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EU helpless in Europe’s debt crisis

As the European stocks continue to fall, fears are growing that Europe’s debt crisis is spinning out of control with Italy and Spain possibly becoming the next victims of the crisis.

The European Financial Stability Fund (EFSF) was set up in a bid to help maintain stability in the Eurozone by lending up to EUR 440 billion to its member states.

So far, Greece, Ireland and Portugal have already received bailout packages from the European Union, which has spent much of the past 18 months trying to battle its debt crisis.

Press TV interviewed Trevor Cohen, Research Associate for the Center on Hemispheric Affairs in Washington, to further discuss the issue.

Press TV: So far Greece, Portugal and the Irish Republic have already received bailouts. Last month, Eurozone leaders agreed to a second bailout deal for Greece. Why have these bailouts failed to solve the Eurozones’ economic crisis?

Cohen: Well, personally I don’t think that a lot of the countries in the Eurozone, that have to be responsible for supporting a lot of the countries with more irresponsible fiscal policies, really have the resources left to prop up these countries.

For example, in Italy there is absolutely nothing that Germany and France can do right now in terms of propping up this economy, and honestly what I think we are seeing right now is that we are seeing a reverse in the tone that was set a while ago and at least by the US in the Washington consensus, and an agreement between the IMF (International Monetary Fund) and the European countries with a large involvement in the IMF, which basically set a tone for a lot of the developing world that you need to restructure your economies now and you need to change that.

And what we are seeing now is that we are actually seeing a lot of the developing countries outside excluding the Eurozone, especially in Latin America and especially in Asia, especially second-tier Asian countries, with much more fiscally responsible policies than a lot of these more developed countries, and I think they have really taken on the elephant in the room themselves and sort of created their own independent responsible policy, which is helping them grow, and will make them much more stable in the long run as they gain more power.

Press TV: A major fear in Europe is that Italy may be approaching the point where it can’t borrow or where its borrowing costs become prohibitive. And if that happens, it becomes reliant on the European Central Bank for liquidity – that is for short term purchases of its debt. What could be the prospect for the Eurozone if that happens? Can the Eurozone survive this pending crisis?

Cohen: Well, I think one of the main concerns is that the fiscal policies are so much more different than the united monetary policy of the European Union (EU), and as a result, Italy really lacks a good tool in terms of using its monetary policy to help with this recession.

So, I think a solution that has been discussed before, which is not incredibly attractive at all, is to created a united fiscal policy between a lot of the European Union countries that will help align their fiscal responsibility in a way that is more consistent and does not create the sort of disparities that we see between these countries and their policies, and would maybe help adjust better to the very tight monetary policy of the European Union.

Press TV: The deal does not raise taxes on America’s wealthy and most fortunate, who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been. Yet it puts the nation’s most important safety nets and public investments on the chopping block. Was it a good deal for average Americans?

Cohen: In no way do I think that it was a good deal. Honestly what is happening is that we are seeing people in Washington, who are incredibly disconnected to what is going down and what is happening on any block you go into in America.

They are completely disconnected to it and completely held hostage by part of their only ideology which they are sticking towards, which is influenced a lot by private interest and a lot of interest, which influenced them in Washington such as many lobbyists and also a lot of their large donors and their constituents, which has created an ideology that is strange, were we see the Tea Party [movement] which is a huge proponent of cutting government funds and smaller government and lowering taxes in a way with the ultimate goal of helping the lowest people in being the proponent of the lowest people, and honestly I don’t see how that makes sense and that has had a lot to do with this bill.

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