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Will the euro survive ? (case 3-1)

1)

Grece, Ireland, Italy, Portugal and Spain are sometimes referred to as the euro zones

peripheral countries because they meet major economic difficulties. For example,

these countries rank lower than their EU neighbors in terms of infrastructure, business

sophistication, macroeconomic environment ...

Therefore, these countries are called peripheral countries because they are

considered the weakest of the euro zone as opposed to the most creditworthy countries,

those of the core.

The euro area currently operates at two speeds, with one side of the core countries

and the other peripheral countries .

The euro zone fears about the solvency of peripheral countries and their inability to

stabilize the debt / GDP ratio. That is why they are considered so.

2)

European Commission sets up actions to bail out the Irish and Greek banks for several

reasons.

Firstly, if it is not done, these countries in situation of indebtedness will go bankrupt.

And then, there will be no alternative but to exclude them from the euro zone.

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In addition, from the time a country will leave the euro zone, investors and markets will

consider that each country that uses the euro is a potential candidate for the exit. This

will create a climate of uncertainty and mistrust. A monetary union does not fray, it

collapses. This is not a club or we go and we come out as in a mill. This is a serious

commitment that is irreversible unless the country totally collapses.

All the political leaders of the euro area are all agreed on one point at least, is that they

do not want to hear about an exclusion and that everything must be done to avoid such a

scenario.

Finally, we must take into account the efforts that have already been provided by these

countries in economic difficulty. A country like Greece has already implemented drastic

measures to try to remedy the situation. For example 75% of the banks have been

sacrificed in order to reduce debt. The population is in a situation of despair and needs

outside help.

So, the European Commission has a vested interest in bailing out banks Greece and

Ireland rather than let them go bankrupt.

This process will be done in several steps:

1. First, the country must submit a request to the European Commission and the

Economic and Financial Committee (EFC) specifying the amount it needs and how it

intends to restore its financial stability.

2. The European Commission, in liaison with the European Central Bank (ECB) willevaluate the request and recommend to the finance ministers of the EU to accept or

reject it.

3. A majority vote of finance Ministers.

4. If approved, the Ministers shall specify the amount of aid, its distribution in slices and

conditions to be imposed, as determined by the Commission and the ECB.

5. Signing of a Memorandum of Understanding between the country and the

Commission.

6. The Commission will raise the necessary funds by slices for the country.

7. The payment of aid will then continue, with regular checks on the progress of reforms

in the country.

In return, the European Commission will require several conditions of the country. He

will repay loans following a variable rate and a fixed rate and respecting a deadline.

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3)

Portuguese Prime Minister has taken radical decisions. He froze the pay of public

employed, reduced military spending, and postponed infrastructure projects.

Spanish Prime Minister Jose Luis Rodriguez Zapatero has proposed changes to Spain's

strict employment laws because the unemployment rate is 20 percent, the highest in the

EU and it represents a big obstacle for the economic growth.

The measures taken by Zapatero are certainly less drastic than his Portuguese

counterpart but nonetheless spontaneous.

This mode of government is therefore more akin to the Keynesian thought which seeks

to regulate the market rather than that of Hayek which aimed to release it.

4)

Citizens protests when the government imposes austerity measures because being

unable to meet their commitments to reduce the deficit, governments negotiate an

alleviation of reduction targets against new austerity measures.

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The population feels stolen. People directly undergo these new measures and they are

victims of the lack of results of the state.

People are desperate. Some lose their jobs, others their home.

Workers threaten to strike and to slow down the country's economy.

People want to denounce the failure of the economic policy of government.

They feel wronged. Faced with the government's mistakes, it is up to them to assume

austerity measures increasingly fierce.

It is the small workers who repair the errors of Ministers, with their comfortable salary

despite these times of crisis. This is the most poor and vulnerable who are knocked.

The Ministers tell them that if they accept suffering, the recovery will be at the arrival.

Instead, they sink into recession.

People are aware of the situation, they feel abused, and a revolt is born. This explains

why citizens protest against the measures.