What is the solution for Euro crisis?

Tue, 1 Nov Pre-Open

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Since ancient times, people across the world have always looked for outside help if they are unable to solve their problems domestically. In fact, that is how foreign trade first came into existence. While it is advisable to look for solutions elsewhere if need be, it is equally necessary to first try and make an attempt internally. The reason for this is that external supporters are not going to help without getting some favour/benefit in return.

That is exactly what is happening in the European Union at present. In the recently concluded European summit, the European leaders have decided on a number of rescue measures to bail out Greece and avoid future crisis. The European leaders have forced the creditors of Greece to take a hit on account of the Greek debt. In return, the creditors, mostly banks, have been given enormous bailout funds that would help them improve their capitalization ratios. The EU has also created a Euro 1 trillion firewall to prevent a similar crisis in other vulnerable economies.

However, the buck does not end here. In recent times, some countries including France, has approached China for support. China has one of the largest forex reserves (US$ 3 trillion) in the world. Thus it is in a position to buy European debt and give the zone a new lease of life. But in doing so, China would understandably expect a few favours. This could include a market economy status in Europe with a view to protect the Chinese goods in those markets. But would China or for that matter any other country helping out Eurozone be the idle solution for it?

Not really. As explained by a leading daily, the zone needs to look at a local solution to its problem rather than looking at a global one. The truth is that the countries in the EU zone have piled on massive amounts of debt. More than what they can handle. And the only way to resolve the issue is by either paying it back or defaulting on it and suffering its repercussions. What the European governments need to do is to adopt austerity measures. They need to cut down on their spending, reduce wages and raise tax rates. But in the recent past, all such attempts have faced severe resistance in the European countries especially Greece. There is a dire need for the EU governments to look deeper into the problem and come up with structural changes in their economies. Otherwise the current crisis would just worsen with time.