The Dangers of
“Financial Contagion” and the Need for Decisive Action
With the global economy still charting a
shaky and unclear path towards plausible protracted stability, there are
certain facts that have become most apparent. Hence, it becomes imperative for
policy formulators to take cognizance of these hard facts (read ugly truths)
moving forward, no matter how unpalatable they may appear. For a while now, the
holistic Euro zone economy has had to grapple with numerous economic and
non-economic impediments to register acceptable levels of growth. However, off
late non-performing economies such as those of Greece, Spain, Italy and Ireland
amongst others; have placed a veritable and steadily increasing financial
burden on the other established “regional heavyweight economies” in the
European Union (EU), Germany and France. They are the leading powers in the 17
nation strong Euro zone and hence, their proactive stance and approach with
regards to alleviating the associated ramifications of the current sovereign
debt crisis assumes even greater significance.
The European nation of Greece may have
marginally improved its economic performance over the last quarter, but is
still far from fulfilling its deficit targets. For a while now, Greece has
lived out its “financial tragedy”, precariously skirting the precipitous edge
of plausible bankruptcy. In a recent development that promises to offer
temporary relief to its crippled economy; the European Union (EU), the
International Monetary Fund (IMF) and the European Central Bank (ECB) have
agreed to an Euro 8 Billion bailout loan tranche that will be paid in early
November, 2011 after approval from the Euro zone Finance Ministers and the IMF.
Representatives from the aforementioned bodies made the announcement following
a week long inspection of the country’s finances.
The bailout loan promises to provide the
“resource starved” Greek economy a fresh economic impetus in its ongoing
“crusade” to stave off bankruptcy and market volatility. Hence, it couldn’t
have come at a better time. However, the truth is that, the package only
promises to provide transient relief and there is a growing concern that a
second Greek bailout agreed in July, 2011 maybe insufficient to meet its
pressing financial needs. Ergo, policy formulators are working towards drawing
up an action plan to significantly beef up the currency bloc’s rescue funds and
bolster its stuttering banks. Despite setting relatively achievable deficit
targets, Greece’s economic performance is characteristic of patchy progress,
especially in light of meeting the terms of the bailout agreed to in May, 2010.
Set in this fragile background infused with a palpable degree of unpredictability,
it is imperative that Greece pursues a carefully calibrated course of economic
reform with greater emphasis on structural reforms in the public sector and the
economy as a whole, on a broader spectrum. According to the powers that be that
are closely monitoring the situation, additional measures need to be undertaken
to meet debt targets in 2013 and 2014. There needs to be a renewed accent on
widespread structural reforms and privatization drives.
The Greek maybe sighing in momentary
relief, but the economically incapacitating sovereign debt crisis that the Euro
zone economies find themselves in, is proving to be difficult to collectively
negotiate. There ought to be a more comprehensive strategy in place; underlined
by both short and long term objective formulation, alignment and implementation
at multiple levels. The debt crisis has gradually transformed from a regional
“economic aberration” into an increasingly systemic crisis that not only
threatens the stability of troubled individual economies, but also has the
capability of encumbering and endangering the stability of the Euro zone
collectively. Taking cognizance of the well documented “ripple effect” that
crises such as these tend to unleash, holistic global economic stability is
also at stake here. The concerned authorities and policy makers have prudently
realized this bitter truth. However, the dawn of realization now ought to be
followed with a concrete strategy underscored by proactive and decisive actions
in order to prevent the plausible spread of “exacerbated financial contagion”, especially
in the EU. Time is of the essence at this critical juncture and the interests
of all stakeholders would be best served if the Euro zone’s financial watch
dogs act with “calibrated alacrity”.
Pradyut Hande
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture. He is also a keen Debater, Munner, Quizzer, Painter and Amateur Freestyle Rapper.
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture. He is also a keen Debater, Munner, Quizzer, Painter and Amateur Freestyle Rapper.
