Will EU stabilizing plan be enough to save the euro?
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Global financial markets have risen sharply after news about the establishment of a giant European Union stabilizing fund calmed market fears about a possible full-blown pan-Europe debt crisis.
Despite obvious short-term positive market reactions, many are still wondering whether the plan will be enough to stop the Greek debt crisis from spreading to other parts of the euro zone and thus secure the future of the currency.
Positive short-term reactions
During the past few weeks, the global financial system has witnessed strains similar to those that led to the demise of the U.S. investment bank Lehman Brothers in the autumn of 2008.
Cautious banks are holding back their money again after seeing signs of the Greek debt crisis spreading, creating a minor liquidity crunch.
Meanwhile, the euro fell to a 14-month low against the U.S. dollar as panicked investors dumped the euro zone's common currency and bought gold and U.S. dollars to reduce their risk exposure.
On Monday, global financial markets rebounded sharply after news about the EU stabilization plan boosted investors' confidence. All three major stock indices in the U.S. financial markets registered increases of around 4 percent.
Some European markets rose even more sharply, with several major indices closing up about 9 percent.
Stock markets in Asia and Latin America also rose.
Meanwhile, market risk appetite returned. Gold and the U.S. dollar declined, while crude and other commodities rose.
Long-term stability not guranteed
A senior International Monetary Fund official called the EU plan "morphine," which could calm the markets for the time being, but could not serve as a long-term solution to the European debt crisis.
The debt crisis in Greece underlined the country's failure to make structural reforms in recent years. The problem can be said of many other euro zone economies as well.
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