Apr 30

Euro Problem

The Euro member countries with the highest levels of debt (Greece, Portugal, and Spain) have another problem that restricts their ability to fight their current economic enemies…the Euro.

Before the crisis, these countries experienced significant investment and a property boom resulting in strong economies and inflation that was higher than the other Euro member countries.

When the property bubble burst each government did what they had to do to rescue their ailing economies and borrowed funds to invest and take the place of the near-collapsed banking system. Unfortunately because they experienced higher inflation before the crisis, investment into these countries was less attractive than others during the crisis, and because of their attachment to the Euro, deflating their currency was never going to occur at the level required to aid recovery.

With Spain’s unemployment over 20%, and Portugal and Greece’s increasing to around 10%, paying out unemployment benefits is not getting any cheaper and thanks to the Euro, these countries not being an attractive place to invest will continue to place significant concern on their ability to repay their debt.

To be competitive again the only thing left for these countries may be years of painful deflation. Unfortunately, this also means many years of economic struggle but unfortunately is no respite for their debt problems.

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