Finance risk in the Euro zone

You may lack the most basic financial knowledge, such as an llc definition, but it doesn't take anything but common sense to understand what is happening in the Euro zone and the implications of instability for the global economy as a whole. Over the next few months, European governments as well as European banks will be scrambling to raise large amounts of money from investors to tide over the current problems. It is therefore likely the bond markets are going to experience unprecedented pressures.

It is by no means certain that the money would be successfully raised and the resulting squeeze on finances could easily push Europe into recession. Most likely, banks will be forced to cut financing to both business and consumers in order to survive. As it is, as a reaction to their past problems, banks have been shying away from taking on additional risk and a funding squeeze will only make things worse.

Clearly, despite all the political initiatives of the past few months, the region still has to come to grips with its problems. The recent move to coordinate budget initiatives among all the member countries is a good long-term measure but can do little to alleviate the short-term problems. As it is, some countries, notably Britain, have expressed a marked reluctance to make further contributions to bailout funds.

Some relief may be forthcoming with the recent ECB announcement that they would be relaxing their lending criteria to the financial sector to try and mitigate the effects of the forthcoming squeeze. Loans will be made for as long as three years to provide banks and financial institutions plenty of breathing space in which to make their plans. More importantly, they can do so without the worry of seeing their funding dry up. The first of these loans would be disbursed shortly.