Since the greek debt crisis began, economists and economic analysts alike have been thinking of new solutions to the economic debt crisis in Europe. One of the possible solutions being debated is whether it would make sense for the developing BRIC countries to step in and alleviate the crisis. Why? Well, the booming Bric nations alone have more than $4,000bn in reserves between them -- meaning they have the resources to fund a great deal of deficit.
As the Wall Street Journal reports today, national governments are suffering from skewed incentives, so that actions benefiting individual countries in the short term may hurt Europe as a whole in the future.
Apparently there are more negatives than positives to a BRIC nation bail-out: right now, Europe runs an account surplus. "By definition, this means that far from being starved of capital, European savings exceed European investment, and it exports the excess to the rest of the world. Any big increase in the amount of official foreign capital directed at purchasing the bonds of struggling European governments would inevitably cut the European trade surplus" -- one of Europe's major strengths at the moment.
If foreign central banks sold large amounts of dollars to buy euros, this would strengthen the euro against the dollar, making European manufacturers less competitive in the global trade market and their exports would drop, leading to multiple negative consequences such as higher unemployment in the region.
Click here to read more on the pros and cons of this new solution to the European debt crisis being debated.
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