Europe’s Debt crisis

Many factors have led to the Euro Debt Crisis. First, the US economy remains sluggish, with unemployment rates hovering above 9.1% as of third quarter of 2011. The crisis in Europe seems to gain one more chapter — “H” of Hungary. Strong rumors pointed to a possible “default”, the technical term used to designate a default on its debt. Hungary has a fiscal deficit of around 7.5% of GDP. While the European sovereign debt situation remains prominent in the business news, the euro has depreciated significantly in anticipation of events that could lead to the dissolution of the European Union, and that will mark the end of the euro as we know it.

The current panic involving the EU debt situation won’t be resolved overnight and risks of the crisis getting worse are very real. However, it appears the EU political and business leaders (including those in Germany) remain committed to insuring the survival of the EU and the euro currency. Everyone hoped that the problem would have been contained in Ireland, but like a viral infection, the financial turmoil spread its tentacle, this time to Greece. The problem in Greece is probably worst than that of Ireland, but no doubt, we can all agree that Greece’s back is against the wall.

The problem is that Greece has a huge deficit, much higher than the one agreed upon between the nations of the European Union (16 of which make up the Eurozone). In fact, this deficit has become so huge that there is a genuine fear that Greece will not be able to pay back its loans and may default on them.

The great minds of Europe set up a framework for never-ending cycles of enabling and co-dependency, cultural identity clashes and the kind of contagious chaos we now see spreading throughout Europe. The case with Greece is much more complicated. Like Portugal, massive budget deficit and failing to pay its debts almost led to a credit default. Athens was given a bailout package amounting to 110 billion euros in 2010. In 2011, a second bailout package of 109 billion euros has been laid out.

Therefore, the debt problems of the periphery of Europe from time to time the market will have a slight increase in risk aversion, but the negative impact of the debt crisis will not be as big of Greece.