur over such a longspan there has to be credibility conferred from outside the normal national political
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time horizon.The common wisdom holds that the Stability and Growth Pact rulestogether with themarket pressure on interest rates (both direct and via rating agencies)serve todiscipline national politics. But if that is so, why did Greece not act before now? Whycould the Greek bubble be permitted to inflate until a crisis struck? Werent the Pact

monitors and market forces paying attention? Lets admit it: they were not becausethey could not. They too seldom are until it is too late because their powers arelimited when confronted with national fiscal authorities.

The German Chancellor,Angela Merkel, acknowledged on December 10 that the Greek situation and those ofother indebted countries call for a much closer coordination of fiscal surveillance inthe European Union or at least in the euro area. This is a great step forward. But stillit is only one half of the truth. Surveillance, in order to be effective, must meanconditional aid requiring approval of the budget by the European Union, along withtransparency and a public acceptance of responsibility. There is no escaping thepolitical nature of the process. And in order to be acceptable the process must applyto all countries in the euro area. The fiscal and budget rules must be met by surpluscountries as well deficit countries: toward Germany as well as Greece.And unfortunately there is only one way to establish such a complex mechanism: toform a fiscal authority at the euro level in a new European federalist structure.Is it too early for such an institutional leap? The prospect for public debts in Europe inthe next ten years will likely force the euro area to cope with instability for decades.When this awareness becomes public, the leap could well come too late.Unit labor costs in Greece and Germany (1998 = 100)

*******

Spain's economic crisis takes heavy toll on

youth
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Young people in Spain suffer the highest unemployment rate

in the EU. And the financial downturn has only served to

widen the gaps between the have and the have-nots in an

increasingly two-tier labor market.Hazel Healy, Madrid11 Oct, 2009http://www.dw-world.de/dw/article/0,,4773755,00.html

Nothing divides Spain quite likethe labor market. And the effects of the current economic crisis vary according toage, geographic location and sector.Young people are one group that is disproportionately affected by soaringunemployment, which stands at double the eurozone average. The national rate is18.5 percent, but among Spaniards aged between 15 and 24 years old, this figureclimbs as high as 37 percent, according to Eurostat.Job losses are concentrated in construction and the service industry - the samesectors that once drove the country's exponential growth. Figures from Spain's YouthEmployment Observatory show the majority of workers laid off were recruited ontemporary contracts , which account for a quarter of the nation's jobs, and half thejobs held by people under the age of 30.

First in, first outWhen the global financial crisis forced Spanish businesses to downsize, youngemployees were the first to go, leaving one in three workers under the age of 25 toface a prolonged period of unemployment.
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Bildunterschrift: Groansicht des Bildes mit der Bildunterschrift: Spanish dole queuesare full of university graduates"The crisis has caused social exclusion andunemployment for young people," confirmed Alex Martin from the youth branch ofUGT, one of Spain's largest unions. He said many young people are moving back hometo live with their parents and are attempting go back to their studies.

Martin denounced the fact that more than half of the 3.7 million Spaniards out ofwork are under 35. It's a fact that gives Spain by far the highest youth unemploymentrate of any EU member state, with current figures reading 13.5 percentage pointshigher than in on 2008, according to the European Commission.

High skills, few openings

A lack of mobility in the labor marketmakes it very hard for young people to get a foothold in their chosen profession andto find pathways into employment. The UGT union states that only one out of everyseven young Spaniards works in their desired field, and that it has taken them anaverage of nine jobs to get there.This was the experience of Virginia Fernandez, who has been unemployed for eightmonths. An undergraduate degree and two Masters in the field of arts administrationhas resulted in paid posts in insurance, call centers and, most recently, as anarchivist."It's really a lot harder now than it has been in the past. The only work around seemsto be as a receptionist or as a telephone operator not much more," she said.Now more than ever, employers prefer to keep newcomers on easy-come easy-go,temporary contracts. September 2009 saw around 33 percent fewer permanentemployees recruited compared to 2008.

Notoriously poor working conditionsRaul Garcia, a 30-year-old journalist, works in his chosen field but has yet to bag a

permanent position. In the last six months he has been employed on no less than fourseparate temporary contracts, the last of which ends in 10 days' time. He knows manyothers in the same, precarious situation and said the insecurity is beginning to take itstoll."You never know what's going to happen to you," Garcia said. "You know when yourcontract finishes but you don't know if you're going to be fired or have your contractrenewed."
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"I have to pay the rent, it's getting hard to bear it, he said, adding that he wasconsidering moving abroad to seek opportunities in other European countries.

The battleground for labor market reform

Bildunterschrift: Groansichtdes Bildes mit der Bildunterschrift: Spanish trade unions want the government to domore to fight unemployment. Business leaders insist that Spain's labor market is toorigid and propose measures aimed at increasing flexibility - a view backed by the IMFand Spain's Central Bank.But unions and, for now, the ruling Socialist government reject this view. PrimeMinister Jose Luis Rodriguez Zapatero has categorically refused to implement anymeasures that will accelerate job losses.

Economist and former minister Valeriano Gomez said Spain's labor laws offer similarprotection to most other European countries."Spain is one of the least protective against mass redundancies, on a par with the UK,and offers less guarantees than the Swedes, Germans or Dutch for individuals," Gomezsaid.It's not about the differential cost of sacking. In 2007, we happily fired nearly amillion people out of a working population of 20 million," he added.Management and unions have yet to renew a round of social dialogue that broke off inJuly without having reached consensus.

Structural economic changeSantos Ruesga, an economics professor at the Madrid Autonoma University, believes

the problem of youth unemployment lies with the structure of the Spanish economy."The challenge is not how to reform the labor market but how to reform theeconomy," he said.
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"We need a different kind of productive model -one with much higher capital investment, a more intensive use of technology - that ismuch less anchored in low-skilled professions like construction."In Ruesga's view, a restructured economy that creates jobs requiring higherqualifications will succeed in slowly absorb young people.

Government intervention

For now, the government has rolled out costly and significant emergency welfaremeasures. This includes a 100-million-euro per month scheme that provides Spaniardswho have exhausted their social security coverage with payments of 420 euros amonth.Bildunterschrift: Groansicht des Bildes mit der Bildunterschrift: Prime MinisterZapatero says he doesn't want labor reforms to result in job lossesThe state has alsopledged ambitious moves towards a new sustainable economic model based oninnovation and technology, and set aside stimulus for the creation of qualityemployment.But, the public deficit stands at eight percent, and the IMF has predicted it will reachdouble figures by 2010. The government has therefore announced concurrent

cutbacks in the Department of Investment, Development and Research, which wastouted as key growth driver in Spain's new economic model.

*******

Financial crisis hits Irish middle classGovernment raising income taxes, cutting pay for civil

servants
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Associated PressSat., March. 7, 2009http://www.msnbc.msn.com/id/29571605/

DUBLIN - As a veteran nurse,Margaret Horan is used to feeling overworked and underpaid. A steady flow of

coughing, moaning and bleeding Dubliners must wait hours to be seen because of staffshortages at her hospital in the working-class heart of the capital.As if that wasn't enough, Horan now can scarcely believe that the government plans tocut her pay by 10 percent or more a sacrifice to be shared by hundreds of thousandsof middle-class families across Ireland's unraveling economy.A government that long profited from a property boom is now raising income taxesand pension charges to combat a sudden, gaping hole in the public finances thatmeans borrowing one euro for every three spent. Its emergency approach is fuelingrebellion throughout the bedrock of Irish society teachers, bus drivers, policeofficers and nurses who feel they are being asked to surrender too much in defenseof a wealthy, discredited elite.
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"Our genius government blew the boom.On their friends in the banks, on property madmen who made the whole countryinsane with greed. We had a once-in-a-lifetime chance to pull this country out of themuck. All that money wasted," rued Horan, dragging deeply from a cigarette outsideher crowded emergency room on an icy March night."They can find billions for the banks, and we're getting our salaries and budgetsslashed. It's a sick, sick joke."Prime Minister Brian Cowen and his finance minister, Brian Lenihan, stress thateveryone not just the bankers who lost billions on Ireland's lust for real estate must pay their share in a national battle for financial survival. They say Ireland couldcollect less than euro35 billion ($44 billion) this year in taxes against euro55 billion($69 billion) in spending and so everything, and everyone, has to give.Polls show support for Cowen's 9-month-old government dissolving to a record-low 10percent."It's absolutely essential we restrict the sum of our borrowings. We must show thewider world there's a credible path out of our present difficulties," Lenihan said in aninterview.
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New taxes on paychecks Lenihan has already imposed new taxes on paychecks, ranging from 1 percent to 3percent. And he has begun deducting a further 7.5 percent on average from the wagesof 350,000 state-paid workers, including nurses, teachers and police, to increase theircontribution to state-subsidized pensions. He plans to unveil an emergency wave ofeven bigger tax hikes and spending cuts by the end of this month. Opposition leaders

have already dubbed it "the April Fool's Budget."The government is simultaneously raiding the National Pensions Reserve Fund foreuro7 billion ($8.8 billion) to support the country's two biggest banks and has takenover a scandal-stricken third, Anglo Irish, after its directors were discovered hidingtheir own loans and losses.More than 100,000 workers marched last month on the parliament to demand that thenation's tax-exile elite and even its billionaire rock icons, U2 be forced to pay farmore to keep their country from drowning in red ink.Unions representing 700,000 workers in this country of 4 million are ballotingmembers to strike, among them the Irish Nursing Organization. It argues that thegovernment should be seizing the assets of bankers and property developers who

helped bring one of Europe's most vibrant economies to its knees, not squeezing life-and-death services.Among those most aggrieved at the government's paycheck cuts are its own civilservants. About 13,000 workers in government offices were first to mount a one-daystrike last week, arguing they could lose their homes if their salaries are pruned.

Homeowners in troubleDerek Hollingsworth, 37, who works as a low-level manager in the prime minister'soffice, says his family is running up monthly debts of euro200 ($251) a month, partly
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because his wife due to give birth in a few weeks was fired from her private-

sector secretary's job last September.Hollingsworth is a victim of Ireland's property obsession, during which the cost ofhousing tripled from 1997 to 2007. He stretched to buy a house that December, asprices peaked, on the western edge of Dublin for euro406,000 ($509,700) withmonthly payments of euro1,800 ($2,260) due for the next 35 years.He, like tens of thousands of first-time buyers, were reassured by leading economiststhat prices would rise no matter what. The global credit crisis shattered thatpresumption, and the value of unsold homes beside Hollingsworth's droppedeuro60,000 ($75,000) within three months."Some people say first-time buyers like me were stupid and greedy, that we liedabout our own salary figures and incomes to get on the property ladder, and ended upwith a house we couldn't afford," Hollingsworth said. "But we were deceived by peoplewho should have known better. The simple reality is we had a dream of owning ourown home and we kept getting told: Do it now or you'll never get on the ladder."

Jobless rate at 10.4 percent

Unemployment has already doubled within the past year, reaching a 12-year high of10.4 percent in the latest figures published Wednesday. Taxpayers are transforminginto state-benefit claimants at the rate of almost 1,000 a day; the latest budgetfigures, published Tuesday, showed welfare costs up 8 percent over the past year andincome tax collections down 7.4 percent.Alan McQuaid, senior economist at Bloxham Stockbrokers in Dublin, said surgingunemployment should "be a wake-up call to public servants, who continue to feelsorry for themselves because of the introduction of a pension levy and pay freeze."
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"The vast majority of them at least have the security of guaranteed employment," hesaid. "The way things are going, they will be the only ones left working in theeconomy."A hot topic of conversation is which country offers the best jobs for emigrants. Out-of-work stockbrokers and computer specialists are taking out their frustrations at a

white-collar boxing club. An unbuilt McDonald's has already stopped takingapplications for its 50 positions after receiving 500 resumes."We have had them from bankers, accountants and architects," said the franchiseowner, Kieran McDermott. "I had to do a double take on the CVs (resumes). It's nojoke."

*******

Impact of Financial Crisis Different for Five

Largest European Countries and the U.S.Publication: Business Wire

Date: Wednesday, March 19 2008http://www.allbusiness.com/reports-reviews-sections/polls-surveys/7750106-1.html

Italians Most Impacted While British Least Impacted

ROCHESTER, N.Y. -- While much of the focus may be on the United States, the recentfinancial crisis has impacted countries around the world, some worse than others. Onesees varying degrees of impact when looking at on the crisis in the five largestEuropean countries and the U.S. Italy appears to be the hardest hit with three in ten

(29%) saying the financial crisis has had a major impact and an additional one-third(33%) saying it has had a moderate impact on their personal financial situation. Spainand France are the next hardest hit as one in six in France (15%) and Spain (14%) saythe impact on their personal financial situation has been major and three in tenFrench (30%) and Spanish (31%) adults saying the impact has been moderate.Looking at the U.S, one in six Americans (14%) say the crisis has had a major impactwhile 28 percent say the impact on their personal financial situation has beenmoderate. One in five Americans (21%) say there has been no impact. British and
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German adults are the ones who appear to be the least impacted as pluralities in bothcountries (47% and 44% respectively) say there has been no impact to their financialsituation.These are some of the results of a Financial Times/Harris Poll conducted online byHarris Interactive([R]) among a total of 6,478 adults aged 16 to 64 within France;

Germany, Great Britain, Spain, the United States, and adults aged 18 to 64 in Italy,between February 27 and March 6, 2008.

Sense of Worry

Six months ago, the financialsituation did not appear to be that bad - at least people were not that worried aboutit. A plurality of Italians (46%) and majorities in the other five countries (between 54%

in Spain and 77% in Great Britain) say they were only somewhat or not at all worriedsix months ago about their personal financial situation. One in five in both Italy (21%)and Spain (21%) were extremely or very worried. In Italy, things may have been worseas an additional 33 percent of adults say they were fairly worried six months ago.Looking six months into the future, however, is another story - at least in somecountries. First, things in Germany and Great Britain seem to be the best as just 15percent of Germans and 13 percent of British adults are extremely or very worriedabout their personal financial situation looking ahead to the next six months. And,one-quarter of Germans (26%) and one-third of British adults (33%) say they are not atall worried, the highest among the six countries. One-third of French (34%) and Italian(33%) adults are extremely or very worried about their personal financial situation

looking ahead six months as are 28 percent of Spaniards and one-quarter (24%) ofAmericans.

The Role of the Government
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One thing people do agree on is that their country's

government is not doing a very good job in handling the economy today. But, it's notall terrible either. A plurality of Italians (44%) and just over one-quarter of Americans(28%) and French adults (27%) say their government is doing a terrible job. With theexception of the Italians, majorities in each country feel that their government isdoing a fair job of handling the economy.Disagreement exists on whether the government has the responsibility to interveneand save struggling financial institutions, such as banks. Just over half of adults inFrance (53%) and the U.S (51%) agree that it is the responsibility of the government tointervene and save these failing or struggling institutions. Three in five adults in Italy(62%), Great Britain (60%) and Germany (60%) do not agree that it is the government'sresponsibility to intervene. Spaniards are clearly divided as 50 percent think

governments should intervene and 50 percent believe they should not.

MethodologyThis FT/Harris Poll was conducted online by Harris Interactive among a total of 6,478adults (aged 16-64) within France (1,122), Germany (1,125), Great Britain (1,109),Spain (1,054) and the United States (1,057) and adults (aged 18-64) in Italy (1,011)between 27 February and 6 March 2008. Figures for age, sex, education, region andInternet usage were weighted where necessary to bring them into line with theiractual proportions in the population. Propensity score weighting was used to adjustfor respondents' propensity to be online. Because the sample is based on those whoagreed to participate in the Harris Interactive panel, no estimates of theoretical

sampling error can be calculated. A full methodology and data tables for the U.S. andEurope are available.These statements conform to the principles of disclosure of the National Council onPublic Polls and of the British Polling Council.

2010: Europes annus horribilis
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After a year of unremitting financial crisis and political bickering, European unity has never

seemed so hollow. February: Thousands of workers protest in Spain against government plans to

cut spending and raise the retirement age by two years to 67. May: Three people die in Athens as

massive

Greek anti-government protests turn violent. The victims are bank employees.

October: France burns as millions take to the streets protesting plans to raise the retirement and

pension age. Fuel depots are blockaded and refineries shut down for days.

November: University students demonstrate in London to vent their anger at plans to triple

university tuition fees. Violence erupts, injuring both students and police.

If Moscow sneezes, the Cold War-era saying went, Communist Eastern Europe catches a cold.

Two decades after the collapse of Communism another kind of virus appeared to be raging

through Europe in 2010. As the winters Big Chill descended on the continent, every government

was sneezing. Described forensically as a contagion, the virus transmitted waves of shocks as

closely-linked but poorly-regulated parts of the Wests financial sector tumbled in the wake of aglobal credit crunch fuelled by collapse of the American housing market in 2007.

The world watched with growing alarm as the financial crisis spread across Europe, hitting with

particular ferocity the 16 countries that had opted to share the Euro the so-called Eurozone.

With every passing month the mood grew darker. It is clear now, say analysts, that when leaders

of the G20 economic powerhouses agreed a $1.1 trillion stimulus package in London in 2009,

calling it a global plan for recovery on an unprecedented scale, they knew already that the

contagion was beyond their control.

The stimulus was merely one of a series of measures that had to be taken, including severe

spending cuts entailing joblessness. Having failed to save in credit-fuelled growth years, Europe is

battening down its rusty hatches in 2010 while somehow trying to keep calm.

Its hard not to panic. After bank failures in Britain in 2007 and Iceland a yearlater, it was Greeces

turn. Locked into a rigid system that did not allow it to devalue its currency and export its way out

of trouble, Greece hid the true extent of its debt, egged on by financial firms. When the credit

crunch grew, anger spilled over to the streets of Athens.

On March 3, the government announced a austerity programme, freezing public sector wages and

pensions. In May, the IMF and Europe came out with a 110 billion ($147 billion) assistance

package for a bankrupt nation whose public debt was 115% and budget deficit 13.6% of GDP. IfGreece alone engaged in austerity, Greece would suffer and that would be the end of the matter,

according to Joseph Stiglitz, the Nobel-winning economist. The worry is that there is a wave of

austerity building throughout Europe that could slow aggregate demand and even cause a second

recession.

At the London G20 summit there was a consensus in favour of expansionary policies to

counteract the recession but this consensus later fractured when many European nations became


35/35

fixated about the size of fiscal deficits and shifted their focus to austerity measures, said Michael

Kitson of the University of Cambridge.

To some, Greece wasnt the surprise: alongside Portugal and Spain, it is part of a troika of

southern Eurozone members whose economies are thought to be characterised by indiscipline

and rigidity, with a love for running large budget deficits even in good times. Northern Europeaneconomies, on the other hand, are said to be competitive, robust and flexible, with broader tax

bases.

So when the one-time tiger economy of Ireland stepped up as the latest problem-child, there was a

degree of shock. At 14.3%, its deficit was even larger than Greeces. But there are vital

differences: Irelands crisis was caused by a classic property boom-and-bust and an unregulated

banking system that allowed the bubble to take place. After weeks of denial, Ireland was forced to

eat humble pie in November when the IMF announced a 85 billion ($113 billion) bailout. Far from

calming nerves, it only spurred further speculation about the fate of two other suspects: Portugal

and Spain.

As is to be expected, clouds of political and social tension loom over Europe. The credit crunch

has seen governments fall in Britain, Greece and Ireland. More worrying are the prospects of

rising social unrest: backed by angry trade unions, millions have marched blaming banks and the

financial sector for Europes and their own troubles. On September 29 a cement truck

painted with anti-bank slogans was rammed into the gates of the Irish parliament in Dublin. In

Britain, students at 16 universities, including Cambridge and Oxford, have begun sit-ins called

occupations to demand a reversal of plans to hike tuition fees. Whether these protests signify

a leftward tilt is not clear Europe is still months away from feeling the full force of the spending

cuts. There are no options on the Left, said former Economist editor Bill Emmot. There have

been protests but this is not a social crisis. In order to revive growth, some market liberalisation

will be needed and that is a centre-right solution.

Experts hope attempts to build a new international financial architecture will lead to tighter banking

regulations in the West and capital controls in India and China. Eradicating the cycle of boom-and-

bust remains a chimera: far better, suggests Iain Begg of the London School of Economics, to

focus on improving the capital adequacy of banks and surveillance of bubbles.

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