Understanding the Credit Crunch: 2011

By Grant de Graf

A chilly breeze blows across the Alps as winter approaches and politicians continue to search for an economic solution to what is being called the mother of all sovereign debt crises.

Europe spent years of dedicated service in building the Euro with its respective European partners, producing a currency that represented a significant part of the global economy. Today the vision which politicians rallied to support, lies in virtual tethers.

Tony Blair, former British Prime Minister, predicts that Europe has weeks to decide, whether the Euro has legs. German Chancellor Merkel has issued a call for unity and stronger financial discipline among members. Does that mean that the end is nigh? Economically speaking almost everyone agrees, including the leading players within the EU, that in order to survive the Euro has to undergo some fundamental changes. Seemingly there is somewhat of a mismatch between the political determination of European leaders to protect its currency and the viability of the economic blueprint that is associated with the Euro. One ponders whether Europe's leaders have the economic skill and face to be able to structure a plan that can save Europe. Sometimes it takes a greater sense of courage and wisdom to release the eagle from capture, than to ensnare it. The art of falconry was never Europe's strong point.

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European Credit Crisis Set To Change Political Map

By Grant de Graf

The historic landslide victory by Spain's conservative opposition party, at the election polls, is yet another sign that the credit crisis is changing the European political map. The electorate will not buy into austerity, as has been evident by the riots in Greece and demonstrations in Spain, Portugal and Italy. Running a balanced budget or keeping a deficit in check, may be a practical blueprint to running a healthy economy, but it is not a plan that will provide a quick-fix solution to an economy that is ailing. On the contrary, irrespective of the political ramifications, it will only serve to undermine efforts by a government to restore economic prosperity.

Additionally, the communities in Germany and France will never be satisfied with financing the lunch bars of Europe's poor, which only highlights the inadequacies of the European Union. This is the asset test for the feasibility of such a union: whether tax payers are prepared to pay for the less fortunate in another country that is part of the union. Ultimately, Portugal, Italy, Greece and Spain (PIGS) must exit the Euro for those economies to benefit from a fluctuating exchange rate, to resolve the incongruousness that prevails in those markets. Ireland may survive the cut, due to the strong economic ties that it has with Britain. In the end, a Euro with Germany and France making up 90% of its constituency could survive and provide somewhat of an argument for its sustainability, even though weaknesses to the model still exist.

Conservative Party Victorious in Spanish Election