It is not about Greece only!

Tue, 8 Nov Pre-Open

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Stock markets around the world witnessed a relief rally after the announcement of a rescue package for the ailing Greece. However, this euphoria died down when the Greek Prime Minister, Mr George Papandreou, announced that he will hold a referendum to endorse the extreme austerity package, something Greece will have to adhere to if it wants to avail the rescue package. Later, under tremendous pressure from home as well as outside world, Mr George Papandreou discarded the idea of referendum which had anyway a very high chance of rejection from Greeks on account of stringent austerity measures in the deal. How things would pan out in this regards is for the future.

At present, one important point which economists all over the world are pondering upon is the effectiveness of the rescue package. Will this deal bail Europe out of the crisis? The answer is a definite no. Why it is so? Because the actual problem does not lie in Greece itself. If Greece is facing a crisis, so are many other countries out there in the Euro Zone. If we come out of Europe and look elsewhere, we find that the biggest economy of the world, the United States, is also ridden with the same problem. The Americans and the European PIIGS (Portugal, Ireland, Italy, Greece and Spain), all are facing a huge debt crisis. And the reason for this is very plain and simple: all these countries have been living beyond their means.

Then again one important question arises. Are these countries culprits alone? The answer is again a definite no. No prize for guessing the reason for this answer. Everyone understands that for the process of lending and borrowing, there must be two or more parties. Hence, there must be one or more countries, who have been lending to these countries. Have they been doing any charity? No, not at all! They were creating rich buyers who can buy their products and can help their economies grow at a fast clip. They were lending willingly as well. Who are these countries? Largely, for Euro Zone, it is Germany and for Americans, it is China and Japan. Therefore, Japan, China and Germany have possibly played a bigger role in creating a global economic and financial mess.

It is very clear why we are saying it is not about Greece only. Therefore, it is also not about the sufficiency of the recent rescue package for Greece. It is not even about big borrowers such as Americans and PIIGS countries alone. The key to solving the crisis lies somewhere else. Who can clean up the whole mess? Right, you are bang on the target. The same countries that have created this mess. Countries such as China, Germany and Japan gained a lot from creating this crisis in terms of huge employment creation in their countries, big export opportunities etc. They are sitting on huge foreign exchange surplus. Now it is time for them to loosen their purse strings and take some pains as well. These countries need to invest in the deficit economies now.

The recently declared rescue package may avoid the crisis for some time. But if countries like China and Germany keep on avoiding this issue, we may not be far away from a global crisis, that could be many times bigger than the 2008 meltdown.