Eurozone Recession Is a Part Essay

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One side says that potential solutions to the Eurozone crisis require cuts in spending, some drastic. Doing this would likely deepen the recession, contribute to even higher unemployment figures (already over 20% in Spain), but might push wages to more competitive levels. Lower wages, though, will make debt reduction more difficult, meaning more people will cute their spending or even stop repaying debt. There might be more strikes and protests as this happens, which would only deepen the crisis. The other side says the opposite -- do not cut spending. However, since borrowing has increased since 2008 because of economic stagnation, there might be a financial collapse as the markets lose confidence (Eurozone Crisis; Carr, 2012).

Others see that the crisis can be solved if Europe allows its own fiscal planners, the EFA (European Fiscal Authority) to establish a debt-reduction fund; holding significant portions of Italian, Spanish and Greek debt and financing the recovery through European Treasury Bills. The EFA would then need to be empowered to ensure that certain reforms be put into place to prevent similar over borrowing and lack of fiscal control (Weisenthal, 2012). Another set of economists would like to see a modified version of the Chicago Plan, the collection of banking reforms initiated during the United States' Great Depression.

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The key feature would be to separate the monetary and credit functions of the banking system; requiring 100% backing of deposits by government issued money; and then by ensuring that financing of new credit only take place through earning retained from government issues dollars (Benes and Kumhof, 2012).

REFERENCES

Eurozone Business Activity 'Close to Seven-Year Low.' (August 5, 2008). AFP.Google. Retrieved from: http://afp.google.com/article/ALeqM5gt D5TceLXMkNchzj_VpBHYfzsVYA

Eurozone Crisis Explained. (June 19, 2012). BBC News -- Business. Retrieved from: http://www.bbc.co.uk/news/business-16290598

Benes, J. And Kumhof, M. (August 2012). The Chicago Plan Revisited. IMF Working Paper. Retrieved from: http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Carr, E. (May 27, 2012). Fixing the Eurozone Crisis. The Economist. Retrieved from: http://www.economist.com/blogs/newsbook/2012/05/fixing-eurozone-crisis

Flyvbjerg, B. (October 2009). Commentary. The World Bank. Retrieved from: http://www.sbs.ox.ac.uk/centres/bt/Documents/BankerStimulus.pdf

Weisenthal, J. (June 24, 2012). SOROS: Here's How to End the Euro Crisis. Business Insider. Retrieved from: http://www.businessinsider.com/soros-on-how-to-fix-the-euro-crisis-2012-6.....

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