I think this is the right place to put this post, as the main problem that some European countries (right now primarilly Greece) goes through is a problem of trust. The lack of trust comes from the lenders doubt that the country will be able to repay their debts, and this does ofcourse come from the large debt in relation to the countrys GDP.
What has happened so far is that a few counties economic status have dropped quite rapidly from very good status to junk status.
This does ofcourse raise the interest rates that the countries must pay. As interest rated climbed to 2-digit numbers in Greece this was going way out of hand.A rescue package is almost formally completed, but for political reasons it had to wait until German and UK elections was completed, but before Greece has to renew a large portion of their loans. In reallity this means it will be complete in the coming week (next 5 days).
Lets assume this rescue package is approved and proposed budget cuts etc in Greece gets approved (the hardest decisions have allready passed). Enought painting of the stage...lets move on to the questions:
1. What will the short term effects be of world economies (next 3 months)? (For simplicitys sake this could be divided into 2 scenarios) Scenario A: No other country is pushed into the same position of distrust in its ability to pay its debts during these 3 months. Scenario B: At least one more country gets into deep trouble soon (e.g. Portugal).
2. What long term effects will this have? E.g. The crash in the world economics in 2008 reduced demand for oil, so peak oil disaster was pushed a bit into the future. Could this even be the begining of a long term world economics downward spiral with country after country defaulting on debts?
I was listening to radio 4 (UK) and they were talking about the Greece problem, they basically admitted that in relation to the UK deficit we will see large cuts in public spending (obviously) and also a devaluation of the Sterling in order to pay the debts. I was reading in some financial section of some paper that the BIS has basically ordered the obove sanctions. Thisi s much like the IMF going into a 'developing' country and implementing 'austerity measuers'. The idea that our politicians run our economy is so far from the truth.
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