Although Spain
and Italy were warned by the
European Union that they risk exceeding budget deficit targets, there has
clearly been significant fiscal improvement in the Monetary Union’s periphery,
thanks to austerity measures, in contrast to Europe’s economic powerhouse, Germany , which
has been relying on its favorable balance of trade. There have also been signs an economic
recovery in Europe may finally begin, which will ameliorate the fiscal crisis through higher tax revenues from economic growth.
Despite a
split within the largest center-right party in Italy, the PDL (People of
Liberty), some of the members of which will be joining former Prime Minister
Silvio Berlusconi’s revival of Forza Italia (Forward Italy), with the rest
remaining in the PDL or forming a new party, the center-right bloc will remain
united behind their leader, Berlusconi, including in regard to the upcoming
vote to remove him from the Senate because of his conviction on corruption
charges. The split suggests those
remaining with the PDL, including Deputy Premier Angelino Alfano, would
continue to support the shaky grand coalition government led by center-left
Prime Minister Enrico Letta. The Government has been successful in replacing real estate taxes with other measures.
Meanwhile,
the Germans have been making significant progress on forming another grand
coalition between the center-left and center-right under conservative
Chancellor Angela Merkel, as expected.
Political stability in these two major members of the European Monetary
Union is essential for investor confidence, as well as to continue the Union’s
policies, backed largely by Germany ,
of supporting the eurozone’s weaker members.
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