Who’s next in E.U. financial crisis?

Bob Moon Nov 24, 2010

Who’s next in E.U. financial crisis?

Bob Moon Nov 24, 2010


Tess Vigeland: Here is the story that just won’t go away: today there was fresh evidence the trouble isn’t over in Europe’s debt crisis. Ireland is proposing the deepest budget cuts in its history. Students protested over education cuts in Italy and the U.K. And a workers’ strike shut down much of Portugal.

Is this a sign of more worries ahead? Or does it reflect slow but steady progress in pulling those countries back from the brink? Here’s our senior business correspondent Bob Moon.

Bob Moon: Today’s strike by Portugal’s two main labor unions closed schools and hospitals and caused travel chaos. Workers are already shouldering much of the burden from Portugal’s debt crisis. Graciete Cruz is a leader of the country’s biggest trade union federation. She spoke to the BBC.

Graciete Cruz: There are strong and quite hard measures, but certainly these measures were not the last ones. We certainly are going to have another package of brutal measures against workers.

The unions fear an even stronger dose of tough medicine that could come attached to a bailout from the International Monetary Fund.

Jacob Kirkegaard is an expert on Portugal at the Peterson Institute for International Economics. He says the country’s crisis probably doesn’t pose much of a threat to the U.S. economy, given its limited trade and banking relationships. But once creditors finish with Portugal, they could set their sights on a bigger European target.

Jacob Kirkegaard: This is the same worry that we have every time we’ve seen one of these dominoes fall — who’s next? What we need to worry about is whether or not the markets, in my opinion, irrationally transmit contagion from Portugal onto Spain.

Kirkegaard says it may have the appearance of a haphazard jump from one crisis to the next, but he remains optimistic Europe’s case-by-case response is doing some good.

This may not be as fast as the U.S. was able to put together its stimulus plans. But the European Union is actually a “club” of different nations, so it’s taking more time to work through its troubles.

Kirkegaard: These bailouts come with very tough conditionality, and you are actually very aggressively attacking the underlying economic inefficiencies in these economies.

He says as long as that process continues — painful though it may be — stability should return. Eventually.

I’m Bob Moon for Marketplace.

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