Thursday, June 14, 2012

Alan Greenspan claims that Euro zone cannot survive in current form



Greenspan remarked::“What has been happening is not sustainable,” “We have to focus far more quickly on how to get the deficits down, because unless we do that, we cannot continually fund these things because it’s all being funded by printing money.” The band aid solutions used have failed and avoid structural issues such as uncompetitive labor markets and high deficits. Certainly the high deficits are a factor but the austerity measures are certainly reducing labor benefits and wages and selling off public assets at fire sale prices.

Greenspan said:.“Most of the ‘successes’ in this problem have been finding ways of funding the deficits, not reducing them. As long as there are deficits…you are creating ever more debt and that is not projectable indefinitely in the future,” While that is true enough perhaps the austerity measures designed to reduce deficits increase unemployment and spin the economy into decline reducing tax revenue and increasing deficits even more.

Spanish borrowing costs have risen to 7 per cent and at the same time Spanish credit has been downgraded by Moody's. Costs of Italian borrowing also increased to 5.3 per cent. For more see this article. at BNN. Markets are quite volatile as investors await the results of Greek elections on Sunday.

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