Europe’s Fiscal Crisis

by Five Fantastic Lawyers™ on August 2, 2012

Unless you’ve been living under a rock for the past few years, you probably already know that Europe is undergoing a fiscal crisis. However, you might also be a little fuzzy on the details of this crisis. Don’t feel bad if you are—most Americans don’t know all of the details. The gist of the entire thing is that many European counties are finding it impossible to refinance government debt on their own. Thus, they are having to turn to outside parties.

This whole thing had been brewing for a while, but the real trouble started just a few short years ago, back in 2009. That was when investors started worrying over rising debt levels and downgraded government debt. These problems came about for many different reasons including property bubble debts, banking system bailouts, government actions, unrealistic public sector wages and pensions, and the lack of a fiscal union.

Things just got worse from there, though several solutions were suggested and tried. A rescue package was created to help rebuild financial security and the European Financial Stability Facility got its start.  After that, an agreement was signed that called upon banks to accept write-offs for private Greek debts. The European Fiscal Compact was created, and big changes were made to the banking system.

Despite all of these efforts, sovereign debt is still on the rise in many European countries. Countries that are currently suffering greatly include Greece, Spain, Portugal, and Ireland. With the adoption of the Euro Plus Act, however, it is looking like things might start to change for these countries and others in Europe. This pact is made up of a series of suggested political reforms to strengthen Europe financially and to bring down national deficits and overall debt. While many financial experts criticize the act, only time will tell how well it will work. Other policies instituted along with the act include the EU financial transaction tax, internal devaluation in some countries, and increased funding from the European Investment Bank.

It might seem like all of these issues are just about money, but they actually go quite a bit deeper than that. The political scene has been greatly affected by the economic situation, with every candidate promising to put an end to the financial problems being experienced. Power-shifts have happened in many different European countries as a result, and things are incredibly tense at the moment.

The vast majority of investors feel that the crisis is going to see its end in anywhere from three to five years. This is good news for Europe, but the thing to keep in mind is that it’s not just Europe that’s being affected. The entire world is experiencing a financial crisis, and it’s wrong to point all the blame on just one country. The United States might appear rich and powerful, but it’s in just as much trouble and debt (if not more!) than other countries are. The whole world really needs to take a step back and stop all of the consuming and living outside of its means. That is the only way that change is going to happen. Remember too that while you can’t change the entire world, you can change your family’s life and your own life. If enough people do that, then the world can be impacted.

Angela Stone wrote this article for Cash ISAs, where you can get information and guides on cash ISA accounts.

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