The ghost of the default in Europe

The solution to the problem of debt in Greece has brought relief to markets. The investors, backed by the Fed and the ECB have been released to the stock market, pushing up. The enormous amount of liquidity in the world lets support these increases. However, it is important to place the general problem of the economy of Europe within the global context.

During the weekend, I had the opportunity to review a series of reports and documentation on the economy of Europe. No matter as the various analysts, commentators, politicians or monetary authorities relating to this topic. Objectively, Europe is in the middle of a serious economic problem that can destabilize the world economy.

For now, the European Union has focused on solving problems certainly very small countries like Iceland, Ireland, Portugal and Greece. However, if you look at the big picture, you will notice that in general terms, did no solve much of anything. Thus, the ratio DEBT/GDP of the European Union as a whole is 82%. This information, graphic itself very well the plight of this important part of the world. But, if you look at the situation of countries with major economies, will see that the situation of these countries is also very complicated.

Spain for example has a ratio Debt/GDP of 66%. However, if it incorporates the country's regional debt, this ratio rises to about 80%. Meanwhile, Italy has a ratio of almost 120% of GDP, in France, this ratio is 85% and Germany (what a surprise!) has a ratio of 82%. If we add these numbers to UK (not a member of Europe Union) which is 85%, we understand the magnitude of this problem.

Remember all the "noise" that generated the problem in the markets of Greece. Now, imagine what will happen when the European Union has to address the problems of these bigger countries.

Europe has four problems to face to get out of this situation.

A.- Economic Growth.- Europe is the region of the world with less economic dynamism. Its a great economy that almost nothing grows. The first challenge for these counties is to adopt measures to re-grow, albeit at modest rates.

2.- Public Deficit.- All European countries face growing public deficit. Spain has a deficit of over 6% of GDP. Italy: 4%, France: 7%, Germany: 2%. If you look at the smaller countries, this situation is even worse.

3.- Excess of Expenses.- The European population is accustomed to live by his government. In recent years, have reduced the hours worked per week. Similarly, it has reduced the minimum age for retirement. The government pays for social security, education, for roads, for some foods, for houses. In general, Europeans have become government-addicts. The government can not increase their income because the economy is not growing, but faces major spending pressures. So, they are forced to borrow to cover these higher costs. Until when? I think until yesterday.

4.- Structures with little flexibility.- the economy of the European countries is not very flexible. This prevents companies, restructure and adapt quickly to market changes. As a result, European companies are losing competitiveness.

Given these problems, what has be done in Europe is simply "reduce fever to the sick". But still not facing the real wedges of the disease.

Lower government expenditures, raising tax revenues, revive the economy and pay the debt, are part of a very difficult equation to solve.