Q3.

In each of the years, how are the costs involved with government services being defrayed in terms of the mixed among: taxes and public borrowings? Ans: Yields on government securities from Greece, Ireland and Portugal reached records amid speculation the heavily indebted nations wont be able to avoid restructuring. The income tax rates are the same as in 2006, 10.5% to 42%, with slight changes in the tax brackets. There are no significant changes in the 2007 tax rates for companies and individuals, compared to 2006. There was no significant change in Portugal 2008 tax rates, compared to 2007.Individual income tax rates were 10.5%-42%. The basic corporate tax rate was 25%, plus a local tax of up to 1.5%, making a total of 26.5%.Thus there was no serious change in the economy in terms of government services defrayed in terms of taxes and public borrowings. The standard VAT rate from July 1, 2008 was 20% (previous rate 21%). In 2009 there was a new reduced corporate tax rate of 12.5% for income of up to EUR 12,500. For income above EUR 12,500 the corporate tax rate was 25% same as in 2008. Fitch credit agency, downgraded on March 24, 2010 Portugal's credit rating from the previous AA to AA-. The downgrade represents increasing concern about the high level of debts which may result in more expensive interest rates for Portugal's borrowings. After the revolution, the Portuguese economy qualified a rapid, and often unmanageable, expansion of public expenditures--both in the general government and in public enterprises. The interval in public sector receipts resulted in large public enterprise and general government deficits. In 1982 the borrowing requirement of the consolidated public sector reached 24 percent of GDP, its peak level; which was subsequently reduced to 9 percent of GDP in 1990.Debt crises are nothing new in Ireland. Indeed, Jacobite states bankruptcy in 1689is not far from our sight. The economy did not grow as expected, public finances were left with an enormous gap between what they spent and what they took in taxes. Repaying this debt and even the interest on repayments placed a huge burden on Irish taxpayer throughout the 1980s and had a lot to do with poor economic performance and massive emigration of that period. Thus we can conclude that, the cost involved in government services in terms of taxes and public borrowings were moderate for recent years Q8. How much of an EU bailout is required to rescue the economy and what strings are likely to be attached to this bailout? What is the price, in political and economic terms of austerity measures? Explain. As it is evident that recently, Portugal became the third euro-region country to seek out an international bailout after Greece sparked a sovereign-debt crisis that threatened to disintegrate the currency bloc a year ago and then engulfed Ireland. Inspiring the EU economy and its competitiveness and making financial markets function again are essential to avoid mass unemployment and create new jobs, according to the report drawn up by Elisa Ferreira (PES, PT) on the Commission's European economic recovery plan. Urgent steps to release EU funds, a better financial supervision system and a new global financial regulatory framework also figure among the reports recommendations. Guaranteeing minimum living standards for all EU citizens is one of precedence targets for action at EU level, according to MEPs. Rescue plans for banks should not be unconditional, according to the committee, which recommends requirements on monetary incentives, provision of credit, restructuring of the sector and protection of social policy terms in return for the help the banks receive. To make sure better coordination, the Economics Committee calls for the establishment of binding rules for national governments to consult each other and the Commission before taking major economic policy decisions.

MEPs are concerned that the European Economic Recovery Plan amounts only to 30 billion (0.2% of European GDP), at the same time as the remaining 170 billion is supposed to come from Member States' own initiatives. They therefore call for a new strong initiative at EU level to avoid risks of conflicts between the diverse national actions. At the same time, the committee stresses the responsibility of each Member State to ensure fiscal discipline and to carry on investment and structural reforms. With EU and IMF funds accessible for between 5% and 7%, there were growing calls for the government to end months of speculation and agree a bailout. As the EU is clearly operating on behalf of the most powerful European financial and business circles, it insists that the massive deficits in public finances resulting from the economic crisis and bank bailouts be countered by slashing wages and social spending. The European Union had recently significantly increased the pressure on highly indebted member states to reduce their deficits through harsh austerity measures. It was the German government that set the nature for the deal that was struck. A written a letter to all participants demanding harsh sanctions against countries that violate European budgetary rules must also be sent. EU members will be compelled to provide a compulsory deposit of 0.2 percent of GDP in Brussels at the beginning of an excessive deficit procedure, i.e., when their new debt exceeds 3 percent of gross domestic product (GDP). If they then continue to fail to meet fiscal targets, this deposit will be withheld as punishment. Member states can only prevent their implementation if, within 10 days, they are voted against by a statutory majority. Previously, heavy fines could only be imposed when two thirds of member states had agreed beforehandsomething which never occurred in practice.

Q9. Would you recommend the country to exit the euro zone? Explain the fiscal and economic impact of such an exit. The interdependencies among EU economies need stronger forms of policy coordination and a much higher degree of financial solidarity. In the medium term, the Euro Area needs a healthy mechanism for crisis resolution, i.e. an economic government that is capable of taking decisions and implementing them independently from national governments and their biased interests. Member states should take the common interest into account. They must merge their fiscal position to ensure the long run sustainability of their public debt. On the other hand, a socially acceptable adjustment program takes time to be implemented. The perception of a rising default risk by any member state government might destabilize the Euro Areas banking system. A few bridging finance is needed. If any government would default on its debt after having received credits from other member states, this would pose a serious constitutional problem, given the non-bailout condition in the Treaty. Private markets could come to save the Union by issuing securitized Union Bonds. Markets would then no longer be seen as wreckers, but as saviors of the euro.

It can be concluded that exit of euro zone may or may not be a better choice for weaker nations like Greece, Portugal, Ireland. As if the country exits the euro zone, there are possibilities that the nations will be left behind from the other progressing nations. And if the nations like Greece, Portugal, Ireland continued to be in the euro zone may be faced by various legal formalities and also legal actions for not fulfilling the requirement of the euro zone.

As the EU is clearly operating on behalf of the most powerful European financial and business circles, it insists that the massive deficits in public finances resulting from the economic crisis and bank bailouts be countered by slashing wages and social spending.

The economic impact of remaining in the euro zone will be such that, economically the country will be well developed and also fully self sufficient for satisfying all it needs and the fiscal impact will be such that, the nation will be faced by too many legal policies and will have to fulfill the legal requirements and increase in the number of taxes to be paid.