Sunday, February 21, 2010

REGRESSION OF EUROPEAN ECONOMIES

Europe have been struggling the worst recession breeze. US economy have shown signs and activities of recovery through its massive stimulus plans and cost cutting measures. Unemployment has touched to all time historic high putting pressures on the US regulatory to look out for some massive packages to stimulate the job market. US have also made some eye catching turn around towards consumer prices and asking the US citizens to go for saving from borrowed consumptions.
But among all these one of the biggest economy is struggling hard to survive its 16 nations. European economy is facing the worst nightmares of fighting back of recession. In one word it seems that most of the economies are coming out of the dark days of recession where as Europe is just making a backward regression.

The recession is affecting Greece, Spain, Portugal, and Italy in the Mediterranean and also Ireland. These countries are members of the European monetary union (EMU).Greece is now struggling followed with other nations.

A glimpse of the backward journey of its recession.
• Greece, which has a fiscal deficit of 12.7% of the country's gross national product (GNP) and state debts of 120% of the GNP.

• Portugal and Spain. These countries are also facing extremely high fiscal deficits (eight and 10.1% of GNP respectively) and high state debts (84.6 and 66.3% of GNP).

• Spain is currently facing an unemployment rate of well over 18%.

• last summer that Spain’s youth unemployment rate had hit 39.2% in August 2009.

The above data’s makes one point clear that the recovery of Euro zone economies will be prolonged more than US economic recovery.The rising and never decreasing unemployment in spanin followed with the fiscal deficit of these coutries are going to make the Europe followed with other economies who are interconnected with Europe to be a part of the doldrums.The below chart shows the unemployment rate in Eurozone.

We find from the above chart a consistent rise unemployment in Euro zone.The chart itself needs no more words to explain.
Finally to save the Greece the most worst the affected economy European government declared austerity programme. But without using this programme the struggling economies of Europe could make its currency to devaluate and change the entire ball game. Countries facing such fiscal and state debt should devaluating their national currencies. A strong devaluation will increase the exports and a will make a fall of imports, thus leading to a surplus in the national current account - that is, to a positive balance of trade in goods and services. The chart below shows the GDP growth of Europe.
Boom in exports can would stimulate production, employment, and also improve the fiscal situation of the countries. If we take a close look we can find this type of activity being followed by US very recently where dollar was devaluated against all currencies making its manufacturing activity to propel up. But unfortunately it seems that for Greece, Portugal, Spain, and Ireland is not having one national currency to devaluate. Since euro has no reason of devaluation the best alternative could be for these countries to leave the euro zone and return to their national currencies.

European economic weather is facing hard times in other areas of the economy particularly the one which will affect the long term growth of the economy. Education which is the back bone of any economy is also under the threat of recession cuts. The European economic crisis has led to budget cuts in the education sector in member states across the European Union at a time when other economies particularly US is seeking to boost its economy by, among other things, putting education at the centre of its new economic strategy.

A quick look at some of the education cuts in Euro zone:
• Latvia has faced severe budget cuts to the country's 34 higher education institutions, with a threatened 50 percent cutback to the planned higher education budget for this year.

• Hungary, Italy, Lithuania and Poland are either having or are facing budget cuts.

• Irish universities had a reduction of 6% in funding last year with a further 10% cutback for this year's budget.
Among all these there are some good news in the wings to survive the European education sector.
• Germany has created economic stimulus packages and the UK has set up a €71 million "Economic Challenge Investment Fund" to enable universities to respond rapidly to the needs of employers and individuals during the crisis.

• Other member states have decided to meet the crisis with more investment into the higher education sector.

• France has increased its public funding of universities in relation to previous years while Spain has increased scholarships.

• The European Parliament's education committee is holding a public hearing on "Europe's Universities—Challenges and Responses."

So among all these bad weathers there are some good sunshine days standing at the door to come in.Cut back in education sector will make the regression of euro zone economy more stronger.If porpoer care and investments are not being made particularly in times of recession then this will create seveire affects on the short term recovery and longterm recovery and prospect of euro zone.
 Increasing stimulus will not help but with strict government policies Europe will be able to face come out of the recession. Europe needs immediate polices to create new jobs followed with promoting new entrepreneurs. To keep a tab over the flow of stimulus funds in the desired purpose.
What ever steps and polices is being adopted goods from European economies will take some time to come. The world economies and the markets will have taste the tremors of the quakes coming from Europe. Its recovery will be prolonged as compared to US.

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