Selected papers~ SPECIAL EDITION - Index of

During the last two years, there were several
concerns that Greece’s crisis could spill over
to other European countries in difficult
economic positions, including Portugal,
Ireland, Italy, and Spain. European authorities
warned that debt programs in Greece and
other high deficit countries such as Spain,
Portugal, Ireland and even Italy may affect
stronger European countries. Greece’s foreign
policy focus on the region and growing trade
volumes between neighbour countries like
Serbia, Albania, Macedonia, Romania,
Bulgaria and Turkey could not remain
indifferent to the magnitude of the crisis next
door.
All their concerns were entirely justifiable.
PIIGS ZONE, that is Portugal, Ireland, Italy,
Greece, Spain, borrowed heavily during the
credit bubble. Some argued that the spillover
effect could appear in Europe just as it
appeared in Asia, where investors’ herding
behaviour contributed to the spillover of
Asian financial crisis (1997-1998). Others
argued the spillover hypothesis was unlikely
to happen: the low levels of national savings
in Greece and Portugal put these countries in
the weakest financial position, at 7.2% of
GDP and 10.2% of GDP respectively,
compared to an EU average of approximately
20%. Spain and Ireland, by contrast, were
closer to the EU average at 19% of GDP and
17% of GDP, respectively, putting them in a
stronger financial position.
Two macroeconomic indicators were
significant for the evolution of these
countries, namely: government expenditure as
percent of GDP and government consolidated
gross debt as percent of GDP. The figures for
each country were as following: Portugal:
spending 51%; debt 77%; Ireland: spending
48%; debt 64%; Italy: spending 52%; debt
116%; Greece: spending 50%; debt 116%;
Spain: spending 46%; debt 53%.
7. Conclusions
272
All in all, when referring to the implications
of the world financial crisis on the European
public deficit, it can be stated that the bubble
disease has spread to the whole financial
system, making governments to bail banks
and acquire liabilities. Although liabilities are
necessary, borrowing more to satisfy previous
debt obligation will only delay the problem,
not solve it. Nowadays, it’s too early to
measure the effectiveness of the bailout plan
for the Euro-zone. In our view, time is the
best solution to the debt problem. Giving it 5-
8 years, reducing spending and increasing
saving to pay down the debts is the most
pragmatic way of solving it.
8. References
Single-author books:
1.Lamfalussy, Alexandre. Financial Crises in
Emerging Economies. New Haven: Yale
University Press, 2000.
Articles in journals:
2.Buti, Marco, Larch, Martin. The
Commission propsals for stronger EU
economic governance. VoxEU, 14 th of
October (2010).
3.Dabrowski, Marek. Macroeconomic
surveillance within the EU. CASE network Ebriefs,
No. 13(2010).
4.EFC. Lessons from the financial crisis for
European financial stability arrangements,
EFC High-Level Working Group on Cross-
Border Financial Stability Arrangements. 18 th
June(2009).
5.European Council. Strengthening Economic
Governance in the EU, Report of the Task
Force to the European Council. Brussels, 21 st
of October(2010).
6.Monti, Mario. A new strategy for the single
market. Report to the President of the
European Commission. 9 th of May(2010).
7.Wolf, Martin. The Challenges of Managing
our Post-crisis World. Financial Times, 30 th
of December(2009).