The European Union is trying to cope with its debt crisis by creating more debt.
On May 10, the EU released $1 trillion in an attempt to save the euro, especially since there were fears that the debt depression in Greece would start spreading to other indebted countries. This step gave immediate results in the markets, and it recovered the euro to $US1.3.
So far, this solution gives confidence to the governments that they would be able to pay off their debts. On the contrary, Song Seng Wun, an economist with CIMB-GK Research in Singapore, said:
“It buys time. We don’t know if it will be enough. They’re trying to give the impression that they’re still united. They’ve bought some breathing space but that’s all.
“This perhaps just postpones the inevitable; the euro may have to ultimately give way, that’s the worst case scenario,” per smh.com.au.
In support to Wun’s statement, Jeremy Batstone-Carr from Charles Stanley stockbrockers said that in order to have a long-term solution, the governments must stop accumulating more debt. He compared the situation with a drunk to whom the last thing one should do is give another drink.
‘‘Put differently, you cannot make any nation that is unable to service its accumulated debts more credit worthy by extending more credit,’’ he explained.