- Daily Zen
Even thought the Italian debt crisis is seeing some early control with the new technocratic government, the Euro Zone Crisis is far from over. In fact, many more countries are beginning to feel the pressure, whether or not they are at risk of defaulting on their debts.
France and Germany Clashing over a Euro Zone Crisis Solution
France is beginning to feel the pressure as its borrowing costs rose this week. On top of that, France and Germany, the two largest economies in the Euro Zone are clashing on a solution, particularly on how the European Central Bank is going to help. France insists that the ECB needs to play a stronger role in ensuring the stability of the euro and in helping to fix the debts that have started this crisis in the first place. Germany doesn’t want the ECB’s involvement in the Eurozone debt crisis. Instead, Germany wants to recover the markets’ confidence by implementing the agreed upon economic reforms and build a closer European political union by changing the EU treaty. Germany, which has the lowest financing costs in the euro zone, fiercely opposes any joint debt issuance, fearing it would encourage less fiscally prudent governments to overspend and raising its own borrowing costs.
Other Countries Under Threat from the Euro Zone Crisis
Netherlands, along with Belgium and Austria, have seen their borrowing costs go up as well. Hopefully, this isn’t a sign that the Euro zone crisis is spreading to some of stronger and more stable economies in the region. Because of this, these countries that are possibly next on the list in the Euro zone crisis don’t like the austerity measures that Germany wants to implement. If those austerity measure were implemented, it would make it much more expensive for them to borrow as well. This might make coming up with a solution that much more difficult.
Some Good News from the Euro Zone Crisis
There may be widespread panic and chaos regarding the Euro zone crisis, but some countries did see some improvement. The bond marketing in the United Kingdom was one of the few beneficiaries of the heightened panic around the Euro zone crisis. The yields on UK government bonds, or gilts, fell – meaning their prices rose – and outperformed German government bonds. Other countries in Europe, but outside the Euro zone crisis, such as Sweden and Denmark, have also seen their borrowing costs fall. Although all three countries are outside the Euro zone crisis, it does bring a positive perspective into the possible consequences of the crisis.
With all this in mind, a solution to the Euro zone crisis as a whole, not just one or two countries, remains elusive. It’s unlikely that countries outside the Euro, such as China or the United States, will come in and help with the bailouts. Many questions remain. What sort of solution will be agreed upon? When? How will the ECB be involved? And, most importantly, what will happen those those countries that aren’t yet in crisis?