The Economist

Europes rescue plan

29th Oct.2011 Edition

By: Animesh Kumar Verma PGDM(IB) 2011-13 Roll No: 04 Business communication Assignment-1 Subject Facilitator: Prof. Uma Bhushan

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INTRODUCTION: The Article is about Europes rescue plan after the crisis which recently originated from Greece and could affect other European countries also because of their union and bonding that they share amongst them. All these countries are bonded by European Union and due to increasing globalization; any impact on one country can have adverse effect on other countries. The colander is very symbolic to this article because it shows that no matter how hard Europe tries to rescue their economy from a crisis, it will fall through the little holes and there will be nothing left. The European leaders have to work to try and make sure that nothing seeps throw the little cracks and holes. FUTURE PLAN & AGENDA: The leaders of the Euro zone have agreed on a comprehensive package that will be set aside to dispel the crisis. They have drafted a plan to restore Europes banks, reduce burden of debt from Greece so that market can recover from losses of Euro. The summits most notable achievement is to write down the Greek debt by 50%.Europes main rescue fund EFSF doesnt have enough money to withstand run on Italy and Spain. Germany and ECB have ruled out only unlimited source of support. The Euro zones northern creditor government have refused to put more money. The 2 schemes they came out with to boost EFSF could probably fail in the near future because of suspicious bond guarantee made by countries which could become vulnerable if their over-debted neighbours suffered turmoil. Under the second scheme EFSF would create set of special purpose vehicles financed by other investors. Together these schemes are supposed to extend the value of EFSF to 1Trillion.But there is no certainty that these schemes will work out. While the EFSF scheme is designed to insure the bond holders, European leaders instance to make the write down voluntary will make euro zone debt harder to insure. CONCLUSION: Closer fiscal integration of countries that use the euro may not solve the issue in the longterm. The main problem with this is the perception of unfairness - the belief that some countries may be contributing too much revenue and others have too much power. For example, the EU's budget is about 1% of the GDP, yet it continually inspires grievances in

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countries that feel they are losing out. The euro zone's debt and deficit rules - that a member's gross government debt cannot exceed 60% of GDP and that the budget deficit cannot be more than 3% of GDP - were consistently breached well before the current crisis. If the weak countries within the EU do not return to sustainable economic growth within the next few years, the problems of the Euro Zone are not going to be solved. Moreover, Europe's aging population and endless red tape are ensuring that foreign investors look elsewhere rather than invest in Europe, further dampening the region's long-term economic outlook. Word Count: 489

3 Animesh Kumar Verma PG-IB (2011-13)