A Bump in the Road – RantAWeek
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A Bump in the Road

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Posted by Angela Yang on May 1, 2012 at 5:30 am

The Eurozone has hit another bump in the road. Actually, more like a pothole. As most people already know, the debt crisis of the EU has driven through many problems and is running low on gas. The only fuel left lies in a few countries holding onto their triple-A economic ratings. Sadly, a tow truck may soon be needed to bail out the Netherlands, as yet another country risks losing their high rating.

How was this pothole formed? Well, the main cause is that the government of the Netherlands is falling apart. Geert Wilders, the leader of the Dutch Freedom Party (PVV), is infamous for hiding in fear of assassination and strongly opposes immigration. Even though he is disagreeable, Wilders can make a great impact on the government. After he withdrew from budget talks last week, many other Dutch political parties had to be compromised in order to keep the government running. He already propped up a minority government, and is forcing an election to be held on September 12th against the current Prime Minister, Mark Rutte.

Due to all of the fluctuations from the ruling parties, austerity measures are being sidelined. A new budget was created three days after the PVV’s resignation, which includes a set of regulations requiring a budget deficit lower than three percent of the GDP, as required to be part of the Eurozone. This difficult task was rushed to meet the EU deadline of April 30th. Since austerity has become trivial in the Netherlands and new regulations are complicated to agree upon, the weakening economy has allowed debt-yields to rise, thus creating the pothole.

So far, the damage is already surfacing. Yields on Dutch debt have recently gone up drastically, meaning that people will get more money back for their investments. Money returned from these yields includes the return rates on stocks or fixed income. This may seem like a good deal at first, but after a closer look, it is evident that a high-yield bond only appeals to investors while trying to hide greater risks for default in the long run. It signifies more instability for an already wavering economy, which is precarious in a situation like the EU.

More problems for the EU remain in the road ahead as well. Anti-EU support has increased over time, which makes it harder for the countries to stay cohesive. With election season in France and other countries of the Eurozone, leaders and voters care mostly about new economic policies that could possibly come with a change in government. It is even probable that citizens could vote to tear apart the countries of the determined Eurozone. All of the effort put into saving the group may be useless, but for now, all we can do is buckle up for a bumpy ride.

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Filed under Economy, International
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2 Comments

  • On May 1, 2012 at 7:23 am 5baccess said

    Nice analogy

  • On May 1, 2012 at 11:32 am Chuck said

    Nice job. This is so informative.

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