Britain’s plan to exit the European Union (EU) shocked the world and put the continent at the center of the Business Finance News. It seems like Brexit is just the beginning of hard decisions that the union has to make as a continent, as problems at the Southern Europe starts to get out of hand.
Long Withstanding Division of North and South Europe
According to Garret Martin, European Affairs Editor-at-Large, the rift between the two parts of the continent is evident in the history. Unity is difficult to achieve in the past, because numerous wars were conducted due to their differences in view of various aspects like religion, ideology, and politics to name a few. In the attempt to forge a unified European block, these differences were put aside. Britain’s exit though stirred more problems for the union.
Effect of the World Crisis in Italy’s Banks
Problems that arise with the world crisis a decade ago gave birth to an array of problems like increasing unemployment rate, slow economic growth and more. However, as shown by the research conducted by the Market Watch, it also paved way for Italian banks to be indebted to the EU to around 360 billion euros or $398 billion. In an attempt to salvage its banks, the government of Italy had allotted special fund for it. The 4 billion euros however is not enough to compensate for the debts, which is around 17% of the total loans of Italy.
The Wavering Politics in Italy
Investors both at the local and at the international level are wary of the current situation in Italy. The supposed to be referendum on constitutional reform that will happen around October or November evolved into something else as the Prime Minister Matteo Renzi threatened the voters of a resignation if they are to oppose his reforms. His threat could prove to be a fatal blow to his administration because it could mean an early election. Italy’s famous political party, the Five Star Movement could win the elections making the investors worry more about the financial situation of the country.
How the Brexit Affected Italy
It may come as a shock but Italy was greatly affected by the British referendum. Based on the statistics, the country’s stock exchange dropped after the announcement of the result of the vote for the British referendum. In mere two weeks after that, bank’s share value decreased almost by half. Finance news articles show that Monte dei Paschi di Siena, which is the third largest bank in Italy, is in a difficult situation because of what happened. With how things are going, borrowing becomes more expensive for Italy not to mention the standing question on how they are going to pay all their former debts.
Deficit of Other Southern Europe Countries
Other European countries in the south which are Portugal and Spain, are also having a difficult time regarding their finance. Both countries failed to reduce their deficits and a sanction was recommended by the European Commission to be imposed on them. To be more concrete, Portugal’s deficit remained at 4.4%, but this is above the target of the commission which is 3%. Meanwhile, Spain’s deficit went up to 5% while the commission’s target is for them to decrease it to 4.2%.
Differing Views of the North and the South
Northern countries like Netherlands, Germany and Finland have long been cautious about imposing sanctions related to deficit. Being too lenient about it may lead other parties to think that the union is bending its rules to favor the southern block resulting to undermining of its fiscal rules. Southern Europe on the other hand feels that the EU should show more compassion regarding their situation if they want to put a rest to the increasing uncertainty in Europe.
EU: Torn Between the North and the South
The European Commission is now faced with a dilemma. Should they give punitive measures to the southern countries for not following their rules or should they be more lenient and help them in their recovery which is against to what the block have agreed as a union. Choosing either of the two will have its repercussions and the EU should be prepared with it.
The exit of Britain as a market-friendly state affected the EU in ways more than one. The union as it is now could only hope a compromise between the opposing blocks and views within the union. It is possible that the EU will help the south to do damage control. After reading Finance and Business News though, it is clear that full all-out support though is out of the picture and the sanctions should not be forgotten so that their rules will not be undermined.