Research (Investicniweb.cz)
Macroeconomics  |  November 27, 2012 07:21:46

The debt limit has never functioned, the country can resolve debts in just these ways



As if the debt crisis in the eurozone there a cure. Problem economy is drowning in its own debt deeper. Treatment options seemingly incurable diseases that are offered are either politically impracticable or cause massive protests of people.

Under the new German law, the government will be able to build up debt by 2016 a maximum of 0.35% of GDP annually.Eurozone countries have agreed to a similar rule, but will come into force only when it approves all national parliaments. At present, the euro area is de facto allowed new debt not exceeding 3% of GDP (according to the Maastricht criteria).

Nobody does not follow rules

In some countries it against the "novelty" alive protests. The Italian government refused to implement austerity measures required by the ECB and approve an amendment requiring automatic spending cuts, the Portuguese government again appealed for mass protests cuts already agreed and Spain will most likely fail to comply with the agreed deficit target at 6.3% (7.4% expected).

Reducing budget deficits in troubled economies goes hard, if at all. Deadly spiral triggered drastic budget cuts, structural reforms and declining wages certainly does nothing to alleviate the situation. On the contrary, private and public demand decreases, which is reflected in the performance of the whole economy, higher unemployment, lower government revenues and debt accumulation. Outlook positive economic growth is shifting indefinitely.

In Spain, the unemployment rate increased after four economical packages of 8% in early 2007 to the current 25.8% and doubled the country's debt. In Portugal, unemployment has risen by 100% in four years and debt from 72 to 114% of GDP. In Greece, after cuts, which cost the country more than 10% of GDP, the army of unemployed tripled and debt has grown from 113 to more than 160%.

The age-old dispute: Cuts or stimulation? Learn more at the web Investment

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