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Global economic conditions today are awfully bleak and momentum in global economic growth is certainly uncertain. The European fiscal fiasco jeopardized global growth as a whole and further situations became aggravated with the inability of European leaders to put in place a plausible accord that can ensure a bright future for the Euro Zone.
Reasons for fiscal complications of the eurozone are many and varied, but perhaps fiscal dissonance among member nations is the prime cause for this economic menace. Eurozone as an Economic Union almost failed to maintain fiscal integrity with respect to expenditure patterns of the government and solely focused on monetary management overlooking the totality of fiscal significance.
The root cause of the delayed response to the Sovereign Debt crisis is nevertheless the limited capacity or lack of willingness on the part of the European Central Bank (ECB). A return to economic stability relies on ECB allowing greater authority and becoming a last-resort lender to troubled economies,
Industrial orders in the eurozone fell by 6.4 percent in September, the steepest decline since the dark days of 2008. Another closely watched index, based on surveys of the purchasing manager in manufacturing and services is also precarious, falling below 50 percent to 47.2, where anything below 50 implies shrinking activity.
“Europe is going into recession, if not already in one,” according to Frederic Neumann co-head of Asian Economic research at HSBC. Pranay Gupta, Chief investment officer for the Asia Pacific region at ING in Hong Kong, said “Europe is where the United States was three years ago.”
The financial crisis of 2008 was firstly an output of regulatory deficit over the financial industry and a consequent credit crunch that followed, along with other events such as death of Lehman. However, the eurozone economic headwinds is basically due to exhausted state resources and the high cost of borrowing.
Recently, Germany suffered from a lack of strong demand for its 10-year safe bunds with the government selling only 3.6 billion euro bunds. The results suggest that “Germany is not immune to increasing risk aversion in the euro–zone but market”, according to Marc Chandler of Brown Brothers Harriman.
“The only thing that would work is printing Euros, paying down the debt and risking inflation” said Dave Rovelli, Managing director of U.S equity trading at Canaccord Genuity. The only alternative in sight is to establish a consensus among European leaders as to how to get out of this mess and also, how to avoid falling into the same trap in future.
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