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Euro Burns Money
By: Indranil Sen Gupta
January 31, 2012 04:55 PM
Money is being burnt. Yes, Europe is about to burn money and that for a decade. In my last article I revealed about the propelling Euro debt payment where it will need around 1 trillion euros to be paid by June 2012.Please click the link below to find the PREVIOUS STORY OF EURO DEBT
In my last article I received a couple of queries where I found the readers are perplexed about the mechanism being implemented by euro to fight out the debt. European commission has formed two mechanisms to deal with falling debt burden. European Financial Stability Fund is the fund which has been built by the 27 members of the Eurozone to fight out the sovereign crisis. On 9th March 2010 the 27 euro nations gave birth to EFSF.EFSF was authorized to borrow upto €440 billion. At present out of this €440 billion only €250 billion have remained available after the Irish and Portuguese bailout being executed .EFSF funding mechanism will be based upon issue bonds or other debt instruments backed by the by guarantees given by the euro area member states in proportion to their share in the paid-up capital of the European Central Bank (ECB).In the below chart the paid up capital details of the member states are given clearly. The amounts are based on the European Central Bank capital key weightings.
The next vehicle is called European Financial Stability Mechanism. This is an emergency fund which was built based upon the funds raised on the financial markets guaranteed by the European commission by pledging the budget of the Euro nations as collateral. Now pledging the budget of the Euro nations as a collateral means that the extent to which the euro nations will cut down on budgets depending upon that the funds will be paid by EFSM to Member states. Now cut down on budget expenditures will result to prolonged crisis for the Euro nations in terms of GDP growth. Less government spending is going to result prolonged job losses and cut downs, low consumption and less manufacturing to happen. This will further increase the burden of the Euro member states regarding their income generation from taxes and other government avenues. So, where growth of the Euro economy is being foreseen in the near future is the question in demand. Unemployment benefits numbers are going to increase despite of government cut down in the expenditure.
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