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The Euro plunges again: can Europe solve its debt crisis?

Europe’s debt crisis continues to show no signs of letting up. The Euro zone has been facing a real threat of total collapse thanks to debts too large, problems too intricate and political will too feeble, since the beginning of the crisis in 2009.

The Euro plunged again this week and hit its lowest level against the dollar, since mid-2010. European leaders have managed to put a bandage here and there on the ailing Euro, but when the Euro plunges again can Europe really solve its debt crisis?

The Greek crisis

Europe has all but admitted that Greece will exit the Euro zone as all efforts to bail the country out of its debt crisis have failed to bear tangible fruit. It seems like the second round of elections in Greece slated later this year on June 17, 2012 will not bring in a government willing to adhere to the austerity measures agreed upon by the previous government in exchange for EU bailout funds.

The German chancellor Angela Merkel on Wednesday maintained that she has no intention of entering into new negotiations with Greece about the austerity measures agreed upon. “We want Greece to remain in the Euro zone,” she said at the 23 May, 2012 summit of EU leaders in Brussels. “But, the precondition is that Greece upholds the commitments it has made.”

A Greek Euro zone exit

If either side of the parties does not bend on the issue regarding the austerity measures, it is all but assured that Greece won’t get the Euro zone rescue money it desperately needs to address its financial woes. This will mean Greece will likely run out of money by early July 2012 and find itself forced to exit the Euro zone and reissue its own currency.

Even if Greece is not pushed out of the Euro zone by a failed EU bailout plan, the flow of deposits out of banks in Greece could lead to the sector’s collapse, which in turn could force Greece out of the Euro zone. Unless measures are taken to stop the sluggish Greek bank run, the bank run is likely to spread to weaker Euro counties like Italy and Spain and nudge them out of the Euro zone as well, thereby threatening the entire European Union.

It is also apparent that the debt situation in Spain, Euro zone’s fourth largest economy, is worsening. Spain might just become the tipping point in a wider Euro zone crisis, if Greece does not play this role.

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