http://www.economist.com/node/21543168
This article describes signs of a continent-wide European recession and the resurgence of the euro crisis. The fiscal compact of Germany's Chancellor Merkel and the debt talks in Greece will have a lot to do with the region's crisis. Despite these major developments, the article's primary focus is on Italy and its potentially impending debt default. The article suggests that in order for Greece and other European countries to begin restructuring their economy, Merkel's fiscal compact must focus on stopping the backsliding of Italy.
One major problem of Italy's debt is lack of demand, high interest rates and higher taxes. What would an even more centralized economic system do to Italy's economic crisis? Would this enable the country to have lower interest rates and taxes?
Additionally, the outcome of Italy's economic future relies heavily on whether Greece will default. It's safe to guess that if Greece defaults, then the market may shift to Italy and bog down this already economically unstable country.
4 comments:
Italy needs to lower their interest rates and taxes in order to boost spending. However, with their debt this isn't the easiest switch. They need someone to step in and back them up to allow for them not to end up like Greece. Things are already bad in Europe with the currency weakening and these additional issues are only setting back the EU further.
Italy is in a situation now that they cannot get out of alone. Reducing taxes would delay balancing the budget, but high taxes can hinder the growth that Italy currently lacks. Intervention by the EU is clearly required, as the state of Italy's economy puts every country in the Euro zone at risk, but it is not clear how much can be done for Italy without damaging the efforts to help other struggling countries.
Even though the nations in Europe are all sovereign nations, they must be willing to adapt and help one another in tough situations if they want the Euro to work. If the countries are not willing to work together through struggling times, they need to drop the euro system as a whole.
It is very interesting looking at the european debt crisis and the challenges which both Italy and Greece face. Is is clear that a default by either country will send the EU into a panic. I think looking at Italy its clear they need to get competitive in the labor market. Italy can work there way out of the crisis but it will take them paying down the debt and taking short term moves that makes the market confident that Italy is ready for true economic development.
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