THE WALL STREET JOURNAL: Three weeks after the launch of a €750 billion ($921.15 billion) emergency package to bolster the euro zone's debt-stricken economies, there is little sign of a turning of the tide.
Policy makers struggle with dire official figures on the state of Greece, Spain, Portugal and Italy. But it may be the unofficial, or underground, economy in these countries which may provide a cushion against social convulsion—and hope of salvation.
Certainly there is little in official circles to give cause for comfort. President Nicolas Sarkozy of France is proposing new financial governance machinery to prevent future debt crises. But his own country's triple-A credit status looks to be next in the crosshairs of the rating firms.
Doubts persist over whether the German Constitutional Court will back the arguments deployed by Chancellor Angela Merkel to justify her government's participation in the rescue package.
In Spain, there are fresh doubts over a package of labor reforms demanded by the International Monetary Fund, the country's own central bank and others. The country's embattled socialist government under Prime Minister José Luis Rodriguez Zapatero has had to extend a deadline on agreeing the reforms. An opinion poll shows most Spaniards now want early elections in which the conservative opposition would be likely to emerge a clear winner. And as if these problems weren't enough, thecountry's two largest trade unions are calling a general strike.
Euro-zone countries such as Spain, Portugal, Italy and now France have almost fallen over themselves in their anxiety to announce austerity packages before apprehensive bond investors leave them no alternative. But the very austerity programs intended to cauterize the rise in debt are as likely to make it worse, as domestic spending is depressed, tax revenue falls and more citizens become dependent on state welfare.
After Greece, the next economy in the single-currency area likely to fall victim to this austerity Catch-22 is Spain. Its budget deficit at 11.2% of gross domestic product is the highest after Greece. Friday, rating agency Fitch & Co downgraded its country debt rating from triple-A to double-A-plus. In its explanatory note, Fitch argued that "the process of adjustment to a lower level of private-sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium term." Read on and comment >>> Bill Jamieson* | Tuesday, June 01, 2010
*Bill Jamieson is Executive Editor of The Scotsman
