Eurozone Crisis And Governance Essay

1825 words - 8 pages

When the United States started to have their financial crisis it also started problems in the Eurozone. This as a result stopped the credit from being available to most countries, and none of them were able to borrow to pay off the debt that has accumulated over the years. This caused a standstill with no one being able to pay off any of their programs that they were finding and as a result many nations suddenly many nations were in a huge crisis. This resulted in the bankruptcy in Greece, were Germany had to pay off their debt.
Due to Germany being the most stable and strongest economy at the time with some of the most money under them they were set to control the European Union. ...view middle of the document...

This can be a big problem since Germany is very financially structured in the way they spend and borrow. If they tried to implement their own ways on these countries whose citizens don’t usually pay taxes results in problems.
Austerity measures would mean many problems for the country as it cannot repay its debt that it has since it doesn’t make any money. As it was seen when they were implanted in the Eurozone. They did not show evidence of improving the country.
The ECB also started raising the interest rate, which discouraged many countries from taking on more loans which can be seen if figure 1 and figure 3. As interest rates were going up the rates of loans in the Euro area started going down further trying to strengthen the Euro. Germany with all the pressure it was receiving internationally from at the other countries had to stabilize it. Which they did by allowing investors to feel more confident with the amount of risk they were taking when they were repaying the debt that they had to pay off. This allowed for money to come into the ECB to stabilize the currency and tried to save the other countries as well.
With the sudden decrease in the amount of buying power with many of the nation’s not being able to fund many of their projects they are now struggling with recession. Which shows that many countries are now being fairly counterproductive from where they once were but are getting better as seen in figure 4.
Figure 4

Source: IMF

This chart shows that since the crisis many nations were not able to recover to the point where they once were and are slowly recovering but at an extremely low rate. As a result form trying to stabilize the economy the European Union may have caused countries to almost go into recession. This as a result is causing many members who are having trouble try to change the European Union’s opinion on the measures that they have taken.
Figure 5 can also show how the relationship between countries austerity measure and their GDP growth rate over a four year period.

Figure 5

There was some analysis done by Economist Martin Wolf between cumulative GDP growth in 2008 – 2012 and the total reduction in the budget deficits due to austerity measures. There was also work done by economist Paul Krugman who analyzed relationship between GDP and reduction in budget deficits and he concluded that austerity measures were slowing growth.
Many countries that had to go on austerity measures caused their budgets to decrease over time due to the measures taken. They also had public to debt ratios that increased except for Germany, it is calculated by taking public debt and dividing it by GDP. Public debt is the money owed to investors by the government. The greater the ratio the greater the amount of debt the country has compared to the size of its economy which is unfavourable for that country. Figure 6 shows all countries debts have increased their debt to GDP ratio because of austerity other than Germany.

Figure 6


Find Another Essay On Eurozone Crisis and Governance

Question 1 Essay

642 words - 3 pages I believe in over all political conditions in Europe, complexity and less transparent of the Maastricht Treaty convergence criteria and the Growth and Stability Pac, poor enforcement, poor surveillance and lack of commitment to fiscal discipline on the part of the Member States of the European Union are some of the reasons that applications of these limits has been failed and somehow couldn’t prevent the Eurozone crisis. According to the “Can

The Eurozone Crisis: Greece National Debt

2373 words - 9 pages The Eurozone Crisis - Causes and Solutions The so called “Eurozone Crisis” began in 2009 when it became a publicly known that Greece national debt was over 113 % of their GDP. Consequently, Ireland, Portugal, Spain and Italy joined the club with their debt ratio exceeding 100 %. The investors concerned with the level of the sovereign debt, led to increased yield on the bonds of affected countries, which effectively caused the unsustainably

economic policy and global economy

1406 words - 6 pages Singapore before the Eurozone crisis.The Impact of Euro zone crisis to Export-oriented countryThe Eurozone crisis that the European sovereign debt crisis. Its means after the 2008 financial crisis, the debt crisis in Greece and other EU countries occurred. Eurozone crisis affect every country in the world, especially in export-oriented countries .and the Eurozone crisis is the main risk facing Singapore's economy and financial system. The

Ireland Economic Crisis

2134 words - 9 pages that resulted from the eurozone crisis and the bailouts was the creation of the European Fiscal Compact. The Fiscal Compact is the fiscal part of the Treaty of Stability, Coordination and Governance, proposed by Angela Merkel. This treaty came about in March 2010 when Germany presented a series of proposals to address the ongoing European debt crisis. They argued that the previous Stability and Growth Pact that was created during the making of the

Politics Policy Paper

950 words - 4 pages and return at a more competitive exchange rate would be also a solution for Greek economic crisis. Greece had faked its debt ratio when it joined the euro-zone which indicated it actually did not have the ability to adapt euro since euro was and remains a strong currency. By adapting euro, Greece acquired the help from other countries in the Eurozone while meanwhile gave up its ability to use inflation targeting , which is an important monetary

Will the Euro Survive?

1495 words - 6 pages refinancing its debt, the affliction quickly spread to other euro zone member states. (Schwarzer, 2) EMU has flaws and as consequences the Euro has failed to bring the economic stability and balance to its anxious member states. The incredible expectation of the Euro to become a European identity is out of reach. EU response to the financial crisis is the new set of rules on enhanced EU economic governance. There have been a series of policy

Sustaining the European Monetary Union

2806 words - 12 pages .3 The European Central Bank (ECB) faces a similar fundamental problem with the inability to handle asymmetric shocks with indiscriminate monetary policy.4 Economist Jean Jacques Rosa notes that these problems occur because the Eurozone is not an “optimal currency area” – a region lacking synchronized economies and inflation rates.5 The first underlying problem of debt crisis exists because member countries are issuing debt in the Euro – a

The Achievements, Failures and Main Options for the EU in the Management of Global Interdependence

1883 words - 8 pages governance and effective international institutions which leaves much space for reforms in the EU too. The crisis undeniably revealed a need for more “down to earth” rather than ideological integration and reforms in the EU economy. Identity and solidarity deficit should not be treated as empty slogans written on a piece of paper, but real challenges. The current financial crisis turned out to be the worst Europe’s post-war recession. However

Overview of the Recent Financial Crisis in the US

1705 words - 7 pages lot of large banks and financial institutions, as (Sun, et al., 2011) explained. The financial crisis from 2007 has caused the greatest global economy recession since the Great Depression and also the European sovereign debt crisis. The consequences and cost are enormous. Due to this fact, explanations and responsibilities for financial crisis are searched so that the role of corporate governance and financial engineering is set on the spotlight

euro zone austerity

1130 words - 5 pages crises within the Eurozone. For Europe's elekted political leaders, the debt and currency crisis has taken an extraordinarily heavy toll. Of 17 governments in the Eurozone using the single currency, 10 have been drumbed out of office in little over a year, more often than not directly because of crisis. The mass voter rebellon against incumbents began in February last year as bailout candidate Ireland went to the polls. Fianna Fáil's hapless Brian

The Risk of Default by PIIGS

1035 words - 5 pages of the Eurozone and other world economies. This paper will discuss briefly the background of these states (primarily Greece) and the management of financial records and policies leading up to the crisis. Furthermore, the discussion pertaining to the impacts that PIIGS has on its international partners as well as its member states of the Eurozone. Continually, these financial mishaps or mismanagement leading up to default, give us insight of how

Similar Essays

A Discussion About The Failure Of Financial Engineering And Corporate Governance As A Cause Of The Global Financial Crisis

1494 words - 6 pages In this paper, an analysis of how the failures in financial engineering and Corporate Governance have been closely related with the recent Global Financial Crisis is carried out. The Real Estate Bubble in 2006 leaded to the Subprime Mortgage Crisis in 2007 which expanded from the United States to the whole world generating the biggest financial crisis since the Great Depression of the 1930s. There are multiple factors that originate a crisis

Eurozone Crisis Issues Essay

1305 words - 6 pages admitted to the euro zone. (Alessi, 2012) explains that this lower interest rates and liquidity led to an accumulation of unsustainably massive sovereign debts and deficits that posed a threat to the feasibility of the Eurozone. The issues underpinning the Eurozone crisis is that foreign-accessed capital was used to support domestic consumption rather than investments in economically productive projects. (Collignon, 2012) explains that the euro

A Fragmentation Of The Eurozone Essay

939 words - 4 pages nations would be more connected and look strikingly more similar than before. This, however, does not seem to be the case. The ongoing crisis in the Eurozone illustrates that the world is becoming more increasingly more fragmented than unified, an event that provides a stark contrast to the cry of globalization. The financial crisis in the Eurozone began and has continued with the floundering economies of many nations, including Greece, Spain

The Eurozone Crisis Across Europe Essay

1590 words - 7 pages European identity, meaning unification or integration of Europe, is associated with the European Union (EU). The EU includes 28 member countries, more than half the European countries have already joined the EU for years and thus the EU unifies Europe. The Eurozone crisis is an ongoing crisis that has been affecting the countries of the Eurozone since early 2009, when a group of 10 central and eastern European banks asked for a bailout