Wednesday, July 20, 2011

Let the defaults begin

It has lately been scary times for European Countries. Greece, despite all the efforts of the European Union is getting closer and closer to default, Ireland and Portugal are just around the corner and Spain and Italy are trying to hold on to something to get them out of the hair of the global investors. It has started to show just that the welfare system enacted in parts of Europe has failed not due to the some flaws (although every system has some flaw) but because the benefits were too generous as compared to the taxes being raised to pay for it. The northern tier of Europe right now looks fine (like Sweden, Denmark, Norway, Finland) but they have high taxes to pay for the goodies.

And then we compare the northern tier to the southern one, where the economy has been sluggish, benefits have been kept intact (until now) and the taxes have not been raised substantially or the global recession have caused them much devastation. In addition to this, the tax collect system is not collecting enough taxes or people are underreporting it in substantial numbers to unbalance their state budgets. Whatever the reason, piling more debt to pay for the previous one is not going to solve the problem in the case of Greece first of all and then Ireland, Portugal, Spain and Italy. Although the European are loathe to acknowledge this due to whatever reasons, but it is now a foregone conclusion that Greece will ultimately default on their loans sooner or later.

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