What Would It Take to Save Europe?

The article starts by highlighting how pleased officials in Washington were about the mess in the Euro zone and speculations of how much profit can be made only interest of IMF loan of between 1.5 trillion to 4 trillion Euros. When you consider that Germany GDP is about 2.5 trillion Euros then this is a lot of money. Johnson suggests that a huge package of financial support is not the answer to Europe’s financial woes, especially if you imagine Italy maybe given access to this ‘fund’. Johnson then goes on to explain the 1994-95 Mexican crisis and model of support used there, and highlights the reason this would be ineffective within the euro zone because Portugal, Greece and perhaps Italy, badly need a reduction in their real costs of production. If their currencies were independent, this could be achieved by a depreciation of their market value. But this is not an option within the euro zone, and it is within the zone that they need to become more competitive. The most interesting thing, Johnson suggests that Europe needs a new fiscal governance mechanism. Why would Germany — or anyone else — trust Italy under Silvio Berlusconi with a big loan or unlimited access to credit at the European Central Bank? He summarizes by saying that countries cannot pay their debt should not be part of the euro zone as they are breaking rules and the longer this is allowed to continue the more serious situation becomes. He asks if political leaders believe if the debt burdened countries can be trusted to repay their debt. If the answer is yes, full support as needed — from within the euro zone. If not, then find another way forward, but in decision is not helping. This topic relates facts that we've studied in economy class is the countries demand or supply that can change from national debts.