European debt crisis could take years to resolve

It has happened time and time again in recent months as the debt crisis played out. Stocks stage strong comeback with a significant expectation that a solution is found. Then they quickly dispel hopes to continue its economic difficulties, leaving investors confused and tired.

What's happening? The problem, say close watchers of the subprime financial crisis in 2008 and the debt crisis of today is that many investors think that there is a quick and easy solution, if only government officials can agree and act decisively.

In fact, one might not exist. At best, the difficulty governments in Europe and the bail their banks to keep the financial system caused a great shock to the recession and sending economies.

At the latest rescue package was approved in Europe, Germany on Thursday, after Chancellor Angela Merkel won a parliamentary by throwing the weight of the Continent's financial largest economy behind the new thing.

But the bailout does not wipe out the massive debts that have taken years to accumulate - it is like bailing out U.S. banks in 2008 did not wipe out a huge sub-prime debt was lent to homeowners, but could not repay.

The problem - too much debt and too little growth to ease - it can take many years to resolve.

"Everyone has been living beyond their means nearly the last decade, so the adjustment that is painful and long and it will test the resilience of social and political societies," said Nicolas Verón, researcher Bruegel, the research organization in Brussels.

This does not mean that the debate in Europe is controversial. If governments can not agree on how to save the Greek in its crippling debt, some fear the worst can happen - the collapse of the financial system, similar to 2008, that would ricochet around the world, the meaning of the death of Europe, but in the U.S. and emerging economies, long-term downturn, or, more worse.

Just as the U.S., Europe in recent decades, built up trillions in debt.What is different is that it was lending to many U.S. consumers and businesses, while in Europe it was mainly governments, facilitated by banks piled on debt, that lent them the money, buying up government bonds.

Now, just as the U.S. economy is held back by households whose mortgage rates are still under water and who is not going to spend again, until they run down their debts, Europe can not begin to grow again in this country learn to live up to their means.

In short, this means years of painful adjustment.

"We must adjust to lower growth," says Thomas Mirow, President of the European Bank for Reconstruction and Development Bank, referring to both the European and the U.S. "It is, of course, can be very painful. But the leaders have to speak frankly of their populations."

Uncertainty about the future of the gyrations in financial markets since the summer of driving. Earlier this week, stocks are concentrated in the euphoria that came close to a new and powerful security, but the rally fizzled on Wednesday, when the cracks began to appear among the peoples of the money is given to Greece.

Articles Source:- http://economictimes.indiatimes.com/news/international-business/european-debt-crisis-could-take-years-to-resolve/articleshow/10180427.cms