DAX
CAC 40
The EFSF’s objective is to preserve financial stability of Europe’s monetary union by providing temporary financial assistance to euro area Member States in financial difficulty.
With the approval of the EFSF by the Slovakian government, the fund has now increased its powers and size. It can now directly buy government bonds, providing help to sovereigns and recapitalizing banks.
The Slovak EFSF approval resulted in investors showing confidence in the European market because of limited downside effects in the short run. Even if Greece should default on its debt, a possibility that has been the main source of market volatility, the fund will provide European banks that have credit exposure to Greek debt with liquidity needed to continue with business operations.
The fund provides insurance against eventual bankruptcies that could otherwise take place in such a scenario. It is backed by the sovereign governments of the Eurozone and by the IMF. So far its main use has been providing cash to heavily indebted economies in the Eurozone. These “bailouts”, term that has been used to describe funds received by troubled economies since the sovereign debt crisis began in April 2010, are needed to provide liquidity in the markets so that normal economic activity may continue. But they come at a high price.
The economies that benefit from the fund must implement “austerity measures”, i.e. policies that aim to decrease their deficits by cutting back on public spending, jobs, but also other areas such as healthcare and education, and sovereigns can only access the funds when proof has been shown that radical changes are being pursued.
So far the economies which needed these bailouts have been Greece, Portugal and Ireland. In some cases, the austerity measures can be so tough on the taxpayer that people have raised serious concerns about these policies and we are all left to imagine what frustration could lead to.
In the end it is the taxpayers that have to pay the highest price, and even though the current situation in these countries isn’t only one person’s fault, I believe that the people don’t realize that and prefer blaming politicians. So in their minds that makes them the victims of a situation they had nothing to do with, demotivating them from putting in the effort and making the sacrifices that are much needed if they want the situation to improve.
The fund provides insurance against eventual bankruptcies that could otherwise take place in such a scenario. It is backed by the sovereign governments of the Eurozone and by the IMF. So far its main use has been providing cash to heavily indebted economies in the Eurozone. These “bailouts”, term that has been used to describe funds received by troubled economies since the sovereign debt crisis began in April 2010, are needed to provide liquidity in the markets so that normal economic activity may continue. But they come at a high price.
The economies that benefit from the fund must implement “austerity measures”, i.e. policies that aim to decrease their deficits by cutting back on public spending, jobs, but also other areas such as healthcare and education, and sovereigns can only access the funds when proof has been shown that radical changes are being pursued.
So far the economies which needed these bailouts have been Greece, Portugal and Ireland. In some cases, the austerity measures can be so tough on the taxpayer that people have raised serious concerns about these policies and we are all left to imagine what frustration could lead to. In the end it is the taxpayers that have to pay the highest price, and even though the current situation in these countries isn’t only one person’s fault, I believe that the people don’t realize that and prefer blaming politicians. So in their minds that makes them the victims of a situation they had nothing to do with, demotivating them from putting in the effort and making the sacrifices that are much needed if they want the situation to improve.
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