5 Reasons the Euro Zone Crisis Is Getting Even Worse
1. Moody’s is downgrading everyone.
Proving that Germany is no longer immune to the woes of other euro zone countries, Moody’s Investors Service downgraded its economic outlook to negative. Luxembourg and the Netherlands also had their economic outlook downgraded, as did that of the European Financial Stability Facility, the rescue fund European leaders have created to bailout countries with troubled economies and to (theoretically, as it quite seems now) keep the crisis from spreading.
Only Finland is retaining its AAA rating.
2. The UK is in a double-dip recession.
The Diamond Jubilee, to mark Queen Elizabeth’s 60 year-reign, meant an extra bank holiday, meaning that many offices and factories were closed for two days in June (the 5th and 6th), with some even taking the whole week off. Bad weather in Britain — lowering jobs in the service sector and limiting construction work — has also pushed the economy back into a recession into the last quarter.
The UK last suffered a double-dip recession in 1975, when Margaret Thatcher became the leader of the Conservative Party.
3. China’s seemingly unstoppable economic growth is declining.
The deepening economic crisis in Europe poses a “key risk” to China, the International Monetary Fund (IMF) says, along with risks within China’s own borders including a worse than expected decline in the real estate market.
China’s economic growth slowed to a three-year low in the second quarter. Euro zone countries are key export partners for Chinese companies and lessened demand is showing its effects.
4. Greece isn’t meeting the terms of its bailout deal, its economy is contracting, etc.
An assessment this week by the troika (the IMF, the European Central Bank, the European Commission) of Greece’s economic situation has found that the country has failed to carry out the debt reduction plan agreed to earlier this year. So Greece’s debt burden is only increasing in relation to its gross domestic product.
Moreover, the Greek economy is contracting by 7 percent this year, more than the projected 5 percent — and JP Morgan is setting up “contingency plans” to limit disruptions to its clients should any nation (i.e., Greece) leave the euro zone.
5. It’s looking more and more as if Spain will need a full bailout.
The interest rate on Spain’s 10-year debt has risen to 7.56 percent, a new record indicating that before too soon, it could cost too much for Spain to borrow funds.
Spain, whose economy is the fourth-largest in the euro zone, may need 300 billion bailout funds. It has been seeking to avoid the “full-blown bailout” that Greece, Ireland and Portugal have had to ask for, but many analysts thing this is inevitable as unemployment nears 25 percent and the list of semi-autonomous regions seeking financial assistance from the Spanish central government grows.
It’s apparently sunny today in London but will it last as the start of Olympics draws near? (Clouds are predicted.)
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Photo taken in July in Dublin by Informatique