European financial crisis looms over US markets

John McGovern

Viewpoints Editor

The Italian Prime Minister Silvio Berlusconi announced his decision to step down as the Head of Government. The act is pending approval of financial legislation to stabilize the economy, after failing to accrue a majority of votes in a recent vote in the Italian Parliament. Berlusconi fought opponents from the Democratic Party coalition and from within his own party for several months to retain control over Parliament, however 320 Members of Parliament opted not to vote in his measure on financial planning, with 318 for and one abstention.

This declaration stands in addition to reports that Greek Prime Minister George Papandreou will resign to pave the way for an interim government with an election next year. Papandreou’s decision follows his attempt to put the European bailout package to a national vote, which led the International Monetary Fund and several European leaders to declare that Greece wouldn’t receive any new aid until the referendum passed. Greece stands to gain €8 billion in aid by the end of the month from the European Central Bank.

The shuffle in high-ranking positions comes at a critical time in Europe’s slow and frustrating process to alleviate trillions of dollars of debt accrued by several European Union member countries. The creation of the European Financial Stability Facility in May 2010 allotted some €750 billion aimed at supporting banks across the continent. Part of this sum went to Greece, who eventually received an additional €110 billion through the International Monetary Fund and several European governments. Meanwhile, Italy possesses a debt of €1.9 trillion, and economists fear the country could easily find itself in a situation reminiscent of Greece or worse.

Portugal, Spain and Ireland loom on the horizon as nations susceptible to similar economic measures, however the focus remains largely on Greece. The financial problems have been attributed to an overabundance of loans following the abandonment of the traditional Greek currency, the drachma, in favor of the euro in 2001. This coincided with spending large sums of money on projects such as those in preparation for the 2004 Olympic Games in Athens.

The crisis in confidence across several European nations comes at a time where many economists, political leaders and citizens express severe doubts in the longevity of the Eurozone. Of the 27 EU member states, 17 use the euro, with rules regarding inflation, minting and other fiscal policy under the direction of the European Central Bank. A central issue in the economic crisis remains how much the ECB will pay in recovery funds, and what role individual governments and the private sector will play.

As of press time, Greece had not selected a new leader, however speculation points to opposition leader Antonis Samaras or economist Lucas Papademos (NY Times). Italy could opt to keep the current coalition government in power with another leader, or elect a new Parliament to determine Berlusconi’s successor. Possible candidates include chief of staff Gianni Letta or economist Mario Monti.

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