In 1998, Russia successfully dealt with a severe fiscal crisis by restructuring its debt. If Greece chooses to do the same, it should take note of three valuable lessons from Russia’s experience.
Given the dual challenge of massive and rising debt and a loss of competitiveness now facing Greece, debt restructuring is necessary—but may not be sufficient—to restore economic growth.
Germany, which benefited from the introduction of the euro, should boost its domestic demand to compensate for the deflationary measures taken by other countries in Europe.
Though headlines label the Euro crisis as one caused by sovereign debt, Europe’s most troubled economies are suffering from not only fiscal profligacy, but also a severe loss of competitiveness.
Today’s crisis in Europe can be traced back to eight primary causes, beginning with introduction of the euro over a decade ago.
Though the eight newest EU are committed to eventually adopting the euro, they all already suffer from the problems that dragged Greece into crisis, suggesting that none of them are ready to join the Euro area yet.
In order to solve the current crisis—and prevent future ones—greater cooperation, surveillance, and transparency is needed among European leaders.
The economies of the United States and Europe are tightly linked via trade, investment, and financial markets. If the Euro crisis spreads, U.S. banking and export sectors will suffer.
Despite the fact that Ireland’s economy sustained a boom both before and after the introduction of the euro, Ireland faces the same problems that are crippling much of Europe: lost competitiveness and an unsustainable government debt trajectory.
While Portugal's public finances are healthier than those of Greece, its poor growth prospects, drastic loss of competitiveness, and high public and private debt all make the country vulnerable to the crisis affecting other parts of Europe.