Soon after the so-called end of the depression period in the global economy, at a time when the global economy started a weak recovery, a more complex economic phenomenon emerged as the next bellwether to world economy.

Since 2009, the European economy has been struggling with slow economic growth rate and indomitable debt crisis that led to political disturbance in some countries of Europe. The crisis has dragged these economics back in to recession.

Years of heavy, unprecedented government spending in Greece and other countries of the Euro zone, led governments to go beyond available budgetary resources, and rely solely on borrowing to finance expenditures. This produced a series of risks to these economies and financial systems as a whole.

Leading economists warned that European debt crisis could spread across the continent in a major blow to the single currency system; further, the International Monetary Fund said turmoil in Greece, Ireland and Portugal may engulf the wider Euro zone despite billions of Euros already spent in emergency aid so far.

In an attempt to reduce dangerously rising levels of debt and forced and deep painful cuts in public expenditure — less government spending — drove up unemployment and put several nations back into recession. Many economists around the world claim that such immediate spending cuts are self-defeating in nature.

After much struggle in 2010 the EU and IMF combined to offer Greece a bailout package of 110 Billion Euros, followed by a broader contingency fund of 500 billion Euros. But the new loans came with the effect of austerity measures that apparently demanded a ceiling on public expenditure leading to widespread protests and political uncertainty in Ireland and Portugal.

Recently, the prime minister of Portugal said the government decided to ask the European Commission for financial help. According to economists, Portugal needs financial aid to the size of 80 Billion Euros.

After Greece and Ireland, Portugal became the third financially troubled country in the Euro zone to request financial assistance from Europe’s Bailout Fund and the IMF.

The era of financial trauma in the Euro zone began in December 2009, after newly elected Greek Prime Minister George Papandreou announced that his predecessors had hidden the actual size of the massive budget deficit. In a bid to regain the lost confidence in the region, the IMF urged European leaders to fix the banking problems and slash national deficits that have undoubtly led to stringent austerity measures.

Economists also say that strong policy responses so far that led to the weakening of Greek, Irish and Portuguese economies have contained the fear to some degree. However, markets are uncertain about the Greece capacity to pay back its debt of 285 million pounds, or $463.95.

As of now, Greece has more than 300 billion Euros of debt constituting to a sum of 140 percent of its total GDP. Recently, the EU and IMF Agreed to a 110 billion Euro bailout. According to Jose Manuel of the European Central Bank, a default would have extreme adverse consequences for the Greek economy.

Knud Nielsen / Shutterstock.com

The article European Economy – A Budgetary Trauma appeared first on The Toonari Post - News, Powered by the People!.