The Eurozone Crisis - Causes and Solutions
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.
In this paper I will discuss th...
... middle of paper ...
...ng. 2012. Web. 22 May 2014.
Legrain, Philippe. "Eurozone Voters Have Been Blackmailed and Betrayed. No Wonder They're Angry." The Guardian. Guardian News and Media, 16 May 2014. Web. 21 May 2014.
McCormick, John, and Jonathan Olsen. The European Union: Politics and Policies. Boulder, CO: Westview, 2014. Print.
Nystrom, Michael. "Cyprus Deal Reached: 40% Seizure on Accounts over 100,000 Euros." Dailypaul.com. 24 Mar. 2013. Web. 22 May 2014.
Rogoff, Kenneth. "The Euro's PIG-Headed Masters by Kenneth Rogoff." Project Syndicate RSS. Harvard University, 3 June 2011. Web. 21 May 2014.
"Stability and Growth Pact." - European Commission. Web. 21 May 2014.
"What Really Caused the Eurozone Crisis?" BBC News. BBC, 19 June 2012. Web. 21 May 2014.
Zirulnick, Ariel. "The Eurozone Crisis Explained in Simple Graphs." The Christin Monitor, 2 Dec. 2011. Web. 22 May 2014.
When you get to the point where debt becomes too much you begin to search for a way out. There are many different options to get rid of their debt; one option is the debt snowball. This debt relief option sounds more unusual than it really is.
Tom Newton Dunn, ‘Go to the war on the Eurom Law’ The Sun, 7 February 2011accessed 29 March 2011 http://www.thesun.co.uk/sol/homepage/news/3395471/David-Cameron-urged-to-go-to-war-over-Euro-law.html
A Democratic Deficit in the EU The question over the legitimacy of the EU has been a nearly continuous debate and many commentators appear to agree that the EU suffers from a severe ‘democratic deficit’. There are many reasons why this perception is so widespread. As a multinational body it lacks the grounding in common history and culture upon which most individual polities can draw.
The movement of capital from the European core countries like Germany and France to the peripheral countries such as Greece began to subside. In 2010 the Greek Ministry of Finance published the Stability and Growth Program 2010 which listed GDP growth rates, government deficit, government debt level, budget compliance, and statistical credibility as the five main causes of the government-debt crisis plaguing Greece today, (…). The Greek economy was one of the fastest growing in Europe up to the time of the Great Recession. At the time of the original introduction of the euro in the years ranging from 2000 to 2007 the economy grew at around 4.2% annually. Greece faces lots of issues in its attempts to regain control of the crisis and their shattered economy and each year the crisis deepens and the international community keeps a watchful eye on the nation teetering on the edge of
There are many variables that lead the current condition of Greece’s economy. It would seem that joining the euro allowed Greece, until 2008, to catch up and even surpass its richer Eurozone partners, but these gains have been completely wiped out in the years since. The adoption of the euro gave Greece the advantage in loan rates as well as low rates on the euro bond market. These actions gave Greece a boost in consumer spending which led to great economic growth. Between the years of 1997 and 2007, Greece had an outcome of an average 4% gain in GDP growth. Greece as well as its other European neighbors was hit with the financial crisis and the resulting economic slowdown took a toll on Greece’s growth rate, which dropped to 2% in 2008. In 2009 the recession hit and the economy contracted by 2.4% as a result of the crisis and its effects on credit, world trade, and domestic consumption which is Greece’s main source of growth. High growth and low interest rates were doing a great job of covering up fiscal issues and structural weaknesses that were made worse by the financial crisis a...
...: Reassessing Legitimacy in the European Union. Journal of Common Market Studies, 40 (4), pp. 603-24.
The European Union as an established governing body is an essential example of this concept which must be reviewed as the establi...
The European Union (EU), since the initial foundation in 1952 as the European Coal and Steel Community (ECSC) and throughout periods of development, has been considered one of the most advanced forms of regional integration. It, based on numerous treaties and resolutions, has strived to promote values such as peace, cooperation or democracy, and in 2012 was awarded the Nobel Peace Prize for having “contributed to the advancement of peace and reconciliation, democracy and human rights in Europe” (Nobel Media AB, 2012). Despite its struggle for promoting democracy, the EU itself has long experienced scholarly criticisms that it suffers the democratic deficit, from which its democratic legitimacy is undermined by observable problems in political accountability and participation. As the importance of legitimacy in a democratically representative institution is hardly debatable, the criticism of whether and why the EU lacks democracy has been given a considerable gravity in academia.
Leonard, Mark, and Hans Kundnani. "Think Again: European Decline." ForeignPolicy.com. Foreign Policy Magazine, 23 Apr. 2103. Web. 16 Mar. 2014. .
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).
Historically, financial crises have been followed by a wave of governments defaulting on their debt obligations. The global economic history has experienced sovereign debt crisis such as in Latin America during the 80s, in Russia at the end of the 90s and in Argentina in the beginning of the 00s. The European debt crisis is the most significant of its kind that the economic world was seen started from 2010. Financial crises tend to lead to, or exacerbate, sharp economic downturns, low government revenues, widening government deficits, and high levels of debt, pushing many governments into default. Greece is currently facing such a sovereign debt crisis and Europe’s most indebted country despite its surplus in the early 2000s. Greece accumulated high levels of debt during the decade before the crisis, when the capital markets were highly liquid. As the crisis has unfolded, and capital markets have become more illiquid, Greece may no longer be able to roll over its maturing debt obligations. Investment by both the private and the public sectors has ground to a halt. Public sector debt has increased substantially as the state had to rely on official assistance to payroll expenses, fiscal deficit and fund social payments.
Cerutti, F and Lucarelli, S: The Search for a European Identity: Values, Policies and Legitmacy of the European Union, (2008) Routledge
Walker, Bruce. "Euro Likely to Keep Losing Value." The New American. The New American Magazine, 7 July 2010. Web. 23 May 2011. .
The European Union stands on the threshold of unparalleled change over the coming years. The next waves of enlargement will be unprecedented in nature and continental in scale. This process has gained so much political momentum that it is now irreversible.
Senior, Nello Susan. "Chapters:4,15." The European Union: Economics, Policies and History. London: McGraw-Hill, 2009. Print.