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U.S. budget crisis may negate efforts of Southern Europe nations to come out of the recession

October 07, 2013, 13:12 UTC+3
German expert: it will have dramatic consequences for all financial markets
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BERLIN, October 7. (Itar-Tass) – If U.S. presidential administration and the republican opposition in Congress fail to reach an agreement regarding the budget for the new fiscal year, it may result in unpredictable consequences for the global economy, said Thomas Straubhaar, director of the Hamburg Institute of International Economics (HWWI) in an interview to the Die Welt newspaper.

“It will have dramatic consequences for all financial markets. American demand will decline; this trend will spread to the global economy,” he said, adding that the crisis may increase the cost of servicing the government debt. In turn, the rising interest rates of United States Treasury security will increase debt servicing cost for a number of EU countries with own economic problems, the expert noted. “This may negate all economic efforts of the Southern Europe. This poses the danger of the Euro crisis coming back,” Straubhaar stressed.

Not all economists share this opinion. For instance, Marcel Fratzscher, president of the Berlin based German Institute for Economic Research (DIW), believes that in the short term, the budget standoff in Washington will not cause ripples in the global economy. “I expect that the argument over budget will not continue for long and will not affect rates of American Treasury securities in the long term,” he noted. In the worst case scenario the debates can weaken only the American economy, Fratzscher said.

Clemens Wüst, head of the Center for European Economic Studies, has expressed his confidence that the ruling Democrats and Republican opposition will find a consensus regarding budget before the confrontation causes “severe consequences for financial markets.”

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