Thursday, December 23, 2010

The continuing Euro Zone crisis-Permanent bailout fund-2

But then the United States is a true union and almost every state has constitutional obligations to balance the budget unlike the European Union countries. Further more the residents of other states will not grumble that the failing state has only itself to blame and they will oppose the bailout of that state (again unlike Europe where the rich and strong countries citizens have started to grumble about the costs of the bailouts). Further more since American is already a much diversified nation, you don’t see much difference from one state to another so nationalistic tendencies are much less obvious than the Europeans. It can now be said that since the creation of the fund whatever there is going to restriction on the access to it, the desperate countries trying to access it would not be refused just because they did act badly financially.

It just creates a so called “Moral Hazard” that since the fund is there, the weak countries would not have that kind of incentive to fix their structural problems and that any reform to their economies and labor market would be slower had their not been such a fund. Only time will tell what kind of help this fund would be to the struggling countries and how far it will succeed to keep the European Union monetary union and the currency intact.

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