Market Analysis (Weekly Notes for June 3, 2012)
06/04/2012 16:33
Market Analysis ( Weekly Notes for June 3, 2012) By Keith B. Winn
Sources cited : EUROPA Summaries of EU legislation
Unpublished Greece Statistics Paper QM 3341 Statistics II by Keith B. Winn December 6, 2011
The Eurozone was many serious problems extremely high Debt to GDP ratio to lack of political cooperation between other member European Union countries. There a three problems with the Euro Zones
I. High Debt to GDP
II. Nationalism
III Lack of Centralization of the European Central Bank.
I. High Debt to GDP.
The Euro currency crisis has exposed shortcoming of Euro zone countries fiscal policies with violations of the Maastricht Treaty. The Panic of the Euro Currency rifts diverse from the political to monetary viewpoints for solving the crisis. According the Maastricht Treaty members of the Euro currency must have strict fiscal budget disciple treaty requirements national debt necessity to be under sixty percent Debt to GDP.
"Government finances. The Treaty stipulates: "The sustainability of the government financial position ... will be apparent from having achieved a government budgetary position without a deficit that is excessive ..." In practice, the Commission, when drawing up its annual recommendation to the Council of Finance Ministers, examines compliance with budgetary discipline on the basis of the following two criteria: (EUROPA Summaries of EU legislation)
"The annual government deficit: the ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding financial year. If this is not the case, the ratio must have declined substantially and continuously and reached a level close to 3% (interpretation in trend terms according to Article 104(2)) or, alternatively, must remain close to 3% while representing only an exceptional and temporary excess;" (EUROPA Summaries of EU legislation)
• Government Debt: the ratio of gross government debt to GDP must not exceed 60% at the end of the preceding financial year. If this is not the case, the ratio must have sufficiently diminished and must be approaching 60% at a satisfactory pace (interpretation in trend terms according to Article 104(2))''. (EUROPA Summaries of EU legislation)
II. Nationalism.
The nationalism of the European countries is main reason for the lack cooperation for the other countries which are facing mounting fiscal difficulties. In 1998, the Nobel Peace Economist Milton Friedman predicted in 1998 that the Euro will fail within ten years. The current credit complications are escalated by lack of trust between financial institutions and European Union countries. For example, Greece was allowed to the join the Euro currency in 2001 even though their Debt to GDP was over one hundred and three percent. Maastricht Treaty has strict requirements only Debt to GDP only sixty percent for the Euro currency members. Bernard Connelly was a few analysts who predicted successfully that one country with an excessive Debt to Gross Domestic Product (GDP) will create a Euro currency crisis. Currently, there are five countries: Portugal, Italy, Ireland, Greece, and Spain excessive Debt to GDP has created disproportionate decline of the Euro currency.
Labour Party Prime Minister Tony Blair of the United Kingdom tried to persuade the public to vote for joining the Euro currency. In the interim, the Conservative party led a strong opposition against to the Euro currency for the United Kingdom. Their argument was the United Kingdom will lose their economic and monetary sovereignty. The referendum for United Kingdom joining the Euro currency failed. The Conservative Party of United Kingdom foresight was correct. The current Prime Minister of the United Kingdom David Cameron of the Conservative Party refuses to give assistance to Greece in the European Financial Stability Facility. It is not politically popular in the United Kingdom because his coalition government with the combined parties Conservative and Liberal Democrats are opposed for spending taxpayers' funds to contribute toward Greece. For example, in 2011 Italy lost their economic and monetary sovereignty because of excessive national debt. As a result, Italy gave up some of their sovereignty in order to receive bailout funding from the International Monetary Fund and European Financial Stability Facility. Meanwhile, Italy Prime Minister Silvio Berlusconi was forced out in November 16, 2011 in order to receive financial assistance from the International Monetary Fund and European Financial Stability Facility. Prime Minster of Greece George Papandreou was forced out November 10, 2011 because the new coalition government could not agree to new terms for the next round of financial assistance from the International Monetary Fund and European Financial Stability Facility. The governments of Spain, Ireland, Italy, and Greece fell because of massive debt poor fiscal policy and unpopular austerity measures. The European Union requested United Kingdom to financial contribution funds toward the International Monetary Fund to assist the Euro currency.
III. Lack of Centralization of the European Central Bank.
The Lack of Centralization of the European Cental Bank created utlimate challenge for the Euro Currency. For example, the Euro Currency each country is responsible for printed their own currency and issusing their own debt. Comparison, The United States of American all the states can print their own debt but, they have one currency, the US Dollar. Therefore, is no dispute of payments or debts between states and the central government. The United Federal Reserve can shift money to the different districts as needed. On the their hand, The European Central Bank has members do not want assisted other members who need financial assistance to prevent default of their debt. The Euro Currency is convenient for business and personal transactions. It is very helpful for the tourists of the Euro Zone countries which is a advantage to save on the costs of changing money from currency to another currency for payments for good and services. Now the European Central Bank begin to realized that they need a Banking Union was announced this past week. Finally, the member countries must begin to realized that they all in together or they will fall together.