...| The Eurozone Crisis | | | ECON 3860Word Count: 1,495 | | The Eurozone Crisis The Eurozone is a combined group of countries using the euro as their only currency. It was created in 1999 and currently consists of 17 countries – not all part of the European Union (Investor Words). Within the Eurozone, the countries follow a monetary policy and controlled by the European Central Bank (in other words, the ECB controlled the supply of the euro within the 17 countries). In an attempt to control government debt levels and deficit spending the Maastricht Treaty was created. As years passed, some countries government deficit began to rise and increased debt levels. By 2010, Greece (3% of the Eurozone) had public debt around 100% of their GDP. In order to lower their debt levels, the Greek government had increased their taxes and their borrowing levels. Solutions for fixing this issue consisted of stronger countries paying off the Greek debt – however not everyone agreed to such methods. Eventually, the value of the euro went down in the exchange markets and other Eurozone countries such as: Portugal, Italy, Ireland and Spain faced the same problem as Greece. The International Monetary Fund (IMF) and the European Financial Stability Facility (EFSF) donated money to help reduce the amount of debt – however not enough (Krugman, Obstfeld, Melitz, 2011). Since the Eurozone is controlled by monetary rules and does not consist of fiscal union (government collection of tax’s)...
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...press of a European Union (EU) on the verge of bankruptcy and dissolution. Meanwhile, financial markets backed off from their attacks on the PIGS (Portugal, Ireland, Greece, and Spain) while those porcine countries moved forward with significant reforms, slashing their deficit and debt levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving pause to euroskeptics and glee to euroboosters on both sides of the Atlantic. And yet the EU is far from out of the woods. The past two years of global economic upheaval have sorely tested the EU’s Economic and Monetary Union (EMU) and its crowning achievement, the euro. At base, the problem is simple: the EU is an outlier in political and economic history, and markets do not know what to expect from its unique combination of a single currency and separate nation- states. The eurozone crisis reveals the challenges of the EU’s sui generis political status—no longer a mere collection of nation-states, yet not a fully fledged federal entity. What, then, should we expect for the future of European integration? What does the stillunfolding eurozone crisis mean for the larger geopolitical position of the EU? Absent a crystal ball, any response is necessarily hazy and conjectural. Nevertheless, it is possible to sketch out some significant milestones and signposts that will determine the path of Europe’s future. The critical question is whether the leaders and citizens of Europe are willing...
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... The Eurozone Debt Crisis Most of the people know how it feels to owe money, even if it is only to a mortgage company, or to a four-year college loan provider. But it is a different matter for an entire nation to be deeply buried in debt and unable to repay it. When a country drowns in debt, the government of that country usually seeks austerity as the major remedy of overcoming its debt crisis. Austerity promotes slow growth, and this actually makes the situation even worse due to the fact that world economy has become more open and integrated. In today’s world, there is no nation that exists in economic isolation. Every countries almost all the economic aspects- its education, health service, industries, service sectors, levels of income, and employment is integrated to the economies of its adjacent countries. This linkage plays a very important role in the global movement of goods and services, labor, investment funds, and technology. That is, when a country defaults on paying its debt, it not only affects the country in default, but also initiates a global economic crisis. In my research paper, I will tell the tale of eurozone debt crisis, which has created a global hysteria in the current world economy. In the research that follows, I will start with a brief history of the eurozone, how did eurozone face the debt crisis, and what might be ahead for the global economy, amid the ongoing European financial crisis. Eurozone is a term designated...
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...Eurozone crisis: A Brief Assessment In his recent statement before leaving the seventh summit of the G-20, Prime Minister Manmohan Singh expressed his worries over the gloomy Eurozone outlook and the way it could further dampen global markets and adversely impact India’s economic growth. The Eurozone jitters have quite recently shown their impact on the country’s currency and caused it to downgrade and touch the lowest level of Rs.56.23 against the $ as on May 30, 2012. The situation in Europe is of particular concern as it accounts for a significant share of the global economy and is also India’s major trade and investment partner. Clearly, the situation in Europe needs major policy attention not just for Europe but for all major global economies, be it the emerging nations or the major developed economies. Eurozone Sovereign Debt Crisis: Background The Eurozone crisis is a term used to describe the soaring debt levels of five of the major Eurozone nations and their inability to pay off a part or whole of this debt that they have accumulated over the recent decades. These five nations including Greece, Portugal, Ireland , Italy and Spain have failed to generate enough growth for their economies to retain the bondholder’s confidence in their ability to hold the guarantee that they promised to deliver. The crisis that blew up has far reaching consequences extending beyond the national boundaries of these five nations painting a gloomy picture for all the major global economies...
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...| The Eurozone Crisis | | | ECON 3860Word Count: 1,495 | | The Eurozone Crisis The Eurozone is a combined group of countries using the euro as their only currency. It was created in 1999 and currently consists of 17 countries – not all part of the European Union (Investor Words). Within the Eurozone, the countries follow a monetary policy and controlled by the European Central Bank (in other words, the ECB controlled the supply of the euro within the 17 countries). In an attempt to control government debt levels and deficit spending the Maastricht Treaty was created. As years passed, some countries government deficit began to rise and increased debt levels. By 2010, Greece (3% of the Eurozone) had public debt around 100% of their GDP. In order to lower their debt levels, the Greek government had increased their taxes and their borrowing levels. Solutions for fixing this issue consisted of stronger countries paying off the Greek debt – however not everyone agreed to such methods. Eventually, the value of the euro went down in the exchange markets and other Eurozone countries such as: Portugal, Italy, Ireland and Spain faced the same problem as Greece. The International Monetary Fund (IMF) and the European Financial Stability Facility (EFSF) donated money to help reduce the amount of debt – however not enough (Krugman, Obstfeld, Melitz, 2011). Since the Eurozone is controlled by monetary rules and does not consist of fiscal union (government collection of tax’s)...
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...Portugal’s Economic Crisis A series of economic-plummeting activities has plagued Portugal since 1999. Until 2011, the country has been covering up their genuine economic crisis. It wasn’t until they requested financial assistance from The International Monetary Fund and the European Union in April 201l, that their crisis was revealed. There are several debates on the reasons for Portugal’s bailout request. Robert M. Fishman, a professor of sociology at the University of Notre Dame, argues, “[Portugal’s third national request for a bailout] has come under unfair and arbitrary pressure from bond traders, speculators and credit rating analysts.” With this statement, he claims that Portugal’s bailout request didn’t result from a debt, but rather the threat of these market forces that have pushed out the prime minister of the country for a four-month period. With the absence of this democratic government, Fishman debates further that there was not a genuine underlying crisis in Portugal. (Fishman, Robert. The New York Times (The Opinion Pages) Portugal’s Unnecessary Bailout. April 12, 2011) The truth is that Portugal has had an underlying crisis for years but has managed to shift from the global public eye. According to David R. Cameron, professor of Political Science at Yale University, “there has been a recurring imbalance between spending and revenues.” This leads to my first solution, which is to have Portugal abandon their current fiscal policy. This would help cure the...
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...The sovereign debt crisis in the Eurozone, also called euro crisis of the Euro area, is a series of events that have affected negatively from the beginning of 2010 to the 16 European Union member states that make up the Eurozone, that have adopted a single currency and interweave a multinational monetary union within the EU. During this period the states of the Eurozone have been suffering a crisis of confidence without precedent, with speculative attacks on government bonds of various members, turbulent financial and stock markets and a falling exchange value of the single currency, in a context of uncertainty and difficulty to reach a collective agreement that still persists. In this paper, I will discuss some of the impacts that the crisis had over the Eurozone countries. In the last 6 months, the Euro had depreciated around 6 percent, making the exchange rate $1.38/€. This depreciation has caused an improvement in the European exports and a decrease in price for the imports in petroleum. The Euro/Dollar exchange rate touched a minimum on June 2010, when the rate is $1.19/€, and it touched a maximum on May 2011, when the rate was $1.48/€. According to an article from the Financial Times, “the first beneficiaries of a weaker euro are the countries of southern Europe whose difficulties have been putting the future of monetary union in doubt. Greece has been the focus, but Spain, Portugal and Italy also face a sharp loss of competitiveness”. Greece is the country that will benefit...
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...IMF RESCUE PROGRAMS IN THE FINANCIAL CRISIS IN EUROZONE Mutegi Cliff United States International University IMF RESCUE PROGRAMS IN THE FINANCIAL CRISIS IN EUROZONE Introduction of Eurozone Crisis The Eurozone crisis began when it became evident that Greece was unable to repay its debts. This realization posed a threat not only to the 17 nations using the Euro currency but the whole European Union – 27 nations (Fullbrook, 2007). A report in 2003, by George Mason University’s School of Public Policy says, “The roots of Greece's fiscal calamity lie in prolonged deficit spending, economic mismanagement, government misreporting, and tax evasion." In order to avert the collapse of the European Union and the world economy, the EU together with the International Monetary Fund (IMF) had to find a means of bailing out the ailing states Greece, Italy and Ireland among others (Francis, 2002). IMF rescue programs in: Greece The first rescue program for Greece was in May 2010. The assistance was called “Troika” as it involved the IMF, Greek government, the federal commission of economic charge European Commission (EC), and the monetary control fund, the European Central Bank (ECB) (Fullbrook, 2007). This assistance was in the form of a three-year economic adjustment initiative involving a financial assistance of € 110 billion. EU countries contributed € 80 billion while the IMF gave € 30 billion (Fullbrook, 2007). The loan was on condition...
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...Overall Eurozone in comparison to the Geek Financial Crisis The Greek economy is worth about $200 billion dollars, which represents a mere 2% of the entire Eurozone. Though, the public perception that deems Greece insignificant to the financial health of the Eurozone is incorrect. The policymakers are to blame, for their fear of losing the market’s trust is where Greece’s Eurozone impact originated. Their actions were shortsighted in the face of a serious financial problem and disregarded recommended protocol from the International Monetary Fund. The IMF recommends that, countries with high outstanding debt take corrective action by balancing their budget and devaluing their currency. This framework is in place to avoid paying back more then you can and coupled with fiscal austerity, which raises taxes and cuts spending. This plan would and did worsen the Greek economy, especially when Greece had the most outstanding tax debts then any other country in Europe in 2010, because decreasing national income would inhibit a county from repaying their debts. That is why the final phase of the IMF’s protocol, to provide a large and more cost effective “monetary stimulus”, is key in offsetting financial loss from austerity and allowing Greece to Grow by spending. Eurozone policy makers marginalized the IMF’s customary advice and decided that they could preserve their long-term financial health with a short-term solution. Allowing Greece to default on its debt was out of the question...
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...Question 1 Export-oriented countries such as Singapore face substantial economic risks from the Eurozone crisis. Discuss your views on the above statement.[10 marks] Eurozone - Since early 2010, the Eurozone has been going through a tedious debate over the resolving of its homegrown crisis, now the “euro zone crisis”. Started from Greece followed by Ireland, Portugal, Spain and then Italy, these Eurozone economies went through a downgrade of their sovereign debt rating, stress of default and a drastic rise in borrowing cost. Fellow Eurozone economies and the future of Euro have been threatened by these developments. Forced to do what it takes, the Eurozone economic disaster is unlikely to return to business as usual soon on its own. (Timeline, 2012) Gross Domestic Product - The Gross Domestic Product (GDP) is the total value of final goods and services produced in the market, in a fixed duration within a country. It is calculated based on total consumption expenditure, government spending, and domestic investment, adding the value of exports, subtracting the value of imports. The GDP is a coincident indicator. An increase or decrease in the GDP is a strong indicator of a country’s economic health. Based on the above, countries heavily dependent on export demand from Europe would face a sharp drop in their value of exports, for example, Singapore, Hong Kong, Taiwan, Korea and Malaysia. Mathematically, a decline in total export value leads a drop...
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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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...Obsah Summary .................................................................................................................................... 4 Úvod ........................................................................................................................................... 5 Politický a hospodársky vývoj Francúzska v 80. a 90. rokoch 20. storočia .............................. 6 Záujmy Francúzska vo vzťahu k HMÚ ...................................................................................... 7 Nedodržování Paktu stability a růstu ze strany Francie ............................................................. 8 Ekonomická krize ....................................................................................................................... 9 Evropský stabilizační mechanismus......................................................................................... 10 Euro plus pakt........................................................................................................................... 10 Fiskální pakt ............................................................................................................................. 11 Plnění rozpočtových cílů ...................................................................................................... 11 Dohled nad bankami................................................................................................................. 12 Nálada ve Francii .........................
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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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...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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...2 Costs of EMU Membership 7 3.0 Contextual Factors: The Profusion of Dept 10 3.1 The Eurozone Crisis 10 3.3 Greece- The Forefront of the Euro Area Crisis 13 4.0 Alternate Policies and the Effective Consequences 15 4.1 Predicament 15 4.2 Abetting Dependent on Austerity 16 4.3 Creditor-Led Default 17 4.4 Debtor-led Default and Greek Haircuts 19 4.5 Greek Exit 20 5.0 Recommendation 21 Appendices: Appendix 1: Preferential liberalization References List of Illustrations Pg. Illustration 1: The cost of EMU- Diminishing Domestic Flexibility to Asymmetric Macro Shocks 7 Illustration 2: Cost and benefit of Monetary Unions 9 Illustration 3: Evolution of Nominal Unit Labor Costs in the Eurozone Pre to the US Credit Crunch 9 Illustration 4: Current Account Balances in Percentage GDP 10 Illustration 5: Core Bank Exposure to the Weaker Eurozone Member States 12 Illustration 5: Holders of Greek Government Bonds and Dept (in billion Euro) 16 Executive Summary The standing Economic and Finance minister of Germany has commissioned the policy paper for the forthcoming Council of Economic and Finance ministers meeting. The policy undertakes a consideration of whether Greece should exit the European Union on economic grounds. Currently, the Greek dept crisis is infecting the rest of the EMU member states and...
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