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, the Europe had suffered what it has been described as the largest economic crisis in history since the 1930’s.
The Europe crisis started as an effect of the global slow growth caused by the American financial crisis in 2008, since then, the Europe has been fighting against its financial collapse. However, it has still demonstrated an extraordinary capacity to continue solid.
The economic crisis has happened all around Europe, countries like Greece, Spain, Italy and France are suffering most with the international debts. In search to a solution to the crisis and reduction in deficit, countries are introducing financial measurements.
Spain, for example, has announced austerity measures as a possible solution to reduce deficit. The measures announced by the Spain’s Prime Minister Mariano Rajoy includes the increase of taxes (Increase in the VAT from 18 to 21 per cent), diminution of costs (cut of 3.5 billion Euros in public administration), reduction of unemployment benefits from 70 to 50 per cent and cut in bonuses and incentives. The austerity measure has the target to bring 6.5 billion Euros to Spain and to reduce the public deficit with Europe Union.
In the same context, the French Prime Minister Jean-Marc Ayrault also announced an increase in taxes of 7.2 billion Euros. The French’s government measure also attempts to reduce its debts. The principal measures will affect directly big companies and wealthiest households. The procedures announced involve an increase in levy for Households with net wealth of more than 1.3 million Euros, a tax of 75 per cent will be introduced on income higher than 1 million Euros, financial business will have an increase in tax to 0.2 per cent and a 3 per cent tax will be paid on shareholders distributions.
The European crisis is causing insecurity and instability at a global level. The crisis’s effect did not exclude even strong economies such Germany. On 7 August 2012, the newspaper The Telegraph (2012) had published that exports in Germany had fell 1.7 per cent, from 17.4 billion Euros to 14.4 billion Euros. The decrease in Germany’s exportation is a direct result of the fall in trade and international demand of products. With the escalation of the European crisis, power economies such Germany, also have a large fell in the trade stability and dropping in industrial production.
As a result of this instability in the Europe economy, the International Monetary Fund (IMF) had called the Central Bank to insert money into Europe. The primary reason of the IMF interference is that some countries in Europe are at risk of suffering deflation. The IMF’s report had stated that there was a risk of reduction in price of 25 per cent. The reality of a deflation in the euro zone countries would increase the difficulty in European countries to reduce its debts, regarding that reduction in prices would also slows tax revenues.
The objective of IMF has been for decades to maintain economic stability and encourage global growth. The IMF was founded in July 1944 when 45 countries established a structure for financial cooperation and it has currently 188 member countries. The IMF offers advice and financial support to its members in times of economic crisis and difficulties.
As a call from help from its countries members and the International Monetary Fund, the European Central Bank has taken a few procedures since the beginning of the European crisis. One important action it was to reduce interest rates by a quarter of percentage to 0.75 per cent. The European Central Bank has also decreased interest rates on deposits to zero and a marginal lending facility to 1.5 per cent. The European Central Bank measures are a significant attempt to turn the Euro zone crisis around and improve Europe’s economy.
The European Central Bank was established on 1998, after long discussion to introduce a European currency, the present Euro. The European Central Bank mission has been to manner monetary policy for the euro zone, maintaining economic stability and protecting the value of its currency. At this time of crisis is important that the European Central Bank take a role of political player and assume strategic responsibility to develop its effectiveness.
The above described attitudes from European Countries Governments, International Monetary Fund and Central European Bank demonstrate that European leaders are committed to found an end to the debt crisis existent in the Euro zone. Europe is challenged to make straight actions against its vulnerability and economic instability.
The Europe crisis has not only affected the Euro zone but also other markets around the globe. A report done by the IMF in July 2012 had shown that growth in Emergent Markets such Brazil, China and India has been lower than predicted.
The bank’s problems in Spain, France and Italy, instability in Greece and high decrease in the rank of exportation in Germany (one of the largest economies in Europe) have created an international market distress. Emerging countries such Brazil, India and China are suffering with a stagnation of level of internal growth. International marketers and investors are concern about the risks of financial investments, growth uncertainty which it is a decline in prices and depreciation of currencies. However, the emergent countries are still the most stable economies around the Globe and the International Marketers are focusing in these Emergent Markets to survive the economic crisis.
In this context, some International Marketers are expecting to increase their budgets shifting the resources directly to the Emergent countries. Motorola and GE, for example, are focused to increase their global marketing directing their budgets to China and India.
From this global framework of crisis and uncertainty, International Marketers are also suffering one of the most challenging moments in history. The international marketers are required to analyse the effects of this European crisis and its direct effect in the global market. They must be engaged to create ideas and find solutions to go around this recession time.

References:
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Stiglitz, J. 2003. Globalization and Its Discontents, Economic Notes, vol. 32., issue 1, pages 123–142, February 2003