Eurozone crisis poses major threat
Increased spending at home will only soften blow from global downturn
The parallels between Europe's economic troubles today and Thailand in 1997 seem all too familiar. A decline in market confidence leads to a sharp rise in borrowing costs, putting pressure on public finances, credit ratings and the financial sector. The political leadership dawdle before enacting tax hikes and budget cuts, resulting in social disruption and a voter backlash. Meanwhile, the crisis is spreading to other countries facing similar troubles, resulting in a regional "contagion" effect.
But here the parallels between the Asian economic crisis and the eurozone crisis stop. In 1997 and 1998, Thailand and the Asian economies, after years of overspending and deficits, were able to recover due to an export-led recovery following a currency devaluation that gave time for structural reforms and a financial sector cleanup to take hold.
But a devaluation for, say, Italy essentially means a breakup of the eurozone, a messy prospect to say the least.
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About the author
- Writer: Chiratas Nivatpumin
- Position: Managing Editor
