How Does A Debt Driven Europe Become Covid-19 Epicenter Yet Again?
When Coventry reels from economic crisis, it appears that Europe becomes the epicenter yet again of economic woes. However, despite the economic woes in Europe there is still plenty of economic stimulus and hope for the European economy to rebound. In fact, the European stimulus package and other international monetary policies are having a positive impact on the European economy.
The European economic stimulus package was the first step in counteracting the negative effects of the global economic downturn. Many economists blamed the global financial meltdown on excessive stimulus measures, but others pointed out that the stimulus package itself was causing problems for Europe’s economy. Economic analysts say that the European Central Bank (ECB) must loosen its grip on the credit market to make it easier for financial institutions and businesses to borrow money and refinance their loans. The Financial Services Authority, which is the body that oversees the activities of financial lenders in Europe, has been critical of the ECB for years over its interest rate policies, which have led to detrimental effects on the functioning of the credit markets. These policies, according to the FSA, have made it harder for companies to borrow money in an effort to survive in a poor economic climate, and have also led to higher borrowing costs for consumers.
When European governments and the European Central Bank failed to increase lending to stimulate the economies of Europe, the effects on the credit markets were felt by all. The knee jerk reaction was to tighten the purse strings and take more money from people who should be paying less. Lenders tightened their belts so severely that there was not enough money to go around. With the threat of deflation looming and economic analysts predicting that the recession would last for at least the next two years, this has turned into the classic tale of Europe’s economic crisis.
When countries in Europe tried to increase borrowing to meet the financial requirements of the banking and financial sector, they found that it wasn’t possible to do so. Banks and other financial institutions began to tighten their belts again and tightened their credit lines, making it increasingly difficult to get loans and credit. Companies and households also had difficulties in getting loans, as they were finding it increasingly difficult to find loans with good rates and terms or to refinance their existing debt. When the economy became sluggish again, this meant that the entire system of credit and finance became very tight, creating the perfect storm for another potential crisis.
Now that Europe has emerged from the recession, it is starting to feel the effects of the credit crisis on the real economy
Consumer confidence has tumbled, and industrial growth has stalled. Consumer inflation is also beginning to rise, but this time it is rising in Germany and Italy where consumer confidence has tumbled. The European Central Bank (ECB) has taken a very aggressive approach to stabilizing the economy. However, this approach has backfired, as deflation has begun to eat away at European exports, making the recession more severe and pushing up the cost of the import of European goods.
So while the economy has started to recover, the consumers are not
And while the Europeans have finally gotten the stimulus needed to stop the economic crisis in its tracks, they still cannot get the kind of deals cut in order to reduce their debts. It is becoming increasingly difficult for the Europeans to get any meaningful reductions in their debts. As things stand now, the debts of the European countries are still way too high relative to their productive capacity. To put it simply, Europe’s creditors are just sitting back and waiting for the Europeans to default on their debt – something that appears to be inevitable at this point in time.
In short, Europe has become a “zone of no returns” – a place where nobody really knows when the economic cycle will reverse and force the economy into a freefall. Most analysts agree that this recession is going to last for at least the next two years. The truth is that this recession is likely to be very severe. And it is only going to get worse before it gets better. Some analysts feel that we are already at the beginning stages of a new recession. If you are one of those who are counting the days to the recession, then you need to keep a close eye on developments within the European economy as very few analysts give it away.
This means that it is imperative that European governments do whatever it takes to stimulate the economy, especially in the financial sector
There is no other way that the governments can help the credit crisis. They can borrow money, which would help to reduce the burden on the public finances. Or they can implement policies that would prevent the banks from being tempted to lend even more credit. All of this would help to avert the looming specter of a debt-driven economy and a deep recession.