ONLY BAILOUT WILL NOT HELP

The European Union which came out with a common currency would never have imagined that their future will be so grim and euro zone will ever face such a downturn. Greek economy which is totally devastated and almost bankrupt with industrial production falling by 25% and fiscal deficit as high as 14% of GDP lead the European Union to this crises. Greek is an excellent example of fiscal mismanagement; exorbitant spending and hiding its actual deficit status have landed the whole EU into trouble. Developing investor’s confidence is an essential measure to be taken along with bail out.

 We shouldn’t expect that anything can be achieved through austerity measures, as stringent control over govt. expenditures will result in slowdown in economic activities thus adversely affecting the suffering economies. Bailout of about 1trillion dollars which is expected to help the European economy to come out of this storm will serve as a boomerang in long term if it is not supported by high economic growth. The fiscal deficit has affected adversely because it is not possible for the economies to service the debt and due to this investors have lost confidence in the economy which resulted in expectation of higher rate of interest and thus making the task of raising further funds even more difficult. Bailout will worsen the problem for other European economies specifically for PIIGS who are on the verge of collapse and this will result investors loosing confidence even in other economies and they will be entangled in the vicious circle of fiscal deficit. Thus, along with bailout building investor’s confidence will be a real challenge but an essential one to come out of this crisis. And definitely bailout should be supported by high level out economic growth.