Euro Zone a ticking "Time Bomb"

Throughout the past half decade, with contracting U.S economy and meltdown in Japanese economy. European economies, gradual decline has acted as a catalyst in further intensifying the world economic crisis, according to the figures of World economic forum Euro Zone GDP has slumped by 0.3% and Overall Global Growth is 4.3 % as compare to 5.1% at 2010.Mexican President Felipe Calderon in his speech at the World Economic Forum 2012 in Davos, Switzerland said "We have a time bomb, the bomb is in Europe and we need to work together to deactivate it before it explodes over all of us".

The Euro zone is the group of 17 European countries that use a common currency called Euro, and all together they constitute approximately 29.55 % of world's GDP which is a very big percentage and any turbulence in this percentage would affect the world's economy drastically. The reasons of Euro zone crisis is rooted in the fact that in the financial crash of 2008, the U.S. and European governments took on the debts of private financial institutions the result of trillions of dollars in bailouts and the nationalization of insolvent banks and other companies. The U.S. government used its control of both The Federal Reserve Bank and The Treasury to carry out its bailout program, so it could simply print more money to pay for it through technical maneuvers known as "quantitative easing" By contrast, the European Central Bank (ECB) isn't backed by any one government, though each European government moved to back up its own banking system. As a result, tensions among euro zone members started erupting when thhe bill for the bailouts came to due.

This resulted, into detoriation of European Economy and small European countries like Italy, Spain, Greece and Portugal had huge amount of debt on them which they were unable to pay. The crisis further started threatening viability of European Banks. Adding to the risk of economic turmoil and slowdown in world economic growth ,Doubts about the viability of the euro, along with reports of a slowing world economy led to wild swings in the financial markets since mid-August. With credit rating agencies like S&P, J.P Morgan's and Moody's degrading there "credit ratings" by few notches.

Though efforts are been made by European Union and World to tackle this crisis by providing bailout packages to the European countries by ECB and by increasing participation and contribution to the IMF in order to strengthen that very important international institution to ensure the stable growth of world.

By:
Varun Kumar
MBA-IT
Indian Institute of Information Technology