Blog #11-The Eurozone is Tearing Itself Apart

Italy is now facing a crisis in Europe with the Eurozone being in a crisis. Currently Italy is solvent which means that Italy’s ability to meet the countries’ debt in the future is impossible. With this being said lenders who finance money to citizens are choosing not to do so because they don’t feel very confident about the citizens being able to pay the money back because of the countries’ current situation. Along with the solvency problem, Italy also has a liquidity problem because the ability of its citizens to get large lump sums of money has come to a halt. According to the article, “ Since the mid-1990s, Italian growth has been less than 2% a year; investment and consumption have been practically flat; increases in people's real income have been among the weakest in Europe, worse even than Germany.” The only chance Italy has is to have the European Central Bank to buy some of the debt so that the liquidity of Italy’s monetary system will not completely collapse. Although the liquidity problem will be fixed that doesn’t leave out the fact that lower spending will take place and the amount of benefits and services provided will also be reduced.

The Eurozone crisis is one that affects the whole world. If Italy goes into austerity and their citizens spend less money this deficit will show up in other areas of cash deficits everywhere. People’s ability to spend money is definitely a social problem that people can’t escape. The growth rate in Italy has been increasingly stagnant in the sense that there hasn’t been any growth. Where there is no growth, there is no ability for citizens to increase their standard of living as well as well as improve how they communicate and interact with other individuals. Citizens in Africa as well as South America can feel the effects of the Italian crisis due to the fact that businesses have outsourced all around the world. If money isn’t being made in Italy and growth is not being very prevalent then businesses haven’t been able to expand and give employees raises or create new job opportunities. Employment rates in other countries are decreasing due to the Italian debt crisis and the economies of other countries will soon see how much of an effect this crisis has on their economy as well due to the world’s globalized connection. Trade to Italy has also halted and been less which only affects the countries that have made trade agreements with Italy. Due to the consumption slow down in Italy citizens aren’t able to buy all of the goods that they once could. As we can see here Italy has impacted the world’s economy as we know it. Socially people everywhere have been affected by Italy’s inability to pay their debts.

Link to the Article: http://www.cnn.com/2011/11/10/business/eurozone-tearing-apart/index.html?hpt=hp_t1