EU Financial Crisis: Exotic Financial Maneuvers Likely Cause

Debt deals eyed as foundation of the problems emerging from Europe. For too long, investors took the “don’t ask don’t tell” position with the European governments hard line bookkeeping and accounting, which was aimed at meeting their fiscal ceiling regulations. To circumvent the regs, many Countries across the Continent have used complex financial transactions. These "transactions" were not fully disclosed as to the size of their debts or deficits.

The members of the EU are required to comply with rules concerning debt levels, capped at 60% of their gross domestic product. The members are also required to abide by the strict mandate concerning their annual budget deficits, which should be no more than 3%. According to the Wall Street Journal, these restrictions explain why the Continent has the rich history of exotic financial maneuvers practiced by the EU members. The complex financial transactions were essentially used to camouflage borrowing over the past decade. Making matters worse is the fact that governments were not required to report their Country's military spending, which is not be included in debt-to-GDP ratio calculations. For example: in ‘2000 Greece reported that they spent the equivalent of $1.13 billion on their military, but later admitted that it was closer to 4 billion. Under pressure, Greece disclosed that they under-reported military spending between 1997 and 2003 by €8.7 billion (that's $11.4 billion USD). The European leaders deemed these practices acceptable during the time they were planning the currency union, but of course hindsight is 20/20. Thus the proliferation of Euro-zone countries in crisis is staggering.

Although the United States' financial troubles are not completely behind us, and our economic forecast is still a question mark, the worst appears to be over. I cannot say the same for the European Union, as it is difficult to determine were the bottom actually is.


K. Reilly
Cohn-Reilly Report

Recommended reading: Article by Geoffrey R D Underhill provides an Interesting perspective on Europes Financial Crisis

___________Comments

C. Nireth said...

Yeah, this Eurozone crisis is pretty gloomy, but it puts our troubles in perspective. Wow...I get it! This is a global crisis which seems to escape most people in the US - especially the republicans and the misguided teaparty, who are using the economy as a platform to discredit the democrats and Obama.

Katherine said...

You are exactly right. One of the reasons I think it's important to write about the financial concerns overseas is to broaden our perspective on what's going on domestically. There is certainly enough blame to go around, but for some reason the Obama administration and the democrats are unfairly targeted. We have had over a decade of out-of-control hedge funds, insider trading, portfolios with over-the-limit derivative/high risk securities, sub-prime loans, and ponzo schemes, rancid mortgage-back securities, Hide-and-seek accounting practices ....I could go on and on
Thanks for your coment




K. Reilly
Cohn-Reilly Report