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Euro Financial Crisis Returns

July 4th, 2013
in econ_news, syndication

Written by

France's President Francois Hollande has repeatedly said over the past few months that the Euro zone's financial crisis is over, but events in Portugal are proving him wrong.

He might assert with some justice that it is not financial problems that are at the heart of Portugal's problem, but political problems; however that does not make the situation any better.

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Follow up:

As many commentators on the Euro zone's problems have said over the past year, it is not the financial risks that endanger the future of the Euro zone, but the political risks, by which they mean the social and political unrest that have arisen on the backs of the austerity budget consolidation policies that have been forced on nations with big debts, big current account deficits and have not been able to correct the imbalances before losing the confidence of the financial markets.

Hollande has every reason to be worried. France is not in the same situation as Portugal and the other Mediterranean countries, such as Italy, Spain and Greece, but it is faced with all the same problems of trying to reduce its budget deficits, get the national debt under control and correct a current account deficit, and, as with its Mediterranean neighbours, France is also suffering from high and rising unemployment and recession.

France is also exposed through its banking system. Its big banks have bought loads of government bonds from the Club Med states. They have reduced it over the past couple of years, but any defaults among their neighbours would expose them to very serious risks.

Hollande dismissed the environment minister on July 2 for protesting publicly at cuts in her ministry's budget in 2014. She was a junior minister without enough popular support to turn the dismissal into a crisis, but the protest was a symptom of wider disillusion with austerity in the ranks of the government's supporters.

Comtemporary France has record of reform-refusal going back for 30 years. Going back a bit further, it has a history of revolutionary turmoil. It is no accident that French governments are loath to tempt fate by imposing radical reform.









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