The German Chancellor Merkel’s announcement today that she was confident in the ability of the Euro to survive the current worries that, following Ireland’s expensive Euro 85Billion loan and politically damaging rescue package. With similar statements released by EU officials, this in itself, shows that the nervousness is very tangible. At the start of the week there were many media experts suggesting that Portugal and Spain might be next in the feared domino effect. Italy is not far behind in the frame, either.
The worry is that if the large investors pull out from government bonds, and government bond interest rates have to rise to attract the necessary level of investment to fund the exchequers of weak performing economies such as these, the Euro currency itself will become vulnerable. The Euro might even fail. That is, some financial experts are saying that some countries could pull out from the Euro and revert to their own currency. That would be completely uncharted territory for which there are no historical precedents.
At the bottom of all this, is the fact that there is a limit to the amount of money that the stronger Euro countries can afford themselves to use to support ailing Euro nations. The list of possible countries which might need bankrolling now includes not only Spain and Portugal, but newcomer Belgium. Italy’s economy is also struggling and has been on the list for some time.
This follows the package finally accepted on Sunday by the Irish government which while stabilising the exchanges has meant that the (just 2 year old) government coallition will have to step down early next year, right after the austerity budget has been pushed through and passed by the present encumbents. The reason for the dissolution of the Irish parliament will be that the coalition Green Party can no longer stomach supporting the present government now that the bail-out has become a reality.
One of the biggest contributors to support the Irish bail-out will be the UK. This will be an unpopular move at a time when the people of the UK are already trying to come to terms with the swinging spending cuts now in the process of implementation by the UK government coallition parties.
That the UK government has acceded to help fund the Irish bail-out to this value, is more proof of the seriousness of Euro currency weaknesses. Sadly, all this is becoming increasingly evident and there are clearly very many within the media news companies that are wondering just when this recession will stop throwing up more problems, and when the effects of the current recession, which started in 2008 will actually be resolved.