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What It Takes to Theoretically Solve the Euro Zone Crisis

Jan 22 2012

International Monetary Fund's Managing Directo...

Image via Wikipedia

The ongoing saga that is the Euro Zone crisis shows no sign of ending anytime soon. Sure there have been promises, schemes and commitments put out there but without any real tangible action it seems the fate of Europe is in limbo. While the Euro Zone is essentially an economic and financial crisis, the real heart of the issue lies in the political realm. So what is it going to take to completely solve the Euro Zone economy crisis? Let’s take a look at a few of the key aspects that need to change and fast.

Prevention Better Than Cure

The first major step toward the cure of the Euro Zone is setting up a prevention measure. It’s a little late for preventative measures sure, but if one existed then investors in the Euro currency would have more confidence in the safety that measure provides. Increased confidence equals heightened movement on the currency. Aside from the lateral effects of setting up a preventative measure, the glaringly obvious result is that there will tangibly be a fund set up to nip the bud of any looming collapses; something the Greek default could’ve really used. While the thought of bailouts is less than popular with the general public, that fear of the public is exactly why the politicians are sitting on their hands when it comes to making decisions about Euro Zone inflation. One politician involved even uttered, “We know what needs to be done, but we don’t know how to get re-elected once that has happened.”

Positive Bailouts

The ECB (European Central Bank) is unwilling to move on bailouts for fear of public backlash similar to the flak the Bush Administration had with their own corporate bailouts. However, the concept of the bailout is there for a reason and that reason is initially positive. If the IMF (International Monetary Fund) were to step up to the plate and bailout Euro Zone countries too deep in debt to dig themselves out, then that would essentially end the Euro Zone crisis. However there is a strong opposition to this move by US politicians based on the unfounded claim that an IMF bailout will put US taxpayers at risk. Claims are that the President will have to go to congress to ask for more money to lend the IMF and with a credit rating in the Styx that move would prove unpopular; that logic is ultimately flawed since that move by the President would be unnecessary for Euro Zone members. Recently when the IMF bailed Argentina out of uncertain times many feared the country would default on its repayment; in fact Argentina repaid their debt off in full before it was scheduled to.

Unpopular Policy

Ultimately the Euro Zone debt crisis is in dire need of a bailout for legitimate reasons. We’re not talking about companies or corporations who’ll use their money to bolster their profits; we’re talking about countries with citizens and families whose future is unsure with looming economic issues. People are losing their jobs and ability to provide for their family while politicians sit on their hands afraid of passing unpopular policy. The irony is that inaction will ultimately prove even more unpopular. While there are many facets of the Euro Zone crisis and solving it completely is not a simple case, the smallest amount of action now can start the process of healing the fragile markets.

Eugene Calvini is a keen currency enthusiast armed with a Forex account and Metatrader 4; currency trading is his passion and he is almost as good at it as he is at writing.

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