IN YEARS to come, 2010 will be remembered as the year the euro zone crisis broke out. First it was Greece in May, then Ireland in November who declared their insolvency and asked their neighbours to bail them out of financial trouble. Both the European Union and the International Monetary Fund promised generous packages. More than $100 billion are going to Ireland and $150 billion to Greece. Both Ireland and Greece must carry out a number of austerity measures, including cuts in public spending and civil servants' salaries, while they impose more taxes and raise the pension age. Naturally these measures were met with protests. Observers fear that Greece and Ireland will not be the last to suffer this fate. Portugal, Italy, Spain, which also have large budget deficits, may be next in line. The bailouts are, according to German Finance Minister Wolfgang Schaeuble, meant to safeguard the future of the euro. "We are not just defending a member state but our common currency," he said. Indeed, the crisis has already taken its toll on the European currency, which dropped to as low as $1.25 in May, picked up again, and then fell once more below $1.30 in December. As far as Egypt is concerned, according to chief economist and strategist at Pharos Holding for Financial Investments, the effect of the Euro zone crisis is not as bad as had been expected, because core countries such as Germany continue to be in a stable position. "Egypt had its own crisis in the 1990s and early 2000. We are now in a cleaner and much better position," Genena said. Genena added that Egypt does not share Greece's problem stemming from foreign borrowing. Prior to its crisis, the European country had extensively borrowed from abroad in order to overcome its own lack of local liquidity. Egypt instead finances its debt by borrowing from local banks. Nonetheless, what Egypt needs to keep an eye on, according to Genena, are the credit and fiscal situation. He said the Egyptian government was working on reducing its deficit but was sidetracked by the global crisis because it needed to inject a stimulus package at a time when revenues dropped. Moreover, the government is working on trimming its expenditure on subsidies and on attracting more private sector funding into the economy through public-private partnerships. That, Genena said, should help the government work on cutting its deficit. Fiscal deficit reached 8.1 per cent of GDP in fiscal year 2009/10, up from around 6.9 per cent the previous year. Minister of Finance Youssef Boutros Ghali said the country is aiming for a 7.9 per cent deficit for the current fiscal year, and for around three per cent for 2015. Genena also warned that Egypt must keep watch on credit to make sure that it does not spiral out of control.
