European Debt Crisis

The European story has been an ugly one the last few years. The question is where will the European debt crisis lead and will the European Union survive it?

EU Experiment

The European debt crisis is essentially the end result of a great experiment that seems to have come out with a bad result. In an effort go be economically competitive, the usually hostile countries of Europe teamed up to form an economic power that could rival the United States and Asia. Alas, things haven’t worked out as the countries imagined.

The grand experiment was based on the idea of combining all the countries into one fiscal unit without actually merging the countries themselves. While it seemed to work at first, it has become an unmitigated disaster for one simple reason – the countries failed to take into account their domestic economic characteristics. Some countries followed strong economic strategies, had stable tax revenues and minimal corruption. Germany is a classic example. Others had just the opposite and that is where the PIIGS come in.

PIIGS In A Blanket

PIIGS is not a misspelling of an animal type. The abbreviation refers to the countries of Portugal, Ireland, Italy, Greece and Spain. They are grouped together because each has horrific economic problems whether it be massive national debts, huge unemployment numbers or some combination of a host of negative factors.

The European debt crisis officially started when another country, Iceland, literally went bankrupt in the Great Recession. This then was followed by Greece collapsing as we’ve all read about or seen on the news. Iceland failed because their banking system collapsed under huge debts. This was atypical for the PIIGS. Greece’s collapse is a better example. While a great place to visit, it carries a huge national debt, sputtering economy, low tax base and is saddled with corruption to and fro.

The problem with the PIIGS is only the small fries have asked for help from their EU brethren. Handling a bailout of Greece and Portugal is not the end of the world. The same would not be true if Spain or Italy defaulted. Both would require hundreds of billions if not trillions of dollars in bailouts. That will be tough for the stronger countries in the EU to handle.

End of EU Experiment?

The ultimate question with the European debt crisis is whether it will be the end of the European Union as an economic entity. The citizens of Germany are rightly getting tired of seeing their tax money spent to bailout corrupt and fiscally undisciplined countries like Greece. While nobody can predict the future, most experts see the European Union surviving but with fewer members. Greece will almost certainly be kicked out, but it is unclear if others will as well. Only time will tell and that means the debt crisis will be ongoing through 2011 and probably well into 2012 as well.

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