THE DEBT CRISIS AND ITS IMPLICATIONS Dai Bingran Centre for European Studies Fudan University

I. What is Debt Crisis ? 1. Debt is a very common phenomenon in our daily economic life, and happens at all levels. Debt management may be the heart and art of management.

2. A common way of debt settlement is to borrow new debt to clear old debt— hence the question of credit. It becomes a crisis only when the debt is no longer manageable.

3. The current debt crisis refers to that happens in a number of Euro Zone countries, where the public debts are much too higher than allowed, and seem to be out of control:

country Budget deficit (as % of GDP) Public debt (as % of GDP) Greece Portugal Ireland Span Italy Euro Zone

II. Why This Crisis 1. High government spending, especially in social welfare, and weak real economy—the vulnerable links in the Euro chain.

2. Public finance further weakened by the financial crisis and economic recession.

3. Strong international speculation—the result of the abuse of Dollar supremacy

4. Reluctance and hesitance of reactions in the Euro zone, as shown by the several European Council meetings

III. Nature of the Crisis 1. It is not merely a question of money: Euro Zone is not short of money, and internationally the problem is rather there is too much money.

II. It is a crisis not just of the PIGS countries, but rather of the whole Euro Zone and the EU—Euro is a shared enterprise and a common destiny.

IV. The Way out 1. To rebuild the market confidence by showing the Euro Zone muscles, and by enlisting international assistance.

2. To mend the Euro (EMU) mechanisms: --reestablishing the fiscal control; --monitoring financial market movements; --strengthening ECB’s roles

3. To adjust the economic structure and reform the social welfare models and policies.

V. Implications 1. The crisis is not over yet, and it entails the retard of economic recovery and all its social and political impacts.

Economic Forecast ( ) EU (27)Euro Zone (12) GDP growth Consumption Investment Employment Unemployment rate Inflation Budget deficit (as % of GDP) Public debt (as % of GDP)

2. The crisis might not necessarily be bad, if it pushes for reforms in the Euro Zone and in the EU.

3. It might be of interest to see the subtle by-effects the crisis is likely to bring, say, to the relations among the member states and among the EU institutions.

It might also bring with it some international implications.