When the financial crisis hit the United States, the American government release billions, trillions of dollars to bailout their banks. It was a partial success as the bailout stop things from getting much worse but it never stop the crisis.
Taking a page out of the American playbook, Europe and the IMF now announced a 750 billion euros war chest to deal with Greece’s debt problems. This immediately gave a boost to world markets and sent global stock markets and the euro soaring. Central banks from around the world also got into the act by agreeing to ensure there would be liquidity in the money markets.
The question now is whether it will work?
Despite what government officials in Europe are saying in public, the cause of the debt crisis are not money speculators betting against the euro but…well, debt! Greece is basically bankrupt, and with the debt levels of Spain, Ireland, Portugal and Italy all at a high, I question if the trillion-dollar war chest will work. Mind you, the United Kingdom’s debt is as high as Greece’s and they are saved only because the U.K’s economy is bigger than Greece’s. With debts like these, who wouldn’t bet against the euro?
Greece is at least doing its part by announcing a radical overhaul of the pension system to slash their debt. This highly unpopular move will probably cost the current Socialist government in the next election but they are doing it. Now the rest of Europe need to follow Greece’s example or else even 750 billion euros will not be enough.