Wednesday, 9 November 2011

The Eurozone crisis: It's all about trust

From World Economies Infographics
What is the real issue behind the current crisis in the Eurozone? Trust. Which is why the situation is so unpredictable and rapidly changing.

On average, an EU country has a debt burden that is 80% of its annual GDP (see chart), with all the larger economies being the major culprits.

What distinguishes say Germany from Italy? It is the trust of a country's lenders in the country's ability to pay back the debt if challenged.

As small businesses we know that the trust you have gained from your clients is a hard-won achievement. We also know that that trust can be easily lost.

Unfortunately, there is a multiplicity of different trusts at play in the current European crisis.

For example, because Italy needs such a large bailout, questions begin to arise whether the other Eurozone countries can afford to cover it. France is now working desperately to ensure that it maintains its triple A credit rating.

Then there is the trust by a nation's people in their government's decisions. Current economic measures cause dramatic changes in existing social contracts and real job insecurity. If a tipping point is reached, trust in a government is lost and it becomes untenable - see the escalating protests at home and abroad.

Trust is an emotional issue. Logical arguments take a second place.

Which path the crisis will take - resolution by sudden inspired leadership, total collapse due to national popular revolts or a mess in-between - is unpredictable.

The one certainty is: These trust issues will have a major impact on us all. Prepare for the worst and hope that we will be pleasantly surprised.

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