European Sovereign Debt Crisis: One decision too late

World renowned economists have crying since the rise of the US crisis in 2008 that Europe might see similar scenario in debts due to massive barrowing and unprotected lending in both short-term and long-term loans.

Now that this avalanche is upon the European economy, the European Central Bank is turning every stone to find the solution to this ordeal.

However, this appalling disaster could be eluded in the recent past, had the ECB taken one or two timely steps.

For one, the current condition that has now become a Credit Crunch could have been diverted if Greece has filed for bankruptcy. That would have broken the chain of credit that now is following to Greece in the making of their local and cheap currency, drachma.

The chapter 11 filing would undoubtedly had inflicted the European bank in the tune of a 100 Billion Euros but that would have been bearable in coming years instead of getting a return of Euro-loans in drachmas, that are worth little in comparison to Euros
at best. Moreover, Greece’s blunt stunt will initiate a ripple inflation in the country.

After that, the European Union squandered another chance. The ECB could have bought all Spanish and Italian debts. This act would have initiated inflation in Europe but that could have been manageable in future.

Instead of all this, what the EU has done in the past three months when the crisis has reached the precipice to a disaster, that might mirror the 1929-31 US financial crisis, is that the Eurozone countries like Spain, Ireland and Portugal are following Italy
and soon there will be a domino effect to Greek condition.

These countries are already out of public market. Banks are following suits and are unable to either lend money or back their already shelled out loans or both.

The public loaning is contracting exponentially and might give a fearful sight of industrial disaster.

It is not the Greedy bankers, who never understood the true reason behind the 2008 crisis and kept the Credit Default Swaps their favourite financial tools, but it is the oblivious central bank who has forgotten the cruel early 20^th century US
meltdown.

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Posted by Usman Khalid on Nov 26 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry