Gulf NewsPublished: 20:00 July 6, 2013 An unusually lengthy calm had lulled many into thinking that financial engineering by the European Central Bank (ECB) and other authorities had succeeded in bringing a substantial measure of sustainable stability to European markets. As was to be expected, they are being proved wrong. The government of Portugal — the poster child for the bailout programme of the International Monetary Fund, the European Union and the ECB — is threatening to fall apart as the ruling coalition splinters over the country’s austerity programme. Portugal had had to agree to severe cutbacks in spending in return for financial aid, but many in the country have now had enough. If the government falls and Portugal reneges on its economic reforms, it may lose necessary financial aid and ultimately default on its debt. In Greece — forever the problem child — the government is facing off with its creditors over its lackadaisical efforts to reduce spending and introduce economic reforms. Greece will also lose necessary financial aid if it does not meet the conditions of its bailout. These concerns have resulted in the interest rates for Portuguese, Greek and other troubled European economies increasing, making it more difficult for them to raise the funds they need to service their debt. In a nutshell, the European debt crisis threatens to return, as dangerous as ever. Portugal and those like it have little choice but to stick with their austerity programes, while doing what they can to nurture economic growth. Anything else will simply lull the financial markets into a dangerous sense of false security.
Posted on: Tue, 09 Jul 2013 00:23:09 +0000
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