Today, a prime minister resigned. He was Jose Socrates of Portugal; he had been valiantly fighting for austerity measures that would have saved Portugal from seeking bailout. He was denied by the Portuguese Parliament, in reaction he promptly resigned. Now Portugal is in political gridlock as a new government is established. With the failure of the austerity measures Portugal prepares to take on 140 billion dollars of bailout in the coming months. The people are outraged and disheartened that their government has given them this economic headache for years to come. Surprisingly, the fallout of the demise of Portugal had little impact on the European financial systems. The Euro has continued to maintain a value above $1.40 dollars. Spanish bonds, of which 100 billion are invested in Portugal, similarly were unaffected. Europe will soldier on despite another country being gripped by recession. However, many analysts agree unless policies are revised the European Union will suffer future crippling disaster across multiple nations.
Europe is an interdependent set of countries, when one is harmed they are negatively effected. The damage from Portugal was minimal, however if larger countries fail the effects could be catastrophic. Despite the many statistics that have determined that lower the taxes in times of recession actually hurts the economy, the industrial powerhouse Germany continues to push for sweeping, aggressive tax cuts which they call their “competiveness pact”. These were the same tax cuts that played crucial roles in the painful recessions in Greece, Belgium, Italy, and Ireland. This directly relates to macroeconomics; over the next several months we will see several more minor countries, possibly such as Estonia or Latvia, declare a desperate need for bailout as well. Additional millions will become unemployed, some counties like Spain already have one out of every five workers being unemployed. Europe will continue to be economic fertile as long as one of the major nations, France, Germany, or Britain, do not collapse. There is no reason to believe any will at this current date. There is a rocky road for Europe to climb, but they will pull through.
This financial conundrum that has enveloped Portugal is exasperating. They are one of the euro-zone’s poorest countries, however at the same time they have no large unnecessary expenses. They are comparable to America, who is one of the world’s largest countries economically but runs at a ten percent financial deficit. In both cases harsh actions need to be taken to counteract the gathering storm of debt. In Portugal they must take this dose of bailout and them strive to run a debt free government. America, with nearing 15 trillion dollars in debt, has the same issue on a much larger scale. A healthy government should only have debt if there is a direct threat to the continued survival of the nation, such as a painful recession or war. Portugal and America do not have healthy economies so they are both destined for an economic collapse. The only hope is that policy makers take action against the tsunami of debt before it annihilates their countries.