Sunday, October 30, 2011

Eurozone cleanup process continues, but it's still a mess

On Thursday, global markets responded with an ”emotional” and positive reaction to the “rescue” news that Eurozone leaders had a “comprehensive package” to address the two-year-old crisis - consisting of a mix of 1) more funding for troubled borrowers, 2) a draft plan to stabilize European banks and 3) reducing Greece’s debt.

To understand some to the Eurozone’s economic challenges, consider the following. When the Eurozone was set up in 1992, a condition for membership was that a country’s gross government debt to GDP ratio should not exceed 60%. The current figures for Eurozone members include: Greece 166%, Italy 121%, Ireland 109%, Portugal 106%, France 87%, Germany 83%, and Spain 56%. (Note: figures for Japan 233%, U.S. 100%, U.K. 81% and China – unknown).

MY TAKE: The Eurozone financial recovery plans released last week are fragile and short on details. On Friday, Germany’s Constitutional Court ruled that the process used to allocate funds to the Eurozone mess was unconstitutional. Additionally, Italy is entering center stage of the crisis as Prime Minister Silvio Berlusconi provides limited direction on addressing its significant financial issues. Global investors will continue to walk on a delicate tightrope.

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