...Concordia University – School of Management MBA – 506 The Euro in Crisis: Decision Time at the European Central Bank LaRisha Baker Professor: Tom DiCorcia November 30th, 2014 Introduction The European Central Bank (ECB) is the central bank for Europe's single currency, the euro. Its main task is to maintain the euro's purchasing power and maintain price stability in the euro area. The euro area comprises of 18 European Union (EU) countries, of which Greece is included (European Central Bank, n.d.). As the EBC holds extraordinary decision-making power, this will in effect have an impact on the financial economy of Greece. From this case analysis, the ECB must decide whether to purchase or to not purchase Greek sovereign debt (Trumbull, Roscini & Choi, 2011). The Problem After the sub-prime mortgage burst in the United States, this sent reverberating shock waves throughout world economies. As the US economy tightened, economies around the world were also affected; adversely affected highly leveraged banks in the Eurozone. Though providing financial bailouts were against the Eurozone philosophy, with fear looming that Greece would default on its debt, this put pressure on Eurozone members to intervene (Trumbull, Roscini & Choi, 2011). For the euro to maintain stability, a bailout for Greece was imminent. If no Greek bailout were made available, this could potentially upset the stability of the entire EU and the euro. The ECB had been slow to act, in part...
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...Introduction Since 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...
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...European Crisis and its effect in the International Market After the Second World War, the world was in search of a new alternative to stop with the horrific wars between nations. In 1950, France, Italy, Germany, Luxemburg, Belgium and Netherlands joined in order to obtain peace, protectionism and economic advantage. It was the foundation of the current European Union. This significant moment in history was followed by a remarkable transformation around the world: the globalisation of the market. Globalization was described by Joseph Stiglitz (2002) as “the removal of barriers to free trade and the closer integration of national economies”. This new reality, from local to a global market, made businesses and countries adapt themselves forcing the implementation of new alternatives to survive against international competition and to get economic strength in this new aggressive world. Market competition was no longer limited to country’s borders but it was also suffering from foreign rivalry. The European Union’s countries members were integrated with the purpose to be a unique market being the world major regional trade cooperation. Since its foundation, the Europe Union have been engaged in this integration and it had demonstrated strength in the implementation of a free trade area, controlling a large part of the international market. Although the history of Europe Union had appeared to be a history of success of integration and cooperation, in the last two decades...
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...1 A “real” European Union World order is going to change in the near future. This year 2012 will be remembered as the year the European Union become a reality. There are three big events occurring this year that are promoting a larger economic, political and social unity inside the EU. A united Europe is a project that has taken a long time to create and that had overcome many difficulties. All the indefinitions in the EU in the past have created many problems in the present, but now they work as a pressure mechanism to conclude the project and correct those indefinitions. If this goal of a united Europe is reached, the consequences will be tremendous because the EU will become the largest economy of the world, and it will have enough power to change the world in different ways. The development of the essay will follow a chronological perspective. First are going to be analyzed the problems in Europe before the EU and show the developments as a clue to develop new theories of what can happen in the future. This future is going to be a consequence of the events happening this year and it will be the second point of analysis. The third one will be the theory of the future creation of a real European Union after this year events. Finally, the consequences and importance in the future of the EU created due to the events of this year. Past In a diachronic perspective, the European Union was something difficult to think as a reality when the project was being born, but the overcome...
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...Money, Banking & Risk Assignment Jacques Delors said ‘’The Euro was flawed from the beginning’’ and that there was also ‘’Too little, too late done’’ (The Telegraph, 2011), from the European leaders in order to prevent the huge economic crisis within the Euro. Plans for a single European currency began in 1969 with the Barre Report, which was issued by then the only 6 countries in the European Union, but back then it was called the European Economic Community or the EEC. ‘’ In 1979 the European Monetary System (EMS) was established to link European currencies and prevent large fluctuations between their respective values. It created the European Exchange Rate Mechanism (ERM) under which the exchange rates of each member stat’s currencies was to be restricted to narrow fluctuations (+/-2.25%) on either side of a reference value’’ (eu4journalists, 2011). On January 1st 1999 the Euro was adopted in its non-physical form with exchange rates, more like a virtual form of payments for foreign exchange and electronic payments. It was adopted by then 11 of the 15 member states in the euro, Greece joined in 2000 as it did not meet the economic criteria until then. 3 years later on the 1st January 2002 the new currency was brought in properly with coins and notes being printed. In order to receive this currency each member state had to have the right criteria. These criteria where known as the convergence criteria and they did not allow a country to adopt the Euro as a currency...
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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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... Page No. 1.0 Overview 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...
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...Critically analyse the current state of the European Monetary Union. The European Monetary Union or the European Economic and Monetary Union (EMU) is the successor to its predecessor: The European Monetary System, and attempts to deliver an economic system which is unified and cohesive for all the members of the European Union. Perhaps the most notable and drastic change implemented under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries. The European Monetary Union is essentially a complex but involved coordination of a common monetary policy amongst all members of the European union, accommodating fiscal and economic policies and most notably the currency common to all members, the Euro. This decision to form an exclusive and unified front was undertaken in December, of 1991, in the city of Maastricht in Netherlands and was later more firmly integrated in the Maastricht Treaty on the European Union. It has been designed as a tool to implement the full economic integration of the European Union and to complete the integration as one system, which started in 1957. Through this integration, the European Union hopes to gain the benefits of having a larger sized failsafe net, internal and cohesive efficiency combined together with the European Monetary Union, it would provide a robust...
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...This essay will talk about what is currently going in Europe with the Eurozone sovereign debt crisis and the fiscal state the European Union is in, it is important and interesting because it is still current affairs and there are various factors and decisions that have helped the path that the crisis is going in, this essay will look at the crisis but on the implications and problems that European union face as well as what they have faced already and whether the European Central Bank are doing enough to improve the situation and what their plans are for the future. A sovereign bond serves as a floor for interest rates banks charged for loans and for the pricing of other financial contracts and securities. The global financial crisis led to the deterioration of government budgets and finances as nations utilized public expenditures to provide stability and stimulus. The Eurozone suffered because of heavy borrowing practices, property pebbles and living above their means. The Eurozone debt crisis started because Greece who had borrowed heavily in international capital markets over the past decade were turned against by investors this is because Greece in 2009 admitted that they had double the amount of debt that was allowed in the Eurozone limit. Ratings agencies started to downgrade Greek bank and government debt, and there was fear of Greece defaulting and not being able to pay back its debts but the Greek Prime Minister George Papandreou insisted otherwise however this was...
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...The European government The EU is a partnership between 27 European counties it was created after world war 2 (in1958) , it was brought in to make the counties become economically independent with each other as this will encourage to prevent conflict with one an other. It is spread across six different countries Belgium, Germany, France, Italy, Luxembourg and the Netherlands. The EU provides peace, stability and prosperity to help inprove living standards, Because of the change in the EU border laws people can now travel freely throughout the majority of the continnents and it makes it much easier for people to live and work in different europen countrys. As the EU continues to grow, they remain foucusing on making the EU more transparent and democratic this means more power is given to the parliament. The EU have certain symbols so that the public will reconginise them the most famous one is ‘the circle of yellow stars on a blue back ground’ they have 12 stars on the flag these symbolse represent unity, solidarity and harmony among the people in europe.They also have a motto at the EU “unitred in diversity” this represent how europeans have been brought together from the work at the EU. The EU is funded from different things such as a percentages of the fund comes from the countrys ‘gross national income’. All the money will be a contribution from each countries therefore a percentage of the vaule added tax is levied by each country. This money is spent for a variety...
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...What is the European Debt Crisis? By Thomas Kenny, About.com Guide See More About: * economics * europe * bonds ------------------------------------------------- Ads LIC Pension 1.45 करोड़छोटा निवेश जो आपको करोड़पति बनाये = PensionPolicyBazaar.com/PureInvestment Mobile Trading On-the-GoTrade Forex, Commodities, CFDs. Low Fixed Spread, Start Now!www.4xp.com/Mobile What is Sensex?You don’t need tuitions to learn. The First Step Kit teaches enough.Sharekhan.Sharekhan-Firststep.com Bonds Ads * Bonds * Debt * European Crisis * Type of Bonds * AAA Corporate Bonds ------------------------------------------------- Ads Investment CalculatorA Free, Safe & Simplified Tool for Managing Your Money. Try It Now!www.perfios.com/managingyourmoney Looking for Major Debt?Find Major Debt on Facebook. Sign Up Free Now!www.Facebook.com The European debt crisis is the shorthand term for the region’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it’s intended to be. Although these five were seen as being the countries in immediate danger of a possible default, the crisis has far-reaching consequences that extend beyond their borders to the world as a whole. In fact, the head of the Bank of England referred to it as “the most serious financial...
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...The Eurozone is the economic region formed by those member counties of the European Union that have adopted the euro. This means that it is the currency used by the majority of countries within the EU. Firstly, I believe the decision by the British Government not to join the European Single Currency was a good decision because joining the Euro poses a variety of threats and uncertainties to the UK. I think that the UK should have control over its own economy to help benefit and most importantly protect its individuals and businesses. My main argument for this is that the UK housing market is one of the core markets in the UK that provides a huge turnover for the economy and can impact it with the slightest change. The UK’s economy is very sensitive to the interest rates and this means that small change in the interest rates can impact a large number of individual and businesses mortgages as they have high variable rates. Basically, a small increase in interest rates has a large impact on consumer spending and therefore if the UK’s interest rates were to be decided by the ECB (European Central Bank) this could heavily damage the UK economy. There is no devaluation., this means that the euro cannot become devalued if the currency becomes uncompetitive and this has been proved by significant problems such as Spain, Italy and Greece who’s all economies had a catastrophic crash. This is has been shown in large current account deficits in the southern EU countries. In contrast to...
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...another monetary union without the country’s or monetary union’s official acceptance which is the case of Montenegro, more specifically “unilateral euroization” without meeting the Maastricht criteria and without getting the European Union’s approval. In 2002 when the Euro was launched as the official currency for the countries in the European Monetary Union (EMU), Montenegro started using the euro as well without any approvals. The European Central Bank and the European Union strictly forbid the unilateral use of the Euro with very few exceptions like Vatican which is religious governing state in the Italian territory. They have some basic arguments why other countries should not use the Euro. The main argument is that it would undermine the principal of equal treatment, as any physically speaking “European” country has to be a member of the European Union and then apply to be in the European Monetary Union which has the five Maastricht requirements which ensures that the specific country has stable economy, low inflation, long term low interest rates, low Government Debt, Low Government Deficit and has to peg its exchange rate to Euro for 2 years. And when Montenegro does not follow all the requirements it is not fare to all the other Central-Eastern European Countries like Hungary which still cannot meet the requirements or the Baltic countries which have pegged their currencies,...
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...How did Europe Economic Crisis begin? After went through our research and discussion, we knew that many of the Western world borrowed too much due to low interest rates and cheap credit in the 2000s. According to the US, this issue caused a property bubble which burst in between 2007 and 2008, causing a financial crash as banks worldwide including Europe had to write off lots of assets so had much less money than they thought. This had two effects, it caused interest rates to rise a lot, so that banker couldn’t lend out money and governments took on lots of debt bailing out banks. Some countries in Eurozone such as Ireland, Spain, Portugal, Italy and Greece all had very high national debts, either from overspending pre-crash, or bailing out their collapsing banks. High debts plus recession which is decreasing government tax revenue plus high interest rates equals threat of bankruptcy. So, all the above issues are specific to Europe, and we are discussing about the Eurozone economic crisis. Basically, all countries adjust their economies with monetary policy. With a unified currency, less productive countries e.g. southern Europe couldn't do this, so became less competitive and borrowed. They also able to borrow at cheap interest rates because of the currency union. This was part of why debts got so high in the southern of Europe. At the same time, Eurozone not only facing all those problem but also another problem. Normally a country almost no default because it can just print...
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...“Will Europe Drag Down the World”, talked about the crisis in Europe. In some European countries, the state is so critical that these countries are pulling Europe down. Greece is one of the dominant countries in this issue; it has recently experienced a global crisis. European banks are trying to improve the situation and pull Europe out of economic stagnation. They need to increase the volume of lending, because the money will be used to boost economic growth, thereby multiplying it. Tie to class This article ties into class because it talks about economic problems and currency in the EU. One of the main factors determining the development of the political situation in the world is the financial and economic crisis. Since the issue of the dollar began to be implemented on a larger scale than euros, by the end of the year Europe partially recouped their background lost during the spring of the Greek crisis. With the introduction of the common European currency, individual countries have been unable to pursue an independent policy of emission, while pursued by the European Central Bank policy. They were pursued at least until recent correspondence with the interests of the Nordic countries, depriving southerners’ opportunities to solve their problems tested way. Personal Reaction From this perspective, it can be argued that the crisis in Europe is completed in the next 10 years. Until today, the banks do not know exactly whether they have enough money to lend. Now the situation...
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