About the Book

Euro Debt Crisis

Q-1

(iii)

As a German taxpayer, I will not like that any of the countries leaves the Euro. The reason is that it will cause a severe loss of faith and confidence of world on the European economy. This will also result in this debt problem spreading to other major economies of Europe and other countries of the world. The spread of this financial contagion has already started when the problem first appeared in Greece and then gradually spreading to other economies like Portugal, Spain, Ireland and Italy. Though some experts are of the view that Greece and other countries should leave the Euro in order to save the Euro and major economies like Germany and France must look at ways of smooth exit of these countries (European Council 2010, pp 4-5). But though this solution may help the Euro to be saved, it will also have its own adverse affects on the major economies of Europe, especially Germany. The exit of these countries from Euro will cause a severe decline in the per capita income of a German. This reduction in the first few years will be very heavy and then will come to a stable level as of present level. But this reduction in per capita GDP will be so severe that in first few years itself it will cause an economic turmoil in German economy. Instead Germany and France must look at some way where the Euro can be kept united and the economic problem is also resolved.

One of the measures which can help doing that is by providing these countries some bailout but also ensuring at the same time that these countries make changes in their financial policies and also take the austerity plans they have undertaken with more sincerity. This is because though countries like Greece and Portugal had received bailouts in past but failed to improve their financial policies and didn’t take the austerity plans as seriously as Euro expected them to do. The socialistic policies still continue to prevail and the productivity didn’t improve keeping the economy inefficient and unstable which has led to situation where these countries are requesting more bailout plans. Though this is true that these countries need a large amount of bailout and Germany will have to take the burden of providing a large part of this bailout. Thus it cause a sever burden on German economy as well leading to Germany itself being forced to undertake austerity plans and government spending reducing as compared to current level.  But it must also be realized that though providing the bailout and saving Euro may cause some adverse affects on the German economy, the negative effects of these countries leaving Euro will have more drastic effects. Firstly, It there will be 40%-50% reduction in the per capita GDP of Germany for the first year and a smaller reduction in next few years if these countries leave.  This will translate into reduced income for Germans which could in turn lead to a period of stagnant growth and recession in Germany. (Steinbruck 2011, p.4)

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