Article summary This article by Andrew McCathie posted in EarthTimes and titled “European inflation climbs unemployment at 12-year high was posted on Friday July 30 2010. The article reports that food and energy costs have played a critical role in driving up inflation in the 16-member eurozone. The rates of unemployment remained stagnant to its highest level during this time. Introduction The recent global financial crisis that affected not only America but also Europe and other parts of the world resulted in massive unemployment. This is due to the high costs of operation that many corporations faced forcing them to cut on labor costs. There is need for European government interventions to avert this social crisis and prevent the occurrence of such a crisis in future. Unemployment has hit the service sector harder than other sectors with the following being the most affected: automotive, construction, tourism, finance and real estate. The global financial crisis has also increased consumer prices thus pushing inflation. According to McCathie, “the increase in July consumer prices to 1.7 per cent pushed inflation in the currency bloc up towards the European Central Bank’s target of keeping inflation at below, but close to 2 per cent. Eurozone consumer prices had stood at 1.4 per cent in June” (McCathie, 2010). As different issues relating to global financial crisis and its effect on employment in European Union were brought up in the article, this report aims to analyze the unemployment situation and inflation in Europe with the aid of economic theories. In the report, the following aspects have been considered: consumer prices and how they affect inflation, unemployment and how it is related to inflation and finally,... ... middle of paper ... ... should device ways of eliminating the causes of global financial crisis so that the effects of this crisis may not be experienced again in the world. References Arnold, R. A. (2008). Economics. London: Cengage Learning. Cencini, A. (2008). Inflation and unemployment: contributions to a new macroeconomic approach. London : Routledge. Mankiw, N. G. (2008). Principles of Macroeconomics. London: Cengage Learning. McCathie Andrew (2010 July 30). European inflation climbs unemployment at 12-year high. EarthTimes Robert M. Solow, John B. Taylor. (2009). Inflation, unemployment, and monetary policy. New York: John Wiley and Sons. Taylor, J. (2009). Principles of Macroeconomics. London: Cengage Learning. Ungerer, H. (2007). The European monetary system: developments and perspectives. New York: International Monetary Fund.
Macropoland, a natural gas and oil importer, has a natural rate of unemployment of about 4.5% and a long run average rate of inflation of about 2%. However, there are two specific time periods where these rates fell below their potential. During the period between 1973-1974, the country had an inflation rate of about 15%, with an unemployment rate of nearly 13%. And now, they are experiencing an unemployment rate of 9% and an inflation rate of 0.4%. As their new economic advisor, it is my job to explain these two time periods.
The brutality of the World War II and the anguish of the Cold War enforced nations in Europe to establish the European Union for peace and unity in the region. With ratification of the Maastricht Treaty by members of the European Community in 1993, an economic and political union; the European Union is formed. In December 2012, the European Union awarded the Nobel Peace Prize for its “historical accomplishments”. Nevertheless, the member states of the European Union are still facing the crisis that started in the Eurozone since 2009. One of the major causes of the crisis is the common currency – the euro which has weak structural formation. The creation of a currency, the euro, is one of the major parts of the European Union. The German Chancellor Gerhard SchrÖder said in a speech in 1999 that “The introduction of the euro is probably the most important integrating step since the beginning of the unification process.”(Yeager, 30) Therefore, in this essay I would like to study the history of creation of the euro, lessons that the European Union draws from the euro crisis and analyze the future predictions of specialists about the euro. I will use the publication “Economic and monetary union and the euro” by the European Commission as the main source and other credible sources about the euro in my paper.
A trend analysis of the unemployment rates, inflation, nominal GDP, and real GDP were tabulated and graphed as shown below. From the graphs, it is evident that inflation and unemployment rates have a non-deterministic curve and fluctuate over time. The progression occurs because inflation and unemployment can be caused by many other factors apart from the economic growth (Mankiw 58). For instance, changes in international market prices, advancements in technology, and the use of different methods of production.
The so called “Eurozone Crisis” began in 2009 when it became a publicly known that Greece national debt was over 113 % of their GDP. Consequently, Ireland, Portugal, Spain and Italy joined the club with their debt ratio exceeding 100 %. The investors concerned with the level of the sovereign debt, led to increased yield on the bonds of affected countries, which effectively caused the unsustainably deficits in those countries. Although European Union took certain preventive measures by setting up a rescue package, further political disagreements, lack proper planning and compliance with newly established rules, made the problem to grow and continue through 2009-2013. Needless to say, the Eurozone crisis with its complexity had a very inflicting effect on European and Global economy. Since the Eurozone is the world’s biggest economy, the impact of the crisis was felt in Asia and even has some effect on the recovering economy of the US (Eurostat, 2014). Furthermore, it exposed the weakness in the Eurozone monetary system – lack of sufficient monetary integration and need of fiscal responsibility of member countries. In addition, implicit guarantees of the sovereign debts of Eurozone members to the investors pushed the interest low, which in return gave an opportunity for the countries with weak economies to borrow more – that included governments, business and individual households to borrow more than they were able to repay. Moreover, long-term spending on social programs, such as public pensions, health care further exceeded what the countries’ economy could possibly pay for and required austerity measures contributed to the public discontent and anger.
It all started in the summer of 2007 when a crisis hit the U.S., and because of the huge government interventions that were made, the U.S. and most European countries got into a recession. The EU crisis was also caused by big debts made mostly in Spain and Italy, before 2008. The private sectors (companies and mortgage borrowers) who were taking out loans were the main reason for this crisis. There was a decrease in the interests rates in southern European countries when they joined the euro and that resulted and caused the countries to go into a huge debt. This had negative effects on the financial markets, a slowing down of the economic growth in the industrialized countries, and impacted the European labor markets. After the Second World War the unemployment rates in Europe were already low, and with the crisis the percentage of the unemployment rates just increased in the following years. All of this was due to different problems and occurrences that they were facing such as; the two oil price shocks, the decrease in the production growth, the disinflationary policy of many Central Banks, and so on. This recession resulted in very high unemployment, and the increase in unemployment during that period was made by using some internal measures (such as flexible working time arrangements, temporary closures, etc.) but the unemployment was not equally shared between the different groups of people (the largest differences occurred due to the sex, education, age, etc.) but at the end these measures only delayed the process of significant labor unemployment, it didn’t help the situation go back to how it used to be before the crisis.
Macroeconomic factors like inflation and unemployment are considered as a top-down approach that portrays the bigger picture of the functioning of the whole economy. In every region, it is the macroeconomic factors that determine the manner of operation of the economy with stability in these factors indicating economic stability and an unstable condition of the factors equally leading to poor performance of the overall economy. The paper examines how inflation and unemployment affected businesses in the UK in 2014.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
In December 2007, the United States of America experienced a very scarce yet appealing setback. In fact, because of this specific dilemma between 200,000 and 500,000 Americans were left unemployed and without a stable home. The National Bureau of Economic Research defined this nationwide downfall as “The Great Recession”. More recently, according to the US Bureau of Labor Statistics the unemployment rate has not made a drastic improvement since the start of the Great Recession. Unemployment has become an issue that is still arising today with a slow rate of change. By most measures, the economy has not improved: Unemployment is up, consumer spending is down, and financial markets have not regained the ground they lost in the 2008-09 financial crisis. Due to the occurrence of the Great Recession in 2007, the employment rate has drastically dropped disabling thousands of Americans to live up to the cost of living. It is obvious that the Great Recession can merely be the cause of the high rate of unemployment.
During the first five years of the existence of the Euro, the average rate of inflation in the euro area has been 2 per cent, which is in line with the ECB’s definition of price stability. Even though inflation has occasionally risen above the 2 per cent ceiling this was a consequence of a number of shocks such as the oil shock. What is important is that these first five years of the euro’s existence, inflation expectations have remained secured to a rate close to or less than, 2 per cent as can be derived form the yields of index-linked long-term bonds.
Eurozone crisis has had huge impacts not only on the economy of the UE but also on the other countries who have economic and financial relations with the members of the union. The reason why we have decided to examine the Eurozone crisis in detail is to have a better understanding of the mechanisms behind this extremely important and complex problem and also to make accurate inferences about the solution alternatives. In our pape...
There exists a clear relationship between unemployment and inflation. These two important terms of the economy are inversely related to each other. This relation posts an intuitive sense among the economists. A.W. Philips first reported the tradeoff between unemployment and inflation, it has been called after him as Philips curve. The simple logic between this is that workers will be needed to push for higher wages as unemployment increases. Philips curve suggest that it is not possible to maintain both the factors at same level. If one of the factor increases then the other would certainly decrease.
Today, our nation is in a recession. Nobody can deny that. No politician, no Wall Street financier, no journalist, can say otherwise. The discrepancies lie with the principle method of economic response to this crisis. Some politicians point out the unemployment rate and call down the powers of Congress to decrease it. Others still look to the devious inflation percentage that lurks behind, as a shadow, ready to cut purchasing power and increase prices. Unfortunately, as the Phillips curve warns us, the two are irreconcilable. Lower inflation invites higher unemployment, and increasing employment beckons heightened prices. The discrepancies lie with the classic battle between controlling inflation and unemployment. Though it may be the less popular choice, politicians should concentrate on curbing inflation as it has a great impact on our economy and is a more accurate indicator of economic stability.
Inflation and unemployment are two key elements when evaluating a whole economy and it is also easy to get those figures from National Bureau of Statistics when you want to evaluate it. However, the relationship between them is a controversial topic, which has been debated by economists for decades. From some famous economists such as Paul Samuelson, Milton Freidman etc to some infamous economists, this topic received a lot of attention. However, it is this debate that makes the thinking about it evolve. In this essay, the controversial topic will be discussed by viewing different economists’ opinions on that according to time sequencing. But before started, it is worthy getting a better understanding of the terms, inflation and unemployment.
The problems in Europe arose when 10 large Euro-zone banks asked for a bailout from the ECB. Lower confidence in markets led banks to cease capital flows which in turn led to financial strains on periphery governments. This ultimately worsened bank balance sheets and important credit creations, increasing government debts (see figure 3). However with all business cycles, there are booms and busts and it is the ECB’s job to smoothen growth over time. Nevertheless the Euro is hampering the recovery rather than stimulating the economies of various nations, and shows its inability to be a suitable optimum currency. These problems, were brought forth during its conception as the area seems to b...
Euro area was in recession until the beginning of 2014 (Fig. 1, Appendix 1). The European Central Bank (ECB) had been cutting the basic rate until it almost reached zero in 2014 (Fig. 2, Appendix 1). Inflation was relatively low and a short period of deflation was observed in the beginning of 2015 (Fig. 3, Appendix 1). Although the unemployment rate was decreasing, it remained high in 2013 and 2014 (Fig. 4, Appendix 1).