So far the markets took successive of European sovereign financière-troisième crisis in the wake. But many economists are much more alarmées, more, particularly because the formula for rescue of European leaders keep applying to their most indebted Member States shows no sign of work.
The Greece, the Ireland and almost certainly Portugal now have access to hundreds of billions of dollars in emergency European aid to help them avoid default on their debt. But help is really just more loans, and pay the interest rate of the country, if a little less than what the private market would charge, is still excessively high. Their pile of debt becomes larger with each passing day.
Moreover, the price of these loans was a commitment to slash spending much more radical that national leaders would have the desire or political power on their own Government. And for countries which depend heavily on government spending to generate growth, a rapid decrease in expenditures served sustained economic stagnation or recession pure and simple, making every dollar of the debt that much more difficult to repay.
Economists call it "the debt trap." Escape the trap of generally requires the devaluation of the currency, which can only be done between countries using the euro as their common currency, or economic growth strong, that none of the three, or a sort of bankruptcy processrenounce all three. Add to that the probability that the three countries continue to have unstable Governments until they are a way out, and the financial crisis has no end in sight.
"What has been lost in the debate on how countries can restore their finances to a sort of sustainability, is the limit of how much they can reduce in a period of austerity," said Simon Tilford, Chief Economist of the Center for European Reform in London. "There is a limit to how much any Government can reduce the expenses of return and survive politically unless there is a light at the end of the tunnel, a return to economic growth path."
The problems of the weakest countries are not fair debt, but also the lack of competitiveness in Europe and the rest of the world. Without nations restore competitiveness and sell more goods abroad, which can come only through a long-term process to reduce wages and taxes to stimulate investment from the private sector, economists are not optimistic about the prospects for growth of new soon.
The crisis in the Portugal also raises new questions on the issue of whether the European Union will be to tackle the other side of the crisis: banks. Many Greek, Portuguese and Irish account debt of the banks in countries such as the Germany, France and the Netherlands as well as the British, easy. And if these countries cannot pay its debts, they would have to reprogram the, reduce them or by default, causing a major banking crisis in the rest of Europe.
That reckoning would require Governments to ask their taxpayers to recapitalize the banks, which is exactly what politicians are afraid to do so.
"We have a banking crisis, interlaced with a sovereign debt crisis", said Mr. Tilford. "Europe must deal with both, and it must be recognized that creditor countries - especially Germany - banking sector are not now able to manage the restructuring and by default, and that Governments will have money in the banks to recapitalize the."
In essence, Mr. Tilford said, it is the taxpayers of the Greece, the Ireland and Portugal who are bailing out of German taxpayers, the French and the British and applicants - not the reverse. Indebted countries really get rescues, he said, "but high interest rate loans. To be a real rescue plan, he said, should be a default value.
António Nogueira Leite, a former Portuguese Secretary of the Treasury and Advisor of the center-right opposition, said that the rescue plan packages "does not really take into account the arithmetic of the debt." The experience of the Greece and Ireland shows, said, "that once austerity sets, the country does not generate the means to be able to pay the debt already incurred."
The Economist this week, in an article on the problems of the Greece, said: "international action to save the Greece is rather began to paralyse it.".
Stephen Castle contributed reporting from Brussels.
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