The European financial crisis is showing no sign of slowing down as the European Union continues to look for ways to stop what may soon become the world’s most catastrophic financial calamity. EU regulators have turned to the insurance industry to help find a solution to the crisis, but insurers have been leery of lending any aid, as the countries involved in the crisis are exposed to massive risk. The European Insurance and Occupational Pension Authority has released a statement regarding the crisis, calling it worse than the economic disaster of 2008.
The European Union believes that the insurance industry can help solve the problems by providing debt insurance to Spain, Ireland, Greece and Italy. According to insurers, the problem is deeply rooted in the close relationship between banks and state governments. These banks deal in government bonds, which account for the majority of the government’s inherent finances. These bonds have lost tremendous amounts of value, which threatens the financial solvency of these governments.
The European Insurance and Occupational Pensions Authority believes that the value of bonds can be reduced by 50% in order to mitigate the impact of the financial crisis, but such an act would compromise the long-term stability of the countries most impacted by the crisis. The longer insurers delay their involvement in the crisis, the more damage it will cause. The EU is currently drafting a new plan of action with the help of the industry, but it is unknown when the plan will be put to action.