...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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...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 have to come up with their fiscal policy. This lead to little impact of the European Central Bank in its bid to make the booms and busts experienced by different member states to converge at the Euro Zone level. Weak implementation of fiscal discipline, lead to rising public debts in some of the member states of body (Grauwe, 2013). In an effort...
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...How will the Euro crisis affect the economy of China? Table of Contents Introduction...…………………………………………………………………… 2 The formation and evolution of the Euro zone crisis….…………………………3 The serious relationship in trading and investment filed between China and Europe ………………………………………………………….………………………..9 The influence of Euro zone crisis on China economy……..……………………10 Conclusion………………………………………………………………………15 Bibliography………….…………………………………………………………16 How will the Euro crisis affect the economy of China? Many economists now are analyzing the Euro zone crisis. As the biggest trading partner to China, how the Euro zone crisis affects China’s economy cannot be ignored. No matter the decision makers of the enterprises or the decision making department of the government, all need foresight to evaluate the risk and influence of the crisis and prepare the answer before that happens. This paper will provide some analysis and strategic thinking about the influence of the Euro zone crisis on China. Introduction: On August 25th, 2011, the president of France, Nicolas Sarkozy, came to visit China. According to the market prediction, the purpose of his visit was come to further persuade China to purchase European bonds, to support the recovery of Euro zone. The official media of the Chinese government reported that, the chairman Hu at that time expressed two points about China’s attitudes to President Sarkozy. First of all, China cared about the influence...
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...Economic Analysis of the Rise and Fall of Euro Zone Currency Journalist Alen Mattich wrote in the 17 September 2010 edition of Wall Street Journal regarding the economic conundrum facing the Euro Zone with the imminent default of Greece on their national debt. His article, entitled “Trust Greece…to Default,” outlines the failing monetary policy of the Greek government and the quazi-demands for a national bailout made by Finance Minister George Papaconstantinou. If the Greek economy collapses absent perpetuated bailout from other powers, the European universal currency will collapse. The intrinsically diverse European economies, ranging from moderate command-and-control orientation to heavy market influence, defy conglomeration and governance with a single currency. The uniform currency experience has ended in disaster. Because the Euro Zone effort to implement a homogenous monetary policy in a heterogeneous international body is economically untenable, the Euro as a currency will collapse. In 1986, European countries gathered together to initialize the ‘perfectly integrated competitive market economy’, using principles developed by economist Robert Mundell in the 1960s. These concepts emphasize liquidity of physical and financial assets, flexible interest rates, comparable business cycles and asymmetric fiscal policies for use in creating seamless interaction between international bodies within the economic area. This ‘Euro Zone’ exists as the pilot project of sorts for...
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...Does the current institutional framework of the Euro-zone favour the maintenance of macroeconomic stability in that area? The Euro-zone is an economic and monetary union that currently has 17 members. These 17 members have established the Euro as their official currency, which has as main consequence that the monetary policies are under the command of the European Central Bank. The main advantage of this is that they have a fixed exchange rate, so they don´t have to face the international volatility of the currency market. However as their monetary policies depend on the European Central Bank, loosing effectiveness in their own fiscal and monetary policies, making it harder to face economic crises, especially when you have a weak economic framework, which was the case of Spain. If all the economies where homogeneous then it would be easier to apply the policies, but as each member is very different we have a problem due to the macroeconomic disparity among the members. If the recession occurs at the same time, it is easier to develop the monetary policies, and even if in some countries there is recession and in others not, the asymmetry can be accommodated through the members, however due to the huge disparities among countries it is not that easy. The recent crises have increased the awareness of the huge disparities that we can find in the members. These differences, which relays on the diversity of the members, have risen the question of the viability of the Eurozone...
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...Overview of ECB The European central bank (ECB) has recently implemented a series of measures aiming to fight low inflation and stimulate the euro zone economy. They announced to cut the key interest rate below zero to stimulate lending and economic growth. Draghi said the ECB still saw no evidence of eurozone deflation but said the longer inflation remained at very low levels, the greater the risks. ECB president Mario Draghi said the decision to cut rates reflected an outlook of low inflation and economic weakness in the eurozone; the longer inflation remained at very low levels, the greater the risks. The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. This study is to discuss the measures set upon by ECB is really workable to all the countries in the Euro zone. While the cut on interest rate was implemented since November and if the negative interest rate will help support the ??? Risks of deflation 1. Unemployment. Unemployment in Europe has increased significantly since 2008, with the unemployment rate peaking at 12.2%. Consumer prices rose by just 0.5% in the eurozone in May. The ECB targets inflation of just below 2% over the medium term, and on Thursday cut its own forecasts for the next three years. It sees consumer price inflation of just 1.4% in 2016. Speaking at a press conference after the announcement of the rate cut, Mr Draghi said the...
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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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...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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...The Euro Debt Crisis: Greece’s and its Next Move Matthew Schrock Financial Markets & Institutions Dr. Victoria Geyfman December 6, 2012 “The Euro Crisis and Greece’s Next Move” The Euro currency, during its original preparation and issuance, had been seen with optimism. It was presumed that the new union of European markets would create a new economic power within Europe, matching it with other economic leaders such as the U.S. and other powers. At this point in history, the Euro seems to be on the brink of despair. The European Monetary Union had determined and established the prerequisite diplomacy and policy making to assure a newly created stable and integrated economy of Europe. The reality of this new currency and monetary union is far from the original optimistic outlook. Policy set forth in the original agreements and conditions of the European Monetary Union that had been established before its adoption had been treated without regard by countries. This disregard started with deceit from Greece but quickly became almost the status quo. Greece is known as the catalyst and a scapegoat within the views of the Euro debt crisis. Greece is on the brink of insolvency and others are following. Options are available in this time of uncertainty, whether they are conventional or not, that could result in Greece remaining within the Euro and accepting austerity or altering their status and participation within the monetary union. The decision that will be...
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...Case #1: The Euro Zone and Sovereign Debt Crisis - 1 - * Fiscal mismanagement in the 1990s and the following decade; * Various forms of statistical tweaking to meet the criteria for joining the euro zone. To lower the deficit, many government expenses were kept off its official books. To lower inflation, prices for government-supplied goods such as electricity and water were frozen and high-priced items were removed from the consumer price index calculations; * A major part of Greece’s ballooning debt was the government’s inability to collect taxes. Also, wages paid to Greek public sector employees had doubled in the last decade. - 2 - One major consequence of the monetary union was that European banks became more relaxed about holding cross-border debt. This resulted in rapid growth in the banking sector and increased exposure to the deficit countries in southern Europe. To address the sovereign debt crisis, European Stabilization Mechanism (ESM) allowed the European Commission to raise funds by issuing bonds that using its own budget as collateral and then forwarding those funds on to struggling nations. European Financial Stability Facility (EFSF) issued bonds and distributed the proceeds to the euro zone countries which in need of the funds. The IMF model determines the interest rate. The advantage is that if one country defaulted, the other countries that were expected to contribute funds to cover the shortfall. The sovereign debt crisis had made Germany...
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...The Cyprus bail-out: Unfair, short-sighted and self-defeating | The Economist 3/26/13 11:29 PM Unfair, short-sighted and self-defeating IT IS not a fudge, but it is still a failure. The euro zone’s bail-out of Cyprus, which was sealed in the early hours of Saturday, did get the bill for creditor countries down from €17 billion to €10 billion, as had been rumoured. But the way it did so was somewhat unexpected. Almost €6 billion of the savings for taxpayers in euro-zone countries came from losses imposed on depositors in Cyprus’s outsize banks. A one-off 9.9% levy will be imposed on all deposits over the insurance threshold of €100,000 before banks reopen after a bank holiday on Monday. That idea had been in the air for a while, not least because a lot of those uninsured deposits came from outside Cyprus, and from Russia in particular. The politics of saving wealthy Russians with money loaned by thrifty Germans were always going to be tricky. What had not been anticipated was a 6.75% loss for savers with deposits in Cypriot banks below the insurance ceiling. Cypriots woke up this morning to find bank branches closed to them. By the time they will be able to get at their money, it will be too late. The offer of equity in banks to replace the value of their savings is meant to be a balm but it’s not a choice they would have made. Why this decision was taken is not yet clear. http://www.economist.com/blogs/schumpeter/2013/03/cyprus-bail-out Page 1 of 3 The Cyprus bail-out: Unfair...
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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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...when it lied about its circumstances and lived beyond its means (see map and charts). There is no disputing Greek dissipation, nor the fact that the euro zone's troubled members, which also include Portugal, Ireland, Spain and Italy, must now pay a heavy price. But those other troubled countries were not exactly profligate. Before the crisis the governments of both Ireland and Spain ran budget surpluses. Both meticulously kept within the limits for deficits and debts set down by the stability and growth pact—unlike Germany, which flouted the rules for four years from 2003 (and avoided punishment). Nor did Italy lurch into extravagance. Debt in these countries has become a burden not because of government profligacy but because each enjoyed a decade of low interest rates and was then hit by the financial crisis. Easy credit fuelled debt in households and the financial sector. The European Central Bank oversaw a binge of cross-border lending. In the crisis unemployment and hardship have deepened, increasing the bill for welfare. Some countries, such as Ireland and Spain, have needed to find money to prop up their banks. These new expenses fell on the state just when tax receipts collapsed—catastrophically in countries that had seen a property boom. At the same time interest rates surged. Before the crisis investors assumed no euro-zone government would default on its debt. However, as Peter Boone and Simon Johnson of the Peterson Institute in Washington, DC, explain, Germany then...
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...The European debt crisis began with uncertainty over the Greek debt in 2009, but 2011 was the year in which it affected the Euro Zone core. Italy, which is the Euro Zone’s third-largest economy, has total public debts amounting to over 120% of domestic Gross Domestic Product. If it must pay high interest rates on its debts, it will have to depend on external aid to remain fully solvent. The short-term budget cutting measures introduced have proven insufficient. The entire Euro Zone is expected to enter a recession for early 2012. Day|Monday (3/09/12)|Tuesday (4/09/12)|Wednesday (5/09/12)|Thursday (6/09/12)|Friday (7/09/12)| Spot Rate (GBP/USD)|1.5867|1.5874|1.5904|1.5906|1.3148| Change (%)||-0.32|-0.54|0.58|0.11| In the first week of our analysis, on Monday 13th Feb, EURUSD closed at 1.3171. On 17th Feb, EURUSD dropped to 1.3148. This was a -0.17% change. Overall, the trend noticed was bearish (EUR depreciated against the USD) because it was prior to the Greek Bailout Agreement on 20th February 2012. Currently, Greece is heavily in debt. Traders were pessimistic about the Euros and thus the depreciation of the EUR against USD, but at this point, anticipation of the Greek bailout was already adding to the risk appetite of traders. Day|Monday (20/02/12)|Tuesday (21/02/12)|Wednesday (22/02/12)|Thursday (23/02/12)|Friday (24/02/12)| Spot Rate(EUR/USD)|1.3239|1.3235|1.3245|1.3374|1.3448| Change (%)|0.69|0.03|0.08|0.96|0.55| In the second week, on Monday 20th Feb, EURUSD...
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...Submit: QE a showcase of dysfunctional unity? On January 22nd the European central bank’s governing council will take a historic leap towards fighting the continuing deflationary mindset among Europe. However, the long-awaited QE-programme comes with a large dose of compromise among its members. After long drawn discussions ECB is finally making its move towards addressing the very objective it takes more seriously, ie, an inflation target of 2%. And it couldn’t have come any sooner. Last year inflation in the euro zone was negative with a deflationary spiral luring closely behind. By injecting more money into the economy Mario Draghi, ECB’s president, hopes to achieve spurring growth and inflation, much like what the programs have done in America and Britain. But more importantly, Mr. Draghi cannot implement policies on the same terms. Instead of dealing with just one central bank and one federal government, he has to take 19 into consideration. A big-bond buying programme in a monetary union is very problematic, especially due to varying creditworthiness among its member countries, ranging from triple-A for Germany to junk for Greece. But the main issue that has been on the table of discussion is simply risk. Or more precisely, how risk-sharing among the members should be distributed, in case a country defaults on their debt. In other words, who has to open up their wallet the most. The country that especially has been stalling the program is Germany, simply because they...
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