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Europe plagued by crisis
10.11.2011 14:12 "Agro Perspectiva" (Kyiv) —
The Eurozone crisis, which originated in Greece, has affected both Europe’s financial system and its production sector, with top expert agencies giving lower economic growth forecasts for Europe, particularly France and Germany. Measures suggested by the newly appointed chief of the European Central Bank Mario Draghi and the situation in Italy, where he comes from, inspire little optimism.
The European economy is facing problems in all areas. The austerity economic programs in Greece, Italy and France have caused a decrease in domestic demand stripping businesses of opportunities for further development. The banking sector is sustaining heavy losses and issuing considerably fewer loans in connection with the recent decision to write off Greek debts and the debts of Italy and Spain in the future.
Experts say that the crisis is passing from the financial into the economic one. Societe General was the last to reconsider its forecasts saying that the European slump is bound to cause an economic slowdown on a global level.
Goldman Sachs, the IMF and the Organization for Economic Cooperation and Development have all downgraded their forecasts for the European economy.
Goldman Sachs expert in Frankfurt Dirk Schumacher said in an interview with The Financial Times that the recession would be much more significant if the debt crisis and the situation in the banking sector followed the worse scenario. Bankers predict recession for France and Germany. Amid the generally unoptimistic moods, the IMF cautioned in its October report that a global recession in 2012 could not be entirely ruled out.
The European Central Bank was the last to acknowledge that. No one expected Mario Draghi to introduce any radical changes. However, he came up with bringing down the refinancing rate by 25 points to 1.25%. This means that the European Central Bank is attracting cheap money, simultaneously reducing the euro rate to support export.
Mario Draghi’s reassuring statements brought little consolation, particularly amid tensions over the approval of the budget in Italy. Even though parliament did endorse the government’s report calling for the umpteenth time on Prime Minister Berlusconi to resign, the government crisis in Italy is still to be resolved.
Italy has to exert huge efforts to balance the budget and cut the state debt. Unlike Greece, it cannot count on neighbors’ support. Germany’s representative Wolfgang Schaeuble said after meeting with EU finance ministers that the European Financial Stability Facility lacked the funds to support a country as big as Italy in full. As it happens, EU leaders will have to invest tremendous efforts into preventing the worst forecasts from coming true.
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