Is Europe's Debt Crisis Over?

The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, former European Commission President Romano Prodi says.

“I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”

Romano Prodi

Romano Prodi

“For Greece, the problem is completely over,” former E.U. Commission president and former prime minister of Italy, Romano  Prodi, says in an interview in Shanghai, Tuesday. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”

Greek officials have been working to reduce the nation’s budget deficit, which at 12.7 percent of gross domestic product was Europe’s largest in 2009.

The government last week announced spending cuts and tax increases totaling 4.8 billion euros ($6.5 billion), the third round of austerity measures this year.

French President Nicolas Sarkozy said on March 7 the 16- nation euro region must support Greece, which has more than 20 billion euros of debt falling due in April and May, or risk destroying the currency.

German Chancellor Angela Merkel, who runs Europe’s largest economy, has so far refused to give the green light to any aid package.

Intervention by European nations to date “was enough” and countries such as Spain and Portugal have “plenty of time” to get their finances in order, says Prodi, who in 1997 introduced a “euro tax” that helped Italy cut its budget deficit to 2.7 percent of GDP and so qualify to join the currency.

Italy’s shortfall in 1997 was equivalent to 7 percent of the economy.

Prodi (70) who was head of the commission from 1999 to 2004, will teach at the China Europe International Business School in Shanghai.

He said budget deficits are “a general problem for almost all the wealthy countries,” according to Bloomberg News.

The euro has weakened 5.8 percent against the dollar this year as concern Greece will struggle to finance its deficit eroded confidence in the European currency.

The Chinese yuan has rallied 6.2 percent against the euro in that time, reflecting the Asian currency’s peg to the greenback. A stronger yuan erodes the competitiveness of China’s exports to Europe, the No. 1 destination for the shipments.

“Europe is more than happy,” Prodi says.

“For the benefit of the European economy, the decrease of the value has been absolutely positive.”

Source: Bloomberg News

Related by the Econotwist:

Bad Debt: More, But Less Bad

Greece: “Exploiting The Fear”

Week Ahead: Market Still Doubts Rally

Greece Launch Critical Bond Sale; Protests Intensifies

E.U. To Reform Economic Policy

Beginning Of The End For The European Union?

Nervous Markets Ahead Of Greek Bond Sales

European Commision Warns Of “Lost Decade”

Fitch: Global Sentiment Improving but European Concerns Persist

Swedbank Buy Greek Bonds With Estonian Money

Wave Of Protests To Hit Troubled E.U. States

Naked self-interest

Baltic Countries Remain In Recession

EU Wants Answers From Wall St. On Greek Debt

End Of The European Upswing?

Attacks Against Spanish Financial Markets?

Traders Short Record Amount of Euro

Global Markets: “The Fear Is Still Out There”

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