World Economies 3

The Whiff of Contagion

http://www.economist.com/world/europe/displaystory.cfm?story_id=13184594

With the world markets in a decline that they are in right now, Eastern Europe is having unique solutions to the problems facing the rest of the world.  Countries such as Latvia are selling shirts with sayings on them that do not make sense.  One saying is “Nasing Spesal” and are starting to be a lighter note to an increasing country deficit and make some people feel a little better about what is going on.  The government is now trying to cut spending in numerous ways, the biggest cut being in social programs.  This drastic change is causing the public to riot.  Some just simply do not understand that the government is just trying to do what is best for the country.

 

Domino Theory

http://www.economist.com/finance/displaystory.cfm?story_id=13184631

For decades people have bought and sold bank bonds, with the thought “if you can’t trust the government, whom can you trust?”  This way of thinking quickly spread from one government to the next when people started to buy bonds in foreign markets.  Governments started to run huge deficits on the basis of bond sales.  The question is now, what if governments can’t pay them back?  With the most risky Dubai the question may become reality.  Not having enough capital to pay back loans could not only affect that country but also many others, from the lost income that foreign investors could have had.

 

The bill that could break up Europe

http://www.economist.com/opinion/displaystory.cfm?story_id=13184655

Combining the previous two articles, a problem has sent in with Western Europe investing in the spend-fast Eastern Europe.  The eastern countries may not be capable to pay back the loans, and the first to feel the effects would be their western counterparts.  Some predict that this fall of even one country could trigger effects that make the entire European Union fall.  Unfortunately, the IMF will have to step in and help pay some of the countries debts, so hopefully a great World economic disaster is dodged.  Since there is also a central currency between these countries, the western states must be concerned with what the failing foreign markets could do to their countries markets.  It is pretty well understood that the first thing that should be done is to stop the currency from collapsing and ensure that banks have enough money (from the IMF) to ensure that people can continue to function in their daily lives.