C: fiscal (government taxes & spending) aspects of situation:

--(1)  Low economic growth means the PUBLIC BUDGET of countries becomes a problem, a continuing FISCAL CRISIS OF THE STATE. 

--(2) Low economic growth means  TAX REVENUES STAY FLAT meaning governments have fewer financial resources to deal with the crisis. 

--(3) The AUSTERITY PROGRAMS of many of the Eurozone economies means that PUBLIC EXPENDITURES DECLINE (‘Budget Cuts’) will be falling, while unemployment and household uncertainties means PRIVATE SPENDING STAGNATES or falls, and alongside this fall in public/private spending, businesses/companies will have declining sales, making them more uncertain about the future and increasingly there will be DECLINING PRIVATE BUSINESS INVESTMENT.   

--(4) AUTOMATIC SOCIAL SPENDING INCREASES--High unemployment and rising poverty mean that social WELFARE expenditures (some automatically due to existing laws) of all kinds are RISING in real terms, and naturally as a proportion of GDP.

--(5) TAX REVENUES are additionally shrinking or barely rising, since people are earning LESS INCOME and even with TAX RATE INCREASES each portion of government debt financed at an interest rate of near 7% may become unsustainable.

 

D. Global economic effects:

--(1) ‘AUSTERITY PROGRAMS’ IN MANY COUNTRIES:  If many, or most of the important economies of the world also adopt restrictive (contractionary) budgets, it can mean that GLOBAL INCOME STAYS FLAT or even FALLS.  Thus export growth, even for strong trading countries like Germany may begin to falter as EXPORT DEMAND FALLS for their products in the EU and the REST OF THE WORLD.

--(2) TRADE TENSIONS;  In troubled economic times, perceptions of open trade enforcement becomes more important, since countries with economic difficulties may wish to show that they are trying to help their populations by not allowing ‘trade cheaters’ and new BARRIERS TO OPEN TRADE may further slow growth in the world economy as more and more countires pursue MORE  AUTARKIC (self-reliant) TACTICS.  (e.g. USA & China in their current trade disputes due to popular pressure in the USA about China ‘stealing American jobs’ and fierce national pride and a sense of growing economic power in China.)

 

So the ‘FINANCIAL’ and ‘GOVERNMENT DEBT’ crises of Europe, are, in part symbolic of perhaps an entire global market capitalist system under threat of stagnation, slow growth, or even more political (as well as economic challenges). 

 

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Good Summaries or Graphics:

 

*Washington Post (USA):

-Several graphic explanations (a) the proposed (last week Dec.9) new treaty for Eurozone/EU (b) the opportunities to deal with it and failures; (c) countries compared in EU/Eurozone by data; (d) how crisis could affect U.S. citizens in a variety of ways (including as investors of savings):  http://www.washingtonpost.com/wp-srv/special/world/european-debt-crisis-graphics/index.html     this has all 4 links (a,b,c &d)  including these pages below:

-(b-above) Timeline of steps along the way, what was done at each step, and why each step has failed to stop the crisis from continuing to develop:

http://www.washingtonpost.com/business/economy/missed-opportunities-in-the-european-economic-crisis/2011/12/06/gIQAp59uaO_graphic.html

-(c-above) Data on Eurozone countries {GDP & change in GDP since 2010; Debt/GDP; borrowing costs (interest rate) of government debt Aug-Dec.2011;  and text about which countries seem to be in most trouble}

 http://www.washingtonpost.com/wp-srv/special/world/state-of-the-euro-zone/

(d-above) How the crisis has/may in future affect:  ( Jobs and Companies exporting (bad bad news!);  US stock market (declines with each failure to resolve crisis);  US money market mutual investors (could be big losses), House buyers (mortgage rates lower in US); travel overseas to Europe (dollar is relatively stronger vs.Euro, as people flee Euro and other European-linked investments)

http://www.washingtonpost.com/wp-srv/special/business/what-european-crisis-means-to-you/

 

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