... 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...
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...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 to upgrade their political institutions and equip them with the mechanisms to ease such financial and economic crises in the future. The way these issues are resolved—or not—will...
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...IT and International Real-Time Media: Amplifier for a Crisis or Instrument of Rational Decision-Taking Narelle Gomes, Christian Piechorowski 09.01.2014 Table of contents: 1.1 Information technology’s impact in the development of the stock exchange 1.2 Algorithmic trading 1.3 High frequency trading 1.4 High frequency; trading beneficial or harmful for the economy? 1.5 Final Remarks 2.1 The Influential Role of Mass Media - The Pervasiveness of the information disseminated on the people 2.2 Financial Crisis- A media spectacle? 2.3 The mishaps of European Media during the current Euro crisis 2.3.1 The alternative view of the media; Citizens mistrust towards the media 2.3.2 The wavering power of mainstream amidst its pervasiveness 3. Conclusion Introduction Problem Description: The world financial crisis started in the US with the burst of the housing bubble in 2007. However, it was not just limited to the US border, but it rapidly spread all over the world. Consequently, many banks went bankrupt and some countries were even pushed into a financial downturn. Target of Study: This essay will not provide a general outlook on the financial crisis but instead examines the impact of the Real time media and IT on this economic crisis of historic scale. How important...
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...From more strongly integrated financial markets, to the potential for a unified European identity, the Euro certainly brings many advantages to Europe. However, the political and economic instability that both caused and was caused by the Euro crisis threatens the further perpetuation of this currency. The onset of the Euro crisis came about when the Greek government admitted to a budget deficit much larger than they had previously divulged. Interest rates skyrocketed and, despite efforts to reduce spending, Greece ultimately fell bankrupt. Concerns over the decline of a state that represents only 2.5% of the EU’s GDP could have been redressed, had it not been for inflexible provisions of the Treaty on European Union. The “no-bailout clause” did not permit the EU or any national governments to undertake the debts of another state, a rational but perhaps detrimental provision in 2010. Moreover, one may argue that the Eurozone was in jeopardy from the start when more than half of its members did not meet the debt limits. The Stability and Growth Pact, an instrument created to monitor these debt limits, was quickly ignored. Even Germany and France, the EU’s most influential members, regularly exceeded deficit allowances and thus smaller states like Greece were able to build debt unchecked (see Appendix A). If the EU had taken more decisive actions in early 2010 to remit significant loans to impose austerity measures on Greece, the world’s confidence may have quickly revived....
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...implications it has globally and on South Africa as well as the lessons that can be learnt from the crisis. Origins of the Greek debt crisis 2.1 Historical development: 2001-2008/09 In 2001 Greece became the twelfth member to join the Euro zone and was permitted to use the Euro (€) as its currency. Greece joined the Euro zone because of the benefits associated with being part of the Euro area. These benefits were essential to the economy of Greece who had a record of unpredictable inflation (Gibson, Hall & Tavlas, 2012). In addition, after Greece changed to the Euro they had the freedom to borrow money from foreign capital markets. During 2003-2007 government records showed Greece to be growing at 4% a year which gave investors’ confidence and made Greek bonds a popular investment. However, Greece falsified its debt to seem more financially secure. This misrepresentation led to Greece debt position being hidden which made the country seem more attractive to investors (Wong, 2014). During 2008 Greece could not borrow any longer as they were affected by the recession and drifted further into debt. The Greek debt crisis led to the first of five sovereign debt crises in the...
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...the last few years According to the article, other currencies should come up to share the privilege of being the reserve currency with the US dollar. The Euro, the Japanese Yen and the Chinese Yuan are possible candidates. In fact, the world will be a safer place if other reserve currencies are introduced. However, each potential candidate has its share of problems, which include: i. The Euro has been damaged by the Euro-zone crisis. Consequently, its share in the international reserves has declined tremendously. ii. Demographics in Japan makes the Japanese Yen not a possible candidate iii. For the Chinese Yuan to replace the dollar, China needs to strengthen its banks and financial institutions in order to achieve capital convertibility within five years. On the other hand, the US dollar has a number of strengths that makes it continue enjoying the privilege of being a reserve currency. These include: i. The US economy is relatively stable as compared to the Euro economy ii. The US banks and other financial institutions within the United States plays a bigger role in financial stability as compared to financial institutions in China, Europe and Japan iii. Low inflation rates in the US. Currently, the inflation rate stands at around 1 percent Question 2: About the article Part 1 Financial crises have been a...
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...Background: As the consequence of the 2008 U.S. banking crisis, Europe was hit by one of the worst debt crisis. Starting from Greece in autumn 2009, the crisis spread to other European countries, especially Spain, Italy, Ireland and Portugal and forced European policy makers to take many actions to limit its consequences (BOG, 2014, p.42). While others European economies such as Spain, Portugal avoided the severe crisis by following advisory strategy like austerity, reducing public spending…, Greece situation did not improved. To help Greece improve its situation, the IMF and Eurozone governments sealed a deal for two bailouts in 2010 and 2012, totalling €240 billion. On July 5, 2015 the majority of Greek citizens voted to reject the Europe’s plan to bail out the country’s economy, which caused the fear about the potential exit from the European Union, Greece’s future and world economy as well. Despite that fact, Eurozone leaders still reached an agreement on a third bailout programme to save Greece from bankruptcy on July 13. Although Greece overcame the severe situation, there is no indicator that the crisis will stop. This essay will discuss Greek situation involving 3 main issues, which are mistakes leading to crisis, financial regulation and the role of banks, potential financial contagion and moral hazard. Discussion: 1. Mistakes leading to crisis: One of mistakes leading to crisis was supposed to involve economic statistical data fraud. According to a comprehensive...
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...disadvantages of adopting the Euro. A case study of The UK I. Introduction According to European Commission (2011a), a new common currency in Europe was announced on the first day of January 1999. At that time, there were eleven European countries decided to join the Euro and the Euro was introduced instead of their own currencies. The Euro has been adopted as a main currency of the country members, including Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, the Netherlands, Portugal and Spain. In order to be accepted to use the Euro, these countries had to agree with the conditions called “convergence criteria” about the price and exchange-rate stability, long-term interest rates, total government debt, government budget deficits, and central bank independence. These aspects will be discussed specifically in this essay. In the early stages of announcing and using the Euro, four members of the EU still remained separate from the Euro, namely Denmark, Great Britain, Greece, and Sweden. Later, in 2000, Greece changed its decision to accomplish the agreement. In 2001, it started adopting the Euro. At the present time, there are 17 out of 27 EU countries using the Euro as an official currency, which makes it become one of the most important currencies in the world. In the future, apart from Denmark and Britain, all other members of the EU will adopt the Euro. It should be known that only Latvia and Romania have a target date for joining the Euro in 2014 and 2015 respectively...
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...Spain (PIIGS) have each been in the media spotlight in recent years as attempts to rescue their respective financial markets are implemented. Unfortunately, many efforts made by Eurozone member states and other international actors have failed in alleviating the financial stresses of the region. Considering this, then, is there really a permanent solution that can not only relieve financial markets but also prevent the crises from spreading? To date, the European Unions’ collective response up to this point has been insufficient in order to curb the further slide into Europe’s second recession. I contend, then, that Europe and the Euro would greatly benefit from following many if not all of Germany’s internal budgetary constraints in order to fix the overall problem of debt and spending. One of original intentions of the euro when it was established in 1992 was to limit the amount of budget deficit a sovereign member state could have. Furthermore, the euro was designed to prevent a “bailout” should a state be unable to meet its debt obligations. Consequently, the euro indirectly served as a scare tactic for member states to “pay their bills” or face a default. However, as the credit boom of 2003 – 2007 fueled sky-rocketing prices on homes, bonds, and other commodities, Eurozone states confidently increased spending. Unfortunately, spending was done almost completely on credit and revenue speculation....
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...one of the highest rates in the Euro zone in the early 2000’s due to the high volume of tourists that it accommodated. Unfortunately for them, this growth was about to come to an abrupt halt. When the world economy took a turn for the worse, all of the money that Greece had been borrowing in order to fund large projects was examined more closely. It was revealed that Greece had been over-borrowing at such staggering levels that even the EU was shocked. With a down world economy, they were no longer able to borrow at such cheap rates and could not pay off their debts (Hoffman, CBS News). Throughout the rest of this paper, I will examine exactly what led Greece into this mess and what policies that the Greek government should put in place in order to try and resolve this issue with the least amount of damage possible. First things first, let’s look at how Greece got into so much trouble. During the good times, the Greek government decided to borrow billions upon billions of dollars to help the country grow. This would have been fine if they were receiving enough tax revenue in order to cover these debts but, of course, they were not. Now they’re stuck with this huge debt burden that equals around 133% of their total GDP (an estimated €300 billion or $413.6 billion) and that number only continues to grow as the economy shrinks even further (Hoffman, CBS News). These numbers have led Greece to the lowest credit rating in the entire Euro zone and has made borrowing for them...
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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...
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...1. Introduction To understand into the trend of European currency change nowadays, the origins of the Euro (€) had been studied. From the background of Euro, initial idea for the creation of Euro can be trace back to 1979 when European Union (EU) set up European monetary system (EMS). Due to the successful of EMS, the European Union decided to form the Economy and Monetary Union (EMU) to create Euro in December 1991.The main advantages and disadvantages of a single currency for the countries and the zone had been analysis with the macroeconomics knowledge that has learnt from this course. The advantages mainly help to eliminate the floating exchange rate, transaction cost and price transparency, whereas the disadvantages include loss of sovereignty, cost of Euro and budget position. Thus, the significant influences of Euro dollar from birth to now, it can be known that Euro currency is defined under flexible exchange rate system. With flexible exchange rate, the currency can be effort between the capital movements, tax and subsidize international trade and therefore the currency from overseas will influenced the demand. 2. Analysis 1. History of Euro In January of 1999, single currency, Euro has been introduced by members of European Union. It has been approved by Maastricht Treaty and used by its members currently who called as Eurozone. Those members consists of 16 members which are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg...
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...nationalism, and the future of international businesses in the case of a Eurozone collapse. Main causes of Eurocrisis The causes of the Eurozone crisis are both numerous and complex creating somewhat of the perfect storm within the member countries’ respective local economies at the start of the downturn. For the purpose of analysis, the main causes of the Eurocrisis can be divided into three main categories: sovereign debt, banking and inflation, as well as politics and labor. The following case will explore these categories in further detail. To begin with, the ratification of the Maastricht treaty, forming the European Union, brought with it two conditions that potential member countries had to meet in order to be able to adopt the Euro currency. Specifically, given the interdependent nature of the agreement, a member state was required to demonstrate economic health. This was measured annually through their maintenance of fiscal deficits under 3% of GDP, and government debt below 60% of GDP (Roscini & Schlefer, 2012, p.1). However, during the years preceding Greece’s financial woes, 6 out of the 11 members of the European Union failed to meet at least one of these standards on numerous occasions. In particular, Germany, one of Greece’s biggest critics for failing to manage the crisis correctly, “flouted the rules for four years from 2003 (and avoided punishment)” (“The causes: A very short history of the crisis,” 2011). Furthermore, Italy, Spain and...
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...from previous crises and they attempted to change financial regulations to keep pace with the changing global financial system. The policy response triggered by the recent financial crisis has been rapid and it appears that the global policy response has helped to mitigate the effects of the financial crisis. European Central Bank response to the latest crisis was an example of swift and effective reaction. It combined a mix of standard and non-standard monetary actions. 2. European Central Bank (ECB) – history and mission The ECB is the central bank for Europe's single currency (the euro) and its main task is to maintain the euro's purchasing power and thus price stability in the euro area. The ECB was created in 1998 to serve as the central bank representing the interests of the countries belonging to the European Union. In less than a decade, the ECB, headquarter in Frankfurt, Germany, has emerged as one of the world’s most important financial institutions. The Treaty of Nice (1967) established a three-stage plan to create a single currency and monetary policy for the euro area by creating the European System of Central Banks (ESCB). The ESCB consists of the ECB as well as the national central banks for each of the member nations. The ECB is successor of the European Monetary Institute (EMI). The EMI was established at the start of the second stage of the EU's Economic and Monetary Union to handle the transitional issues of states adopting the euro and prepare 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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