...the euro-zone crisis – causes, the crisis and reformation policies (with special reference to greece) the euro-zone ‘The Eurozone’ is the nickname commonly used to describe the member states that use the EU’s single currency, the Euro. The idea of creating a single currency for the European Community was first mentioned in the 1970 Werner report, which led to the establishing of the European Monetary System (EMS), the forerunner of the Economic and Monetary Union (EMU). The Maastricht Treaty (1992) made EMU a part of EU law and set out a plan to introduce the single currency (the Euro) by 1999. The Maastricht Treaty also established certain budgetary and monetary rules for countries wishing to join the EMU (known as the convergence criteria). In 1998, 11 member states (Germany, France, Italy, Belgium, Luxembourg, the Netherlands, Spain, Portugal, Ireland, Austria and Finland) undertook the final stage of EMU when they adopted a single exchange rate, which was set by the European Central Bank (Britain, Sweden and Denmark negotiated an opt-out from this final states of EMU). The new Euro notes and coins were launched on 1 January 2002. There are currently 16 EU states in the Eurozone. Greece joined the initial 11 members in 2001, Slovenia joined in 2007, Cyprus and Malta in 2008, and Slovakia joined in 2009. Estonia is due to join the Eurozone in 2011. All future members of the EU must adopt the Euro when they fulfil the convergence criteria. Economic and Monetary Union...
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...2 2.0 The Establishment of the Euro Zone and the introduction of the Euro 2 3.0 Key Causes of the European Financial and Economic Crises 3 4.0 The Start and Progression of the European Debt Crisis 5 5.1 Greece 6 5.2 Portugal 6 5.3 Italy 7 5.4 Spain 7 5.5 Ireland 8 5.6 Iceland 9 5.0 Measures Taken (so far) to Combat the Debt Crisis (European Level) 10 6.7 European Financial Stability Facility (EFSF). 10 6.8 European Financial Stabilization Mechanism (EFSM). 10 6.9 ECB interventions. 10 6.10 Brussels Agreement. 11 6.0 Implications of the European Debt Crisis: For the European Union 12 7.0 Implications of the European Debt Crisis: For the Global Economy 13 8.0 Implications of the European Debt Crisis: For Global Politics 14 9.0 Implications of the European Debt Crisis: For Pakistan 15 10.0 Implications of the European Debt Crisis: For the Welfare State 16 11.0 Solutions for the European Debt Crisis 16 12.11 Eurobonds. 16 12.12 Restructuring of Eurozone. 18 1.0 Overview: With a nominal GDP of $16,242 Billion in 2010 (20% of global GDP), the European monetary union is not only the world’s largest economic block, but also the foremost integrated economic and political association of nations in history. The economic crisis the Euro Zone currently faces is unique in all of...
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...Lyn Klein Economics for Global Managers Professor Victoria Vernon Module 3 Case Study: European Union 7/3/14 The EU is facing a banking crisis. There are insolvent banks in Ireland and Spain, as well as other nations. They lent out too much money, often against real estate. There were real estate bubbles then the value of real estate fell and borrowers could not always pay back the loans. The Greek banking crisis was caused by the government spending too much and borrowing too much money. The economy collapsed causing the banks to be insolvent. Before the collapse banking was conservative. When a nation has insolvent banks belonging to the Euro zone make that problem much worse. There were silent funs on Greek banks, with capital flight; people are pulling their money out of the Greek banks and sending it elsewhere, making the Greek economy worse. The common currency zone escalates the problems. There are also capital and trade imbalances. Germany is exporting a great deal more than it imports, causing capital flows into Germany. Spain and Greece import more than they export so capital flow is out of the country. They need to become more productive at exporting, which is not always easy. In the 2000’s money flowed into periphery countries, borrowing rates were low and capital inflow brought rising standards of living. By 2010’s money was flowing out of the periphery countries and back into Northern Europe. Periphery economies were starved for investment...
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...THE EURO CRISIS The entire global attention is currently focused towards the ongoing crisis in the Euro zone. The present article seeks to simplify and logically explain the crisis which has engulfed PIIGS. Q1) What does the term PIIGS stand for? Ans. PIIGS stands for Portugal, Ireland, Italy, Greece and Spain. The current Euro crisis started in Greece and has now finally spread to Italy. In fact, there is a worry that ultimately it will slowly engulf the entire Euro zone and that there will be sovereign defaults. Q2) What is a sovereign default? Ans. Sovereign default occurs when a country defaults on the loans it has taken and is unable to repay them as per the originally decided terms. Sovereign default is considered catastrophic as the lenders normally have to make huge sacrifices. Q3) How did the crisis originate in Greece? Ans. Greece had a very liberal social security program for its citizens. Govt aided healthcare, education, pensions etc. which were heavily subsidised as the Greek Govt was bearing the major part of the expenditure. The Greek Govt went on a borrowing spree to finance its expenditure leading to the current debt position which looks unsustainable. It is feared that there will soon be a contagion effect. Q4) What is the contagion effect? Ans. Contagion is derived from the word “contagious” which means to spread. The worry is that this alarming situation would spread to soon other Euro regions leading to many sovereign defaults. Already pain is being...
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...their recent Summit will avoid further increasing Euro rescue fund, the European Financial Stability Facility (EFSF), or issuing joint Eurobonds. Both measures are extremely unpopular in Germany, which sees itself as the financier of spendthrift southern Euro zone member countries. Germans are only willing to pay with “their” money in “return” for strict austerity measures. And, as Merkel has said, Eurobonds would only be considered as last means. The German Chancellor seems to believe that the Euro zone is not yet at the point where last resort measures need to be considered seriously. Unfortunately, Mrs Merkel may be wrong. Are we there yet? There are a number of compelling reasons to back this. With Italy and Spain (and eventually France and Belgium) in peril, even a tripling or a quadrupling of the ESFS fund would not be sufficient. And by providing such funds the debt crisis would surely arrive in Germany, too. So far, imposed austerity measures have induced recessions in the debtor countries, Euro zone economic growth is flat and even in Germany zero growth was reported in the last quarter. All this makes it more difficult to grow out of the debts. Financial markets and especially interbank markets are increasingly showing signs of resembling the conditions preceding the global financial crisis conditions – strongly suggesting that another banking crisis is just around the corner. But this time it will hit the Euro zone countries when their public debt levels are much...
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...“Will the European Union Abandoned the Euro and Go back to their own Currency?” Professor: Dr. Mague Managing in a Global Environment MG615 Winter 2011 In today’s economy there are many different countries using different currencies. The European currency is defined as the forerunner of the Euro. This was a stable means of exchange between the former national currencies as they prepared to give way to the single currency. There are only some countries in Europe who adopted the Euro which are; Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The countries who did not adopted the Euro are; Denmark, Sweden and the United Kingdom. This is because they fear adopting the Euro would devastate their economy. Adopting the Euro gave the country a new start and others though it was a investment disaster. There have been many problems in adopting the Euro and people question whether or not the European Union will abandon the Euro. In reading many articles the countries using Euro zone are going through different forms of an economic crisis. According to the Bloomberg report the Euro zone fluctuates by increasing or decreasing in value. The euro zone had a weekly loss against the dollar after Portugal’s credit cut leaving European leaders ready to discuss the region’s debt crisis. The European officials will try to control a sovereign-debt crisis. As reported in the Bloomberg report, European Union leaders in Brussels...
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...“The euro was a bad idea from the start. Now it is only a matter of time before the Eurozone falls apart.” Introduction: The international financial crisis in United States in 2008 is not over, then the sovereign debt crisis broke out in Euro Zone, the world economy is going through a difficult period of adjustment, especially euro area reached the point of exhaustion. According to this, some economists hold opinion that the Euro Zone was a bad idea from the start, now it is only a matter of time before the Euro Zone falls apart. This essay aims to analyze the positive and negative effects of Euro and finally to illustrate that the existence of the Euro Zone is necessary and correct. The advantages for the Euro Zone members Firstly, the most significant advantage is that the unified currency will greatly promote the mobility of goods and factors of production between the member states in European, which will further increase the resource allocate efficiency, create a robust competitive environment. Nowadays, the openness between euro members is increasing rapidly. According to the statistics of World Bank in 2011, the mutual exports between EU members accounts for 10%-25% of its output. In addition to this, the use of euro will reduce the costs in international trade among EU countries and transaction costs for collecting, processing, and analyzing the foreign exchange rates. Moreover, although there is a unified market within the European Union before the Euro Zone has been...
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...The Future of the Euro Zone Name Institution affiliation The Future of the Euro Zone The Euro zone came together on 1st January 1991. It's composed of nineteen countries within Europe namely: Cyprus, Austria, Belgium, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain. The members of the euro zone are the main the main determinants of the success or failure of the Euro. The decisions made by these made by these respective governments as well as the relations of these countries to each other shape the future of the whole region. The euro zone crisis which started in 2009 was triggered by the withdrawal of investors in the Greece (Nordvig, 2013, p. 7). The credit crunch in Greece later led to the collapse of the housing markets in both Ireland and Spain which later on created a drift in the financial markets of the members in the Euro zone. The euro crisis pointed out major flaws in the European Union’s Economic Monitory Union policies (Dăianu, D'Adda, Basevi, & Kumar, 2014). The turbulence came to an end in 2013 making the region fairly stable and calm seems to have resumed in 2014. In 2013, Greece got an excess budget, lowered the interest rates of their bond, and got a positive gross domestic product (Dăianu, D'Adda, Basevi, & Kumar, 2014). Other countries in the euro zone have also recovered and trends promise a brighter future. The ability of some countries to bounce back...
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...its formation, the European Union has remained to be the most developed and progressive regional integration model across the globe. Despite the progress it has made, challenges arising from economic crisis faced globally recently have created doubts on its sustainability. Slow response on the economic crisis has revealed the financial crisis experienced due to the structural and institutional design of the body. The probable economic responses have also created doubts on the political and social stability of the Euro Zone (Cameron, 2014). The aim of this study is to discuss the future of Eurozone by looking at the sustainability of the Euro Zone and the impact economic downturns in some member states has on the body. The start of Greece debt crisis in 2010 further cast more doubt on the sustainability of the Euro Zone. These concerns were also raised on the poor fiscal performance of other member states such as Portugal, Spain, Italy and Ireland. The debt problems faced by these countries created a high risk on the European banking systems. It also leads to doubts on the viability of euro and sustainability of Eurozone (Ahearn, Jackson, Mix, & Nelson, 2012). It was then noted that one of the major causes of the crisis experienced was the design of the euro currency and the provision by the European and Monetary Union for a common central bank (the European Central Bank). The common central bank is associated with common monetary policy, but member states...
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...The Italian Financial Crisis: Causes, Actions and Reactions DECEMBER 2011 TABLE OF CONTENTS 1. Introduction 2. Causes I. Immediate causes II. Remote causes 3. Actions I. Governmental actions II. Regulatory actions III. European response 4. Reactions I. Local market reactions II. European market reactions III. Effects on US and world markets. 5. Conclusion 6. Bibliography 1. INTRODUCTION The Italian crisis that rocked the Euro zone at the beginning of this quarter was sudden, yet, not really sudden. There have been signs, but the leaders were unperturbed, so it was business as usual until the eventual breakout, like an epidemic, now threatening to consume not only Italy, but the Euro zone and by extension, the European Union.[1] The Greek economic debacle was one of the clearest signs that all was not well within the zone, but, of course, the general consensus was that Greek was too small to ignite any serious panic within the zone. If at all anything was going to happen, the general belief was that it will not affect the core of the European economy, and as such, to my understanding, not worth any preparation or broad based actions by the European Central Bank (ECB). But today, all of that has suddenly changed with the Italians taking their turn at the economic turntable. It is not clearly understood that even the mighty do sometimes fall. Italy is the third largest economy in the Euro Zone, only behind Germany...
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...Sharma Guohan.Wang The Debt Crisis of Greece Early October 2009, the Greek government suddenly announced that in 2009 the government budget deficits and public debt as a percentage of GDP was expected to reach 12.7% and 113% respectively, far more than the EU's <stability and growth pact> rules of the upper limit of 3% and 60%. Given the Greek government finances deteriorated significantly, the three major credit rating agencies fitch, standard & poor's and moody's have cut Greece's sovereign credit rating, the debt crisis in Greece officially kicked off. However, when joining the EU, Greece saw himself was far away from the two standards related. This was not a good thing of Greece and the Euro zone. Especially when the euro first came out and then began to depreciate. Greece would then turn to the U.S. investment bank Goldman Sachs for assist. Goldman Sachs then design a set of currency swaps for Greece in order to cover up a sum of up to 1 billion Euros public debt, which made the Greek conform to the standard of Euro members. In addition, Goldman Sachs designed for Greece a variety of ways to accumulate capital and at the same time they did not lead to rising debt. Such as the national lottery and aviation tax income in the future as a mortgage, in exchange for cash. This kind of mortgage now became a sale in statistics instead of debt. In other words, it became the securitization of bank creditor's rights. The root cause of the debt crisis in Greece was that the...
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...The World Financial Crisis: Will It Continue To Deepen? Introduction The Great Recession of the 21st Century (Wesel, 2010), which began in 2007, has affected the entire world economy; admittedly, some countries have been hit harder than others but few nations can really say that they have been entirely spared from the crisis. What is more, the devastating repercussions of the financial crisis can still be observed to this day, more than five years since it first began, as numerous countries around the globe are still struggling to get back on track. The road to recovery from the financial crisis has been more difficult than initially anticipated and, with the dawn of a new year, it is still hard to say whether things will start looking better for the world economy or not. The question on everybody’s mind is whether the world financial crisis will continue to deepen or not. Background Though still a somewhat a highly debated matter, the onset of the world financial crisis can be pinpointed to 7 August 2007, when BNP Paribas terminated withdrawals from three hedge funds, on grounds of a complete lack of liquidity (Elliot, 2012). For the two years that followed this incident, the world economy was on a continuous downward spiral. Economies around the globe started to slow down, some faster than others, stock markets began to drop, international trade declined, and credit tightened. In the United Kingdom for example, the catalyst for the economic crisis that engulfed the...
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...The Euro Crisis According to Wikipedia (2012), the Euro Zone is comprised of 17 members that have accepted the euro as their only method of payment for goods and services. Monetary policy and management of inflation levels is governed by the ECB (European Central Bank) which consists of a president and board originating from central banks within the area. Since the late 2000's the Euro zone has experienced financial troubles mainly resulting from the varying degrees of difference between fiscal and monetary policy within each country. The majority of the debt can be attributed to the increase in both public and government debt around the globe as well as the arising debt within the euro zone. Some countries were noted for their involvement in the property crisis while other countries including Greece developed most of their financial obligations from increased public sector wages and pension contributions at an unsustainable level. As the desire for higher yielding investments expanded, many investors sought global markets as those offered by the U.S. Treasury. Norbert Walter (2012) argues that different growth rates, employment levels and unit labor costs have attributed to the euro crisis leading to heightened risk premiums and increased capital flights to those with lower risk assessments. Trade imbalances resulted from rising labor costs within several countries as well as accumulation of trade surpluses between those with the same currency that prevented appreciation...
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... Standard & Poor's and Moody's credit ratings have been lowered Greece's sovereign Greek debt crisis kicked off. With sovereign credit rating was lowered, the Greek government borrowing costs increase sharply. Greek government had to take austerity measures in Greece held another round of strike activity, economic development worse. Until February 2012, Greece, Germany and France and other countries still rely on rescue loans to survive. In addition to Greece, the financial situation of Portugal, Ireland and Spain and other countries also attracted attention from investors, European countries sovereign credit rating was lowered. Greece was just entering the euro zone. According to the provisions of some countries of the European Community signed in 1992 "Maastricht Treaty", the European Economic Monetary Union member states must meet two key standards, namely the budget deficit it can not exceed 3 percent of GDP, the debt ratio below 60% of gross domestic product. However, the accession of Greece just to see yourself far away from these two criteria. This alliance Greece and the euro zone is not a good thing. Especially in the euro began to depreciate as soon as they come out of the time. Then he turned to the Greek American investment bank "Goldman Sachs." Goldman Greece to design a "currency swaps" way for the Greek government to cover up the sum of up to 1 billion euros of public debt, so that Greece in the book in...
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...EUROZONE CRISIS ABSTRACT Euro crisis was not fortunate. It was something that could be avoided if proper care was taken. The European sovereign debt crisis has emerged out of a situation that has made it difficult or impossible for some countries in the euro area to re-finance their government debt without the assistance of third party. It was not only the government sector that lead to this crisis but major cause of it was the private sectors taking up too much of loans. The report also states the impact of euro zone crisis on the world and the India. The Eurozone crisis is systemic in nature. It is a result of policy failures in the way European Monetary Union (EMU) was designed, constructed and implemented. In particular, the crisis is a consequence of the failure to put in place certain necessary institutional components. INTRODUCTION The global economy has experienced slow growth since the U.S. financial crisis of 2008-2009, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe. Greece, which spent heartily for years and failed to undertake fiscal reforms, was one of the first to feel the pinch of weaker growth. When growth slows, so do tax revenues – making high budget deficits unsustainable. The result was that the new Prime Minister George Papandreou, in late 2009, was forced to announce that previous governments had failed to reveal the size of the nation’s deficits. In truth, Greece’s debts were so large that they actually...
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