Europe faces long recovery and continued political instability

Euro zone leaders may be inching closer to a deal on a $171 billion aid package geared toward preventing a Greek default, but the process itself demonstrates the “fragile” nature of European political affairs.

The ongoing saga will likely go down to the wire and is, yet again, another reminder of the fragile nature of the state of affairs in Europe and the potential for a disorderly default,” Barclays Capital’s Michael Gapen told Bloomberg News.

“Although structural reforms may boost long-term growth prospects, they take years to bear fruit. In the short term they can raise unemployment and reduce incomes. Groups which have been protected from competition are likely to fight, sometimes violently, to keep their perks and privileges. The promoters of two previous labour-market reforms in Italy were both assassinated,” warns the Economist.

Former Treasury Secretary Hank Paulson told CNBC that Europe faces a situtation reminiscent of America after the Great Depression where there was a “collision of political forces and market forces”.

“That’s really what you’re seeing in Europe. The structural issues around the EU are very difficult issues,” said Paulson.

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