Free Essay

Global Financial Crisis and the Eu

In: Business and Management

Submitted By ssruttala
Words 5853
Pages 24
BUSI2034 Research Project 2015

Due Date: Monday, 4 May 2015, 4pm
Length of Essay: 4000 words excluding tables, figures, reference list, and appendices (if any).
You are required to develop an essay addressing the issues described in the following statement:
‘Geopolitical crises and epidemics haven’t stopped the global economy from expanding by some 3 percent in 2014. However, the Eurozone will remain the world economy’s main problem, with growth in the single-currency bloc expected to be negligible.
Problems in some of the Eurozone’s big economies are worrying analysts. The situation in Italy, for instance, is quite dramatic, with the economy stagnating. In France, high public deficits are a big worry; such a policy could not be continued for much longer. Underperforming fellow Eurozone nations could affect Germany’s own economic growth prospects, since they are the customers for most of Germany’s exports; it is expected that Germany’s gross domestic product will expand by just 1 percent in 2015.
Despite the evident problems in Eurozone, Germany and France are determined to restore a confidence to the Euro.’
Discuss the statement, and use examples to justify your opinion.

1.0 Introduction
The Global Financial Crisis or the ‘great recession’ as it is now known has been widely regarded as the worst global recession since the end of the Great Depression (Drezner, 2014). The events following the collapse of the US housing market and the subsequent financial meltdown has had consequences on a global scale, nowhere is this more evident than in the Eurozone (Allen & Ngai, 2012). The Eurozone, made up of 19 EU member states that have adopted a common currency and monetary policy, have faced increasing levels of public debt, economic stagnation and civil unrest (Ucler et al. 2015). Problems are further compounded by the fact that there is an increasing level of disagreements over the policies and structural reforms to be undertaken.

While it is easy to lay the blame for many of the problems entirely on the GFC, this can be a misleading proposition. Though the GFC and the recession that followed acted as the precursors to the Eurozone crisis, these problems were further exacerbated by the structural bottlenecks and often-contradictory fiscal policies that characterized the various Eurozone nations. This is evidenced by the fact that economic growth for the Eurozone in the year 2015 is estimated by the European commission to be around 1.3% (The Economist, 2015), which though better from previous years, is disappointing when compared to an estimated global growth forecast of 3.0% (World Bank, 2015). This seems especially lacklustre when taking the increasing levels of economic activity in both the UK and US into consideration, where markets have seemingly gained momentum spurred on by healing labour markets and accommodative monetary policy. The fact that the UK and US, both countries that have been significantly affected by the onset of the global recession, have seemingly restored their economic momentum raises the question off, why the Eurozone does not seem to be able to replicate their relative success?

It is within this context that this paper seeks to explore, first the nature of the Eurozone crisis and secondly, the potential solutions for the future. It is postulated that the reason behind the economic stagnation and the fact that the Eurozone seems to have an inability to shake of the lingering affects of the global recession is, at its basic level, a structural problem. The authors will seek to draw from prevalent economic theory and take a holistic perspective in examining the events that precipitated in the crisis, the Eurozone reactions, including the QE programmes and the long-term prospects of the Eurozone. Following which potential solutions shall be identified.

2.0 Context

3.1 Origins of the great recession: Global integration for better or worse
On September 15, 2008, Lehman Brothers, one of the largest investment banks in the world and the fourth largest in the United States filed for chapter 11 bankruptcy, resulting in what has now been called the perfect storm (Kensil & Margraf, 2012). Though the spectacular fall of Lehman Brothers and the subsequent asset relief program which culminated in the bailout of AIG are often cited as the starting of the financial crisis, it is perhaps important to look backwards to the previous decades in order to fully understand just why the financial crisis occurred and why its impact caused a contagion specifically in the Eurozone.
From the years 1971-1973, the Nixon administration effectively dismantled the Bretton Woods agreement that had kept much of the global currency supply in check, essentially changing the nature of currency from the previously accepted gold standard to a de facto regime of free-floating fiat currency (Schwartz, 2000). What followed were decades of competitive devaluations and an unprecedented increase in the supply of currency around the world (refer to Figure 1). This was also an era of significant deregulation and financial integration around the world, combined with increasing amounts of savings from oil-rich countries and developing nations such as China (Lanman, 2007). By the early 2000’s it became evidently clear that there was a massive savings glut in the worlds financial markets (Agudelo, 2007).
The combined factors of massive liquidity and low interest rates especially in the developed world such as the US and Eurozone culminated in increased speculation and artificially inflated prices, especially in the housing sector (Dugger, 2014). The problem was further exacerbated by generous government incentives and deregulation that increased the risk-taking propensities of Banks especially in the areas of sub-prime mortgages, essentially creating a housing bubble (Christiano et al. 2015). However, when the housing bubble started to collapse in late 2007 culminating in the eventual folding of Lehman Brothers in 2008, the markets faced an uncertain environment with investors increasingly looking for safer options such as Gold. The stock market value of Banks collapsed and capital dried up almost overnight, what started off as an insolvency crisis turned into a systemic one (Braude et al. 2012).
Similarly in Europe, banks such as BNP Paribas which had taken significant positions in the US markets suffered considerable losses with flow on effects throughout the EU economy. The increasingly untenable positions of Banks within the Eurozone combined with the fact that there were significant housing bubbles in Spain and France meant that capital flows and credit were drying up quickly (Ucler, 2015). The previous global trends of financial deregulation and integration also meant that EU financial institutions had direct exposure to toxic assets in the United States (Ahmad et al. 2014). This essentially meant that Banks were going to have to increasingly consolidate their balance sheets by de-leveraging, effectively cutting down credit access to the economy at large and constraining economic growth (refer to figure 2). This was further compounded by the limitations of various national governments in taking effective measures imposed by the nature of Eurozone.
Figure 1 (Billion Vault, 2015)

Figure 2 (Weisanthal, 2013)

3.2 Crisis in Europe: The unique case of the Eurozone
According to prevalent economic theory, specifically the Keynesian view, because of the cyclical nature of the economy, government intervention can be used as a way to stimulate the market in the short-run and to smooth out economic fluctuations (Snowden & Vane, 1995). This is precisely the premise of stimulus packages such as TARP in the USA and the Rudd-era stimulus packages in Australia. However, due to the nature and structure of the Eurozone, individual governments can be severely limited in their implementation of such strategies, some of these issues are explored in the following section.
2.2.1 The common currency
The economic rationale for the adoption of the single currency is based on the premise of a neo-liberal economic philosophy, that is, the best way to improve the economy is through the free movement of capital. At a microeconomic level, there is little doubt that the adoption of a common currency area should improve business and benefit member states through increased efficiency in the allocation of resources. However, from a macroeconomic perspective, it can also conversely limit states in their ability to respond to crises as well as significantly increase the risk of contagion (Ricci-Risquete et al. 2015).
In the broadest terms, states have two avenues with which to intervene in the markets, the first one being fiscal and the second being monetary. However the adoption of Euro by the 19 members of the EU that make up the Eurozone meant that monetary policy was now in the hands of a central bank and out of national jurisdiction. Whereas under the previous free-floating currency regime, the markets had the ability to correct such things as trade imbalances, and if they failed to do so, the national bank could intervene through interest rate cuts and increasing currency supply, the adoption of the single currency and the subsequent loss of policy initiative meant that nations were now faced with a scenario of having only two avenues with which to correct macroeconomic imbalances, namely 1) real wages and 2) Price adjustments (Blankenburg et al. 2013). However, in both of these aspects there were divergent trends with certain states incurring ever increasing macroeconomic imbalances (refer to Figure 3 & 4) whilst not inviting the requisite currency devaluations as a result of the single currency. Similarly, whilst labor productivity increased in some states, there tended to be divergence in per unit labor costs, namely between northern and southern states (Rusek, 2012).
This resulted in a scenario whereby a single monetary policy was adopted without taking into consideration the national differentials that existed. Furthermore, asymmetric shocks exogenous to the Eurozone such as the appreciation or devaluation of the Euro can be extremely harmful to certain vulnerable economies as opposed to resilient ones. This was illustrated by the fact that certain countries such as the PI(I)GS (Portugal, Italy, (Ireland) Greece and Spain) were hit harder then others such as Germany (Dellago et al. 2013) during the great recession. According to extant research, the first reason for this scenario is that macroeconomic and financial disequilibrium shakes the confidence of financial markets in the solvency of vulnerable countries. Secondly, microeconomic and systemic inefficiencies that are internal to the country lead to weak competitiveness. This results in a situation whereby countries are at the mercy of markets. This issue is further compounded by the often-contradictory fiscal policies of individual governments, often precipitating in inconsistencies to the monetary policy undertaken by the ECB whose policy impacts are Euro-wide. 2.2.2 Fiscal Policies
This leads us to the controversial topic of EU fiscal policies. In an ideal situation, fiscal and monetary policies are consistent. For example, in times of high inflation, governments tend to cut back on government expenditure and national banks raise interest rates. However, due to the fact that the Eurozone consists of a diverse range of countries at different stages of development and uniquely dissimilar situations on the domestic front, there have at times been inconsistencies. Whilst various components of the Maastricht treaty and subsequent agreements sought to find agreements to this problem by setting general criteria and frameworks within which to implement fiscal policies, the aim being to promote fiscal restraint. They have been for the most part unsuccessful (Papademos, 2003).
The Maastricht treaty was signed with the agreement amongst member nations that they would avoid excessive deficits, with successive EU governments working to curtail inflation as well as lower government spending. However, as the launch of the Euro neared it became clear that there would have to be formal guidelines for countries to follow once the common currency had been adopted, and to this end the stability and growth pact was signed in 1997. The two main outcomes of this pact included an agreement to curtail government debt to within 60% of GDP and the annual budget deficit to within 3% of GDP. Similarly current account surpluses were to be maintained in the long run, in order to ensure that the common monetary policy would not have any adverse effects (Allen & Ngai, 2012). Nevertheless, the nature of the enforcement mechanism ensured that within a short period of time countries were violating the conditions and there was a lack of political will to enforce the regulations. In fact Germany, which for many years had been seen as a proponent of fiscal discipline was one of the first countries to violate the conditions set, followed soon by France. By 2005, there had been enough ‘reform’ of the original regulations so as to let countries run up large deficits (refer to figures 5&6). This was especially true of countries such as Italy and Greece which had been running deficits even prior to the collapse of Lehman Brothers, the main reasons being profligate social spending combined with insufficient tax collection (Chinn et al. 2013). The latter being especially true in the case of Italy, where tax evasion accounts for 18% of GDP and governments are unable to take affective measures in addressing the problem (The economist, 2013; Hallett et al. 2008; Navarro et al. 2012).
This had three broad implications for affected countries in dealing with the Great Recession. They were namely: 1) The high levels of debt accumulated in the preceding decades gave less room for maneuverability in terms of fiscal stimulus. 2) The short-term debt undertaken immediately following the Financial Crisis had the effect of massively increasing debt levels, during a period in which tax revenue was declining. This had the flow on effect of shaking the confidence of financial markets in the solvency of especially vulnerable nations such as Spain, Greece, Italy and Ireland. As a consequence, the risk premiums and interest associated with government bonds increased (refer to figure 7), further constraining individual governments’ ability to service debt. 3) Whilst running budget deficits are common practices for governments looking to stimulate the economy. In the absence of monetary policy initiative, countries are faced with the conflicting ideas of 1) increasing expenditure and 2) servicing debt through taxation and austerity (which has the effect of decreasing demand and limiting economic growth). Conversely, countries such as the US can take monetary actions and limit the effects of excessive debt through the use of seigniorage (i.e. inflation tax). However, in the case of the Eurozone, such policy initiatives are made next to impossible because of the divergent nature and contrast between resilient nations as opposed to vulnerable nations. For example, the ECB cannot lower interest rates and increase currency supply excessively since this would have adverse effects on countries such as Germany which are not faced with the same problems as the rest of the Eurozone (Leen, 2012). This brings us to the question of regional disequilibria.

2.2.3 North vs. South: An asymmetric relationship
Further from the lack of fiscal integration, there was also growing disparity between the various states of the Eurozone, with the emergence of an asymmetric relationship between Northern and Southern Countries. The former having consistently built up current account surpluses in the past, whilst the latter have accumulated long-term current account deficits (De Grauwe et al. 2014). As a result, the Eurozone system was characterized by a bipolar relationship between debtors-creditors.
Since the early 2000s, trade imbalances emerged between Germany on the one hand running a trade surplus and Greece, Italy, Spain and Portugal on the other running up large trade deficits. This resulted in growing difficulties for the Mediterranean countries to find viable routes in order to sustain international competitiveness (Chen et al. 2013). Conversely, Germany was fostering its competitiveness through a strategy of wage less productivity growth, combining strong wage restraints policies and high investments in technological infrastructure, while at the same time curtailing social spending. This resulted in a scenario where domestic demand was supressed and private consumption as a percentage of GDP declined drastically, being substituted by intra-EU net exports (Tylford, 2015). In fact by 2014, Germany’s current account surplus hit a record of 7.5% of GDP, exceeding the limits prescribed by the European excessive imbalances procedure (Blankenburg et al. 2013).
Political Will
Though the Eurozone crisis is often seen as primarily an economic one, the political side of it cannot be underestimated, especially if a long-term solution is to be found. This is especially worrisome given the seeming failure of European Institutions in fostering accountability and gaining legitimacy amongst EU citizens. In May 2014 the elections for the EP saw a massive rejection by European electorates against the mainstream parties, a symptom that arose as a consequence of many of the economic crises and the policy actions taken by EU nations. The elections saw as well a rise in support for Euroskeptic parties such as the French National Front led by Marine Le Pen (The Economist, 2014) and the “Five Stars Movement” led by the Italian comedian Beppe Grillo (Faris, 2013). Both leaders aimed to weaken support for the European Union, riding on a wave of dissatisfaction and anger of increasingly impoverished segments of the population.
Moreover, EU institutions have failed in educating citizens towards an understanding of the role of the European Union. This is underlined by the results of a eurobarometer survey in 2004 where 55 per cent of respondents thought that the EU was created just after First World War and 50 per cent did not know that Members of the European Parliament were directly elected by voters. Furthermore, one in four Europeans thought that the biggest item on the EU budget was the cost of officials, meetings and buildings (McCormick, 2011). Finally, the process of decision-making is often criticized for being cumbersome and extremely slow given that the directives and regulations adopted must be accepted by the majority of the member states (Ray, 2007; Black, 2008).
These problems are further exacerbated by the discrepancy in terms of economic growth between northern and southern states, with France and Germany being perceived as ‘dictating policy’. This was especially true during the years following the great recession where Germany, a nation that was significantly less affected by the great recession, became a visible advocate of fiscal austerity measures that significantly affected struggling EU members considerably more than Germany. This essentially caused widespread political divisions between Germany on one side, and southern countries on the other (Blankenburg et al. 2013).
Figure 3 (Dellago et al. 2013, p. 204)

Figure 4 (Dellago et al, 2013, p.204)

Figure 5 (Allen & Ngai, 2012, p.9)

Figure 6 (Allen & Ngai, 2012, p.10)

Figure 7 (Allen & Ngai, 2012. P.12)

3.0 Eurozone Reactions
3.1 Bringing it all together
In the preceding section, the authors mentioned and expanded upon the reasons behind the ‘global recession’ and some of the structural as well as institutional constraints that inhibit governments within the Eurozone from taking the necessary steps to address the crisis. These constraints were broadly categorized as monetary, fiscal, structural and political. It is within this context that we propose two scenarios within which nations in the region can stimulate the economy and sustain long-term growth: 1) Fledgling nations exit the Eurozone and deal with economic problems individually with the added weight of an independent monetary policy. However, such a scenario would be costly and maybe detrimental in the long run. 2) Alternatively, the Eurozone could take an integrated approach to addressing the problems at hand and by doing so essentially find ways of circumventing the constraints previously elaborated on.
The second scenario was the preferred outcome by the Eurozone, notwithstanding the recent political divisions. However, much of the focus of recent efforts has been upon addressing the fiscal/budgetary problems of peripheral countries whilst often disregarding the problems associated with such things as trade imbalances. The economic thinking of Eurozone leaders so far has been that the only solutions to the Union’s problems are fiscal austerity and restoring the confidence of the financial sector. Such a view has had the downside of supressing demand and slowing growth within the short-run, whilst at the same time not addressing many of the structural constraints that could inhibit long-term growth.
3.2 Eurozone initiatives
In April 2010, when the euro crisis became increasingly visible, the Greek government negotiated its debt with the Troika in exchange for austerity measures. The Troika’s approach to the euro crisis up to that point had been dominated by its insistence of a market friendly solution aimed at increasing private sector participation in the renegotiation of the sovereign debt of EMU member states (Blankenburg et al. 2013). Such a policy limited the role played by the ECB to indirect interventions. The result being a series of ad hoc policy and institutional innovations, such as the European Financial Stability Facility (EFSF) that consisted of extending large loan packages to bankrupt states, issuing bonds as well as, other more complex debt instruments on the capital markets (Ucler et al. 2015).
The EFSF loan package had moreover stringent austerity conditions attached to it. It’s initial role was limited to that of a stability mechanism, intervening in primary and secondary bond markets as a rescue facility, before going on to become a permanent institution in the October of 2010 (i.e. European Stability Mechanism). Overall, since its creation the ESM failed to restore confidence in the markets, creating instead recurrent speculative attacks on sovereign debts in crisis-ridden EMU member states. The Accord of 27 October 2011 on Greek sovereign debt achieved only a brief stabilization of the European financial markets. However, market volatility that was attributed to an increasing reliance on uncertain cooperation by private creditors and member governments led in December 2011 to the adoption of LTRO’s (Blankenburg et al. 2013). The LTRO’s were essentially refinancing operations undertaken by the ECB as a way to lend to banks within the Eurozone region at generous rates (i.e. 1%), in order to boost liquidity and expand credit. However the results were disappointing since financial institutions were still wary of lending and economic uncertainty, this signalled the end of an emphasis on market friendly solutions (Schmieding, 2012). Further from this, as of 2010 there was still no evidence that these programmes had increased the capacity of the governments of debtor countries to service their debts, this was attributed to the relatively high risk premiums associated with the debt. It became increasingly clear, that the ECB would have to intervene directly in the market in order to restore financial confidence and put downward pressure on sovereign debt yields (Viterbo, 2015; Popescu, 2013).
On 6 September 2012, Mario Draghi, president for ECB finally announced the introduction of OMTs, recognising the ECB’s role as a lender of last resort to the EMU. The introduction of the OMTs implied the ECB assuming a role as the “banker of governments”, effectively buying up government debt. However, in order for OMTs to be effective in stabilising bond markets two features were necessary: first there was to be no quantitative limit on purchases of sovereign bonds of one to three year maturity. Secondly, to qualify for ECB bond purchases, countries have to adopt a full austerity program and/or a less stringent precautionary program for the recovery from short term temporary shocks (Blankenburg et al. 2013). In essence the OMTs appeared to be the only way with which to stabilize the bond market, assuring investors of the stability of the weaker countries and driving down servicing liabilities, providing much needed relief (Jessop, 2014; Buchheit, 2013).
3.2 Limitations
Though fiscal austerity does have its proponents who cite the fact that government expenditure needs to brought down in order to 1) consolidate and reduce debt pressures and 2) restore confidence. This author postulates that focusing on debt consolidation solely can be detrimental to the economy, since it has the side effects of creating unemployment and reducing demand based economic growth, further increasing government liabilities in the form of social security and decreasing revenue (e.g. less company tax). Furthermore, fiscal irresponsibility is not the sole reason for the crisis, such things as excessive deregulation, trade imbalances and the lack of enforcement mechanisms were also cited in the previous section (Rusek, 2012). Therefore, we propose that whilst financial austerity can put a stop to excessive deficits, it needs to be used moderately and in conjunction with structural reforms in order to promote growth. In the future, there also need to be strict criteria and the will to enforce them, if governments or institutions diverge. A point in case being the fact that the original stability and growth pact, which if it had been enforced, could have potentially avoided the debt crises all together. Although there has been recent momentum in addressing some of these issues, with the signing of the European Fiscal Compact in 2012 (i.e. essentially a newer version of the SGP), the current political dynamics have resulted in a situation where there are still no substantiative enforcement or disciplinary mechanisms created, for example, France within a two year period had already violated several of the criteria set (Alderman, 2014).
It is with the above conditions in mind that the authors propose the following solution:
In order to boost economic growth to similar levels such as the US and UK, it seems urgent that the structural imbalances that undermine the proper functioning of the Euro project be corrected. One possible way forward consists of a radical shift in the domestic economic policies of surplus countries toward measures aimed putting downward pressure on current account surpluses. Such policies could take the form of either direct transfers to southern countries or targeted increases in imports from southern countries. Alternatively, stimulus could also be implemented in order to boost domestic demand.
The most evident case is constituted by Germany, the economic heart of the Eurozone, whose rebalancing could result in major changes and relief for the European economy. In fact, under such a scenario, not only would debtor countries be able to service their debt more easily, there would also be improved investment prospects, hence reactivating the dynamics of demand and supply. Germany could also benefit from the increase in private consumption, in the form of positive effects for domestic business. Similarly, this kind of demand based economic interventions could kick-start inflation in northern countries, making it easier for the ECB to adjust the interest rates accordingly, which would further reduce pressure on debtor countries by increasing domestic investment, as well as reduce debt liabilities.
Similarly, the nature of the political dynamics and demand-side economics also mean that policy initiatives need to be undertaken in order to give greater breathing space for countries in terms of austerity. For example, the OMT’s not only helped give much needed relief to governments within the Eurozone but also restored confidence in the Euro (Lin et al. 2015). A related concept could be increased investments in infrastructure through public-private partnerships, increased investments in education and other strategic sectors; this could reduce unemployment in the long run, boost economic growth and increase competitiveness. However, this would require EU-wide coordination to ensure a equitable and efficient distribution, helped by strong fiscal integration and enforcement mechanisms, so as to ensure that the problems that caused the crisis in the first place do not arise again. 4.0 An epilogue of sorts & Conclusion
Notwithstanding the political divisions, leaders within the Eurozone, especially Germany and France seem determined to restore confidence in the Euro. It must be remembered, first and foremost that the economic and political basis behind the Eurozone project still remains upon solid foundations. Previously, this author mentioned the microeconomic rationale behind the adoption of a single currency and indeed trends in the Intra-EU trade indicate that the adoption of a single currency has been beneficial (figure 4).
Apart from this, it is perhaps pertinent to remember that the adoption of a single currency is part of an overall drive toward greater integration and as such, the failure of the Euro has the potential to undermine and even reverse some of the major political achievements within the broader EU context. Ironically, it is Germany’s export oriented economy and consistent current account surpluses (which this author alluded to previously as one of the structural problems) that provide its government with the most incentive to ensure a stable euro. A break-up of the Euro would see a significant appreciation of its own currency in comparison to the rest of the Eurozone economies, thus hurting its exports in the long run, not to mention its creditor status. Similarly, the repercussions for states such as France with their large public debts would also be drastic, albeit for a different reason. Were they to leave the Eurozone, they would be faced with devaluations in their currencies which, given their debtor status would exaggerate the problem.
It therefore follows that it is in the mutual interest of all parties to ensure a strong Euro into the future, not to mention the long-term costs associated with reverting to a single currency such as, decreased cross-border trade, labor mobility and the increased uncertainty involved with volatile national currencies. However, ensuring growth into the future does involve greater consensus amongst EU leaders in order to address some of the structural and underlying problems aforementioned. Nonetheless, in this authors’ opinion, the initiatives undertaken so far, notwithstanding their significant limitations do show an intrinsic desire and will to undertake policy initiatives.

Alderman, L. “France Produces A ‘No Austerity’ Budget, Defying E.U. Rules'”, N.p., 2014. Web. 3 May 2015.

Agudelo, D.A. 2007, “Three essays on information and liquidity in international markets”, Indiana University.

Ahmad, W., Bhanumurthy, N.R. & Sehgal, S. 2014, "The Eurozone crisis and its contagion effects on the European stock markets", Studies in Economics and Finance, vol. 31, no. 3, pp. 325.

Allen, F. & Ngai, V. 2012, "In What Form Will the Eurozone Emerge from the Crisis?", Journal of Applied Finance, vol. 22, no. 2, pp. 6-19.

Banerjee, J. 2012, “In What form Will the Eurozone Emerge from the Crisis?”, Journal of Applied Finance, Vol. 6, no.22, pp. 6-19.
Blankenburg, S., King, L., Konzelmann, S. & Wilkinson, F. 2013, "Prospects for the eurozone", Cambridge journal of economics, vol. 37, no. 3, pp. 463-477.
Bullion Vault,. 'Gold Price Rally 'Does Not Necessarily Need Lower Dollar'', N.p., 2015. Web. 2 May 2015.
Black, J. 2008, "Euroskepticism: Pathology or Reason?", Orbis, vol. 52, no. 3, pp. 480-493.
Braude, J., Eckstein, Z., Fischer, S. & Flug, K. 2012, Great Recession, MIT Press.
Buchheit, L.C. 2013, "The Eurozone debt crisis: the options now", Capital Markets Law Journal, vol. 8, no. 1, pp. 54-61.
Chen, R., Milesi‐Ferretti, G.M. & Tressel, T. 2013, "External imbalances in the eurozone", Economic Policy, vol. 28, no. 73, pp. 101-142.
Chinn, Menzie D. 2012, “The Eurozone in Crisis: Origins and Prospects”, La Follete School of Public Affairs, no. 001, pp. 2-11.
Christiano, L.J., Eichenbaum, M.S. & Trabandt, M. 2015, "Understanding the Great Recession", American Economic Journal.Macroeconomics, vol. 7, no. 1, pp. 110-167.

Dallago, B. 2013, "Financial and real crisis in the Eurozone and vulnerable economies", The European Journal of Comparative Economics, vol. 10, no. 3, pp. 195-215.
De Grauwe, P. & Ji, Y. 2014, "The Future of the Eurozone", The Manchester School, vol. 82, no. S1, pp. 15-34.
Drezner, D.W. 2014, "The System Worked: Global Economic Governance during the Great Recession", World Politics, vol. 66, no. 1, pp. 123-164.

Dugger, W.M. & Peach, J.T. 2013, "Abundance Denied: Consequences of the Great Recession", Journal of Economic Issues, vol. 47, no. 2, pp. 351-357.
Faris, S. 2013, Beppe Grillo, Bloomberg L.P.
Hallett, A.H., Neck, R. & Richter, C. 2008, "Policy issues in the Eurozone: cyclic convergence and fiscal sustainability", International Economics and Economic Policy, vol. 5, no. 1, pp. 1-4.
Jessop, B. 2014, "Repoliticising depoliticisation: theoretical preliminaries on some responses to the American fiscal and Eurozone debt crises", Policy & Politics, vol. 42, no. 2, pp. 207-223.
Kensil, S. & Margraf, K. 2012, "The Advantage of Failing First: Bear Stearns v. Lehman Brothers", Journal of Applied Finance,vol. 22, no. 2, pp. 60-76.
Leen, A.R. 2012, "Seigniorage: A True European Tax", EC Tax Review, vol. 21, no. 6, pp. 331.
Lin, C., Lin, S. & Wu, A. 2015, "Foreign exchange option pricing in the currency cycle with jump risks", Review of Quantitative Finance and Accounting, vol. 44, no. 4, pp. 755-789.
Marine Le Pen's triumph: French politics 2014, The Economist Newspaper NA, Inc, London.
McCormick, J., Understanding the European Union (New York: Palgrave MacMillan, 2011), pp. 132-140
Navarro, V. 2012, "The Crisis and Fiscal Policies in the Peripheral Countries of the Eurozone", International Journal of Health Services, vol. 42, no. 1, pp. 1-7.
Papademos, L.D. 2003, "The stability and growth pact: an asset rather than a liability", CES info forum, vol. 4, no. 2, pp. 73-77.
Popescu, G.H. 2013, "Macroeconomic Policies in the European Union", Economics, Management and Financial Markets, vol. 8, no. 2, pp. 185.
Ray, L. 2007, "Mainstream Euroskepticism: Trend or Oxymoron?", Acta Politica, vol. 42, no. 2-3, pp. 153-172.
Ricci-Risquete, A. & Ramajo-Hernández, J. 2015, "Macroeconomic effects of fiscal policy in the European Union: a GVAR model", Empirical Economics, vol. 48, no. 4, pp. 1587-1617.
Rusek, A. 2012, "Eurozone Crisis and Its Solutions: Some Thoughts about Parallel Currency Regime", International Business Research, vol. 5, no. 10, pp. 11-18.

Lanman, B.N. 2007, 'Saving glut' keeping rates low, Bernanke says, Salt Lake City, Utah.
Schmieding, H. 2012, "Tough love: the true nature of the eurozone crisis", Business economics, vol. 47, no. 3, pp. 177-189.
Schwartz, A.J. 2000, "Do we need a new Bretton Woods?", Cato Journal, vol. 20, no. 1, pp. 21-25.

Snowdon, B. & Vane, H. 1995, "New-Keynesian economics today: The empire strikes back", American Economist, vol. 39, no. 1, pp. 48.

The Economist,. 'Taking Europe’S Pulse'. The Economist. N.p., 2015. Web. 2 May 2015.

The Economist. ‘Big Government meets big data’. The Economist, 8 January 2013.

Tylford, S. 2015, “German rebalancing: Waiting for Godot?”, Centre for European Reform, no.98, pp. 2-10

Ucler, G. & Kirmizioglu, H. 2015, "The Reasons of Eurozone Sovereign Debt Crisis and an Empirical Analysis over Permanency of the Crisis", International Journal of Economics and Financial Issues, vol. 5, no. 1, pp. 86-96.
Viterbo, A. 2015, "Supranational creditors: a threat to the equal status of bondholders?", Capital Markets Law Journal, vol. 10, no. 2, pp. 193-211.
Weisenthal, Joe. 'CHART: Here's The Massive Deleveraging Of European Banks'.Business Insider Australia. N.p., 2013. Web. 2 May 2015.

Wolf, H. 2012, "Eurozone entry criteria after the crisis", International economics and economic policy, vol. 9, no. 1, pp. 1-6.

World Bank,. 'Global Economic Prospects'. N.p., 2015. Web. 2 May 2015.

Similar Documents

Premium Essay

Global Financial Crisis

...GLOBAL FINANCIAL CRISIS The Global Financial Crisis is considered to be the worst financial crisis to hit the global economy since the Great Depression. Around the world, stock markets fell, financial institutes collapsed or were bought out, banks stopped business with each other and governments had to bail out their banks and financial institutions. This in turn caused lots of unemployment and collapse of the real estate market, contributing to failure of businesses and industries, decline in consumer wealth and a decline in economic activity leading to the Global Recession. The Financial Crisis may have showed some traces in 2007 but it really hit on 15th September 2008 when the United States Government allowed Lehman Brothers to go bankrupt, resulting in all banks deemed to be risky. The immediate cause of the crisis was the bursting of the United States housing bubble which had peaked in 2006.By September 2008, housing prices in the United States began to decline after hitting their peak in 2006.Easy credit and a belief that house prices would continue to appreciate had encouraged many subprime borrowers to obtain adjustable rate mortgages. These mortgages enticed borrowers with a below market interest rate for some time, followed by market interest rates for the remainder of the mortgage’s term. Borrowers who could not make higher payments once the initial grace period ended tried to refinance their mortgages. Refinancing became more difficult, once......

Words: 1610 - Pages: 7

Premium Essay

Global Financial Crisis

...Global Financial Crisis: impacts, solutions and predictions in GCC countries. Since the end of 2007 and the beginning of 2008, the world has been suffering from the global financial crisis. It is believed to be the worst financial crisis in 60 years at least since the Great Depression in 1930s, due to the speed, scope, and scale of its impact. The huge difference distinguishes the contemporary crisis from the others is that the other crises were concerned with economic inflation and the current one is concerned with economic deflation. The global financial crisis has started in America, then crossed the Atlantic before going global. It began in the mortgage markets of the United States and erupted through financial markets (Savona, Kirton, Oldani 3). Many factors have contributed to the economy's recession, where signs of housing bubble problem were seen at the end of 2007. Caused by low interest rates beginning on January 3, 2001, and ignored by regulatory agencies, Americans borrowed excessively for home mortgages and this phase lasted to 2004. After that, from June 30, 2004, interest rates started to rise which led to the mortgage being unbearable and eventually subprime. This phase was marked by the increasing foreclosures and it extended from 2005 to 2007. This lead us to the conclusion that global financial crisis occurred due to easy monetary policies along with tax cuts and to failure of regulatory arrangements (Desai 1-3). This was the origin of the global......

Words: 2243 - Pages: 9

Premium Essay

Global Financial Crisis

...Positive and Negative Effects of the Global Financial Crisis Harlita H. Tomlinson Capella University BMGT8114: Accounting in the Global Era Dr. Wendy Achilles June 8,2014 Table of Contents Abstract 3 Positive and Negative Effects of the Global Financial Crisis 4 Background on the Global Financial Crisis 5 Global Financial Crisis and Its Negative Effects 9 Lack of Financial Sector Regulation and Oversights 9 Increase in the Number of Bankruptcies 11 Global Financial Crisis and Its Positive Effects 12 Designing Regulations to Monitor the Financial Sector 12 Global Governance as a Side Effect of the Global Financial Crisis 13 Lessons Learned 16 Domestic Lessons Learned 16 Global Lessons Learned 17 Lessons from Romania. 18 The Role of Financial Executives in GFC 19 Conclusions 21 References 24 Abstract The first financial crisis of the twenty-first century has not yet ended, according to Gorton and Metrick (2012), the wave of research on the crisis has already exceeded any single reader’s capacity, with the pace of new work only making this task harder. The Global Financial Crisis is considered by many economists to be the worst financial crisis since the Great Depression. Global Financial Crisis resulted in the threat of the total collapse of large financial institutions, the bailout of banks by national governments, and market downturns around the world. In the aftermath of this crisis, the housing market declined significantly and has......

Words: 6647 - Pages: 27

Free Essay

Global Financial Crisis

...projected liquidity needs with projected available liquidity (from both asset and liability sources) for each time period. “This approach is superior to focusing on one or the other parts of the liquidity problem because it evaluates liquidity relative to bank needs” (Gup et al., 2007, p.356). APRA is proposing that banks in Australia hold more liquidity in the event of future crisis. The reason for this is “APRA noted that the financial crisis exposed the limitations of existing liquidity reporting rules when markets are under severe stress” (Baltazar, 2009, para.8). APRA (2009) said the financial crisis has highlighted the need for ADIs to have adequate levels of liquidity and robust liquidity risk management systems, and has provided considerable insights into better practice in this area. APRA supports the Basel Committee’s measures and agrees that greater international consistency in prudential regulation, promoted by the Leaders of the G20, will strengthen Australia’s prudential framework. Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. It is an important source of liquidity for banks. A typical example of securitization is a mortgage backed security (MBS), which is a type of asset backed security that is secured by a collection of mortgages (“Investopedia,”2010). The securitization process involves a number of participants. In the first instance is the......

Words: 2362 - Pages: 10

Premium Essay

The Global Financial Crisis: Impact on Bangladesh

...DRAFT COUNTRY CASE STUDY THE GLOBAL FINANCIAL CRISIS: IMPACT ON BANGLADESH K.A.S. Murshid BROTEE July 19, 2009 The author would like to gratefully acknowledge the contribution of Dr. Anwara Begum, Research Fellow, BIDS and Mr. Zabid Iqbal, Research Associate, BIDS. The author is a Research Director, BIDS. EXECUTIVE SUMMARY (TBC) I Introduction The world economy is currently experiencing the worst global financial crisis since the Great Depression. While major world economies have taken a massive hit resulting in negative growth rates in key countries or regions, including the US, EU and Japan, the contagion also spread to emerging developing countries like China, Brazil, India and South Africa, as well as to the countries of South East Asia and Latin America. The magnitude of impact seems to depend on the extent of integration with the rest of the world (or to use World Bank jargon, the extent of liberalization that has taken place). The impact on LDCs like Bangladesh has been muted in the first, and even the second round. However, there is growing evidence that third round impacts are making themselves felt, manifested in declining exports, declining migration of labour, growing number of sick industries, industrial unrest, and reduced growth. There are also fears that poverty and unemployment may be...

Words: 16127 - Pages: 65

Premium Essay

The Global Financial Crisis and Protectionism

...------------------------------------------------- The Global Financial Crisis and Protectionism QUESTION 1: Why do you think calls for protectionism are greater during sharp economic contractions than during boom periods? * Protection of their own economic industries and to curb job losses * Interdependent economy to lessen the impact of economic loss on food, fuel and property prices * To protect job losses at national producers and possible bankruptcy * Developing countries were concerned about safety rules and environmental concerns. * In an emerging economy, a barrier to trade and blocking of imported goods due to safety and environmental reasons could spark entrepreneurs to grow the local economy with local jobs and local suppliers Protectionism = “Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses and direct state intervention.” ( QUESTION 2: Despite the sharp economic contraction during 2008-2009, the increase in protectionist measures was fairly modest. Why do you think this was the case? * After the 1930 economic slump, some of the trade constraints did more harm than good. * The WTO instituted protectionist measures to protect countries and provide a more......

Words: 663 - Pages: 3

Premium Essay

What Are the Causes of the Global Financial Crisis?

...What are the causes of the global financial crisis? Name: Course: Tutor: Date:   What are the causes of the global financial crisis? Introduction Achieving stability has always been the number one priority in any county or organization. Financial stability is probably one of the most sort after achievement everywhere in the world. When a country or company fails to attaining financial stability then things are deemed to go wrong. The global financial crisis brought about the worst kind of financial instability in the global economy. It started in the United States and spread all over the world like wild fire. Even the top performing economies in Asia like China were not left out. This economic turbulence brought about both economic and social hardships (Helleiner,1994) . This was partly blamed on the already established Capitalist ideologies that prevailed especially in the United States. This crisis exposed most economies to financial difficulties as it proved the dependence of most nations on dollar denominated financial transactions. The only way to salvage these economies was through fiscal and monetary interventions by the Governments of the day. Bail-out packages were presented to major economy drivers and industries to help ease the financial crisis that had affected their operation. The collapsing of large financial institutions like the Lehman Brothers bank brought about a lot of chaos in the industry. Large bailout packages were used to help......

Words: 1976 - Pages: 8

Free Essay

Neoliberalism and the Global Financial Crisis

...Neoliberalism and the global financial Crisis Introduction The fusion of neoliberal beliefs and the western society started in the early 1970’s, it has incorporated in the society to such an extent that it can be portrayed as being impending. For more than forty years now neoliberalism has controlled governments, technology, housing and financial sector and has impacted our society in destructive ways. Neoliberalism reached a new height after the 2008 financial crisis leaving recession as an aftermath. Neoliberalism as explained by Harvey (2005) is a model of private enterprise which concentrates on the economy and its deregulation to empower a free market based monetary framework. Hillyard and Tombs (2004) see neoliberalism as a destruction breeding form of capitalism which they think makes a commanding dispute for, the state demanding to be considered in charge of methodically creating destruction. Neoliberalism as indicated by David Harvey is a "hypothesis of political monetary works on recommending that human prosperity can best be progressed by the augmentation of entrepreneurial opportunities inside of an institutional system portrayed by private property rights, individual freedom, unhampered markets, and free trade" (2005:2). The idea of neoliberalism in western social orders is connected with the Thatcher government in the UK and the Reagan government in the US which came to power in the late 1970s – mid 1980s henceforth presenting neoliberalism as a key......

Words: 3663 - Pages: 15

Free Essay

Global Financial Crisis and Protectionism

...seeking an approach that bridged East and West. I estimated that it would take perhaps six months to complete the book, and with the Dalai Lama as a coauthor, I figured that finding a publisher would be easy. As it turned out, I was wrong. Five years later, I was still working on the book. And the thick stack of rejection letters accumulating on my desk from literary agents and publishers was a growing testament to the prevailing wisdom in the publishing industry at that time: the belief that books by the Dalai Lama held no appeal to a mainstream audience. In addition, they claimed, the public simply didn’t seem to be interested in the topic of human happiness. By 1998, after years of continual rejections, and with my financial resources finally depleted, it seemed I had few options left. Still, determined to see that at least a few new readers could benefit from the Dalai Lama’s wisdom, I planned to use the last of my retirement savings to selfpublish a small number of copies. Strangely, however, it was right at that point that the mother of a close friend happened to make an offhand remark to a stranger on a New York subway—a stranger who turned out to be in the publishing industry—which initiated a series of connections that finally led to agreements with both a literary agent and a good mainstream publisher. And so, with a small first printing and modest expectations, the book was at last released. UNEXPECTED SUCCESS That was ten......

Words: 89236 - Pages: 357

Premium Essay

Global Financial Crisis

...a period of economic downturn in the Western industrialized world. It lasted between the year 1929 to 1939, making it the longest and most severe economic slump to ever happen in the Western world. The depression began with a collapse of stocks prices on the New York Stock Exchange in October 1929. During the subsequent 3 years, stock prices fell drastically and by late 1932 they had dropped to about 20% of their value in 1929. The depression began in the United States but it turned in to a worldwide economic slump due to the trade engagements formed with the European economies. "US History(2016) argue that in part, the depression was caused by imbalances and weaknesses in the American economy in the 1920's. The nation's political and financial institutions inability to deal with downward economic cycle was exposed during the depression. Governments took little or no action during business downturn, depending on market forces to achieve economic correction. Market forces alone couldn't achieve recovery during the early years of the depression. This discovery inspired some changes in America's economic structure where the government assumed a principal role in ensuring economic stability. Smoot and Hawley (n.d) believe that the great depression had significant impacts in the political and economic spheres. Nations sought to protect their domestic production through tariffs and quotas for foreign imports. Franklin Roosevelt was elected to Presidency in the late 1932 due to......

Words: 624 - Pages: 3

Premium Essay

The Global Financial Crisis

...The Global Financial Crisis: Impact on Bangladesh A.K.M. Atiqur Rahman Professor Department of Economics North South University Overview I. Introduction: Genesis and Spread of the Crisis. II. Global Recession and LDCs III. Impact on Bangladesh IV. Recession and Export from Bangladesh V. Exchange Rate Movement VI. Remittance VII. Import and Tax Revenue VIII. Overall Impact IX. Policy Implications I. Introduction: Genesis and Spread of the Crisis. • Root: Mispricing in the Massive Credit Default Swap Market • Sub prime Mortgage: Bank transferred credit risk to third party through the process of securitization ( MDS, CDO) • Reckless growth of sub prime mortgage-lower yield in risky mortgage • Arbitrage drove the yields on all bonds & loans down • Expansion of consumer credit, housing price bubble Intriduction continued • Unsustainability of Credit default swap and subprime mortgages exposed • Housing bubble burst → mortgage default → foreclosures→ bank and insurance failure→ credit freeze • Spillover of financial crisis to real economy through virulent credit crunch →depressed aggregate demand • Sub prime mortgage default led to spillover effects around the world (Europe and emerging economies) via an elaborate network of derivatives Continued . Global consequence of the crisis includes: • Sharp rise in Unemployment in the US, Job loss in few other countries • Sharp fall in the stock market price around the globe,......

Words: 2083 - Pages: 9

Premium Essay

Global Financial Crisis

...Global Financial Crisis: The 2007–2012 global financial crisis, also known as the Global Financial Crisis (GFC), late-2000s financial crisis or the second "Great Recession", is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.[1] It resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a significant decline in economic activity, leading to a severeglobal economic recession in 2008.[2] The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.[3][4] The bursting of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.[5][6] Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.[7] Governments and central banks responded with unprecedented fiscal stimulus...

Words: 12476 - Pages: 50

Free Essay

Global Financial Crisis

... Mitch Abramson GOVT 123-01 Global Financial Crisis A collapse of the US sub-prime mortgage market and the bursting of the housing bubble in 2007 have had a ripple effect on the global economy. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. In turn lack of confidence in the economy has led to what is commonly referred to as the “great recession”. The question left to ask is, where do we go from here? The public is looking for an answer from economists to what will happen next. Because of the lack of certainty in the global forecasts, people are starting to lose confidence in the system. For example, in November 2008, the World Bank predicted the growth of the 2009 GDP to be 0.9%, while the International Monetary Fund predicted a 2.2% growth rate. In January 2009, the IMF revised its forecast to a 0.5% growth rate; two months later, the IMF revised its growth rate again by raising its forecast to 1%. Federal Reserve chairman, Ben Bernanke put it plainly in a speech given to the House Budget Committee by saying, “The uncertainty surrounding the outlook is unusually large.” Some economists have resorted to using three letters of the Roman alphabet to represent the future of the GDP growth. Those scenarios are the “U”, the “L”, and the “W” recovery. In a “U” style economy, economic growth will......

Words: 892 - Pages: 4

Premium Essay

Global Financial Crisis

...Introduction Global financial crisis started when sub prime mortgage market of United States collapsed. Since the global financial crisis took place, many developed and developing countries have been going through recession. It was believed that ongoing global financial crisis will not affect Bangladesh economy as badly as it can to other developed economy because economy of Bangladesh is not so dependent on international capital or foreign investment. But, still there are and will be some shocks of ongoing global financial crisis available for Bangladesh economy. So, Bangladesh economy will be affected by global financial crisis. Global financial crisis might reduce overseas job opportunities and export earnings. Global financial crisis may turn into a recession. Economy of developing countries including Bangladesh is already going through recession. Bangladesh is a low income country. If global financial crisis continuous then economy of Bangladesh will be suffering. Negative impacts of global financial crisis are beginning to show on the increasingly globalizing economy of Bangladesh. Export growth rate of Bangladesh has turned negative. Export of non-apparels items is being reduced. Depreciation of currencies by competing countries caused erosion of Bangladesh’s competitive strength in the global market. Remittance earnings could be badly affected in near future because number of job seekers going abroad halved as some countries either revoked or have stopped issuing...

Words: 1547 - Pages: 7

Premium Essay

Global Financial Crisis

...EC-408E-INTL ECONOMICS-A-12/S3 DR. HAMID ZANGENEH The Global Financial Crisis & LIBOR London Interbank Offered Rate One Of The Largest Banking Scandals In History, An Emerging Controversy Over Whether Major Financial Institutions Have Been Manipulating The LIBOR, A Key Interest Rate Banks Use To Borrow Money From Each Other That Is ”Used As A Benchmark To Set Payments On About $800 Trillion Worth Of Financial Instruments.” MIT Professor Of Finance Andrew Lo Told CNN Money That The LIBOR-Manipulation Story “Dwarfs By Orders Of Magnitude Any Financial Scams In The History Of Markets” Anthony Bruno 7/21/2012 Abstract Following investigations into Barclays' manipulation of London Interbank Offered Rates (Libor), CFR's Sebastian Mallaby highlights three implications from the unfolding scandal: Conflicts of Interest Within Banks: Barclays' distorted reports on borrowing rates demonstrate the system's failure to prevent damage from conflicts of interest between banks and their traders. "Chinese walls don't work," Mallaby says. "It's a lesson we've learned over and over again in finance." The Role of Regulators: The alleged collusion between the Bank of England and Barclays indicates a critical challenge in the governance of financial markets: Regulators are forced to bend rules to protect banks, "not because they are bribed," says Mallaby, "but because they are blackmailed, in the sense that the banks, by threatening to go under and do untold damage to...

Words: 4736 - Pages: 19