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Along with the first order offer - 15% discount (with the code "get15off"), you save extra 10% since we provide 300 words/page instead of 275 words/pageThe Development as Well as Current Situation of the Euro Zone Economic Crisis
The euro zone crisis is a crisis of the financial sector of the countries that are in the euro zone. This crisis made it difficult for these states that to repay their governmental debt without the help of other countries or third parties.
Started at the end of 2009, a sovereign debt crisis became widespread among investors because of the increase of both government and private debts in the world. There is no common cause of the crisis. Every country has its own circumstances. In some states, private debts became sovereign ones because of the glitches of banking system. In Greece, for instance, the main reasons for the crisis were the wages in the public sector and pension commitments. As a monetary union, the euro zone contributed to the crisis and made it hard for the European governments to respond correctly. Commercial banks in Europe own a great part of sovereign debts. This reason created new concerns about the flexibility of banking systems and the European countries in general (Koba, 2012).
Among other important reasons, trade imbalances should be noted in the row of the countries. One of the main reasons for different situations in the states is the change in costs of labor. It made countries in the South of Europe relatively uncompetitive. These costs in Italy and in Greece increased much faster than in German economy. As a result, trade deficits in the countries mentioned above are becoming higher, while Germany trade surplus is constantly increasing.
For the time being, the countries of the euro zone are stuck in a downward spiral. Concerns about whether the governments in Greece, Ireland, Portugal, Spain, and Italy will honor around of their 3 trillion borrowing are worsening the situation of the European banks that deal with the debts. All banks that struggle with this crisis undermine confidence of clients and all countries around the world. Having implemented strict enough fiscal austerity, the heads of euro zone countries are triggering the recession, and, thus, the deepening of fears regarding the fact that governments will not be able to repay their debts or find some reasonable re-financing. The only thing that current governments policy does is further weakening of the banks.
However, the euro zone has the real capacity to stop the crisis and to minimize its consequences. It still has enough money to strength its banking sector against the potential default of Greece, Ireland, and Portugal. According to the thoughts of the European Central Bank, in principle, it can give a hand of help to all the vulnerable governments in a way by buying their debts in necessary quantities on the secondary market. Nevertheless, the European Union repeatedly fails to do everything it can to rescue Euro convincingly. That is mainly due to the problem that Europeans have different understandings regarding what the crisis really means and what each country should do in order to contribute towards solving all the problems that Euro faces right now. So, as long as all countries of the euro zone are not able to settle necessary arguments, sign needed agreements, or at least agree that these differences do not matter as much as finding the solutions, their collective actions that are really needed to be done as soon as possible to defend the Euro will remain undone (Polarised prospects, 2012).
In addition, according to the NYU professor of economics, Nouriel Roubini, tight policies introduced by some European governments just worsen the recession in the euro zone. Truly, from Roubinis point of view, the budget policy of some countries of the European Union should be more oriented at growth, rather than at austerity. He follows with the point that European leaders should be more concerned about the deep recession in such European states as Spain, Portugal, and Greece. By the way, all of them implement the policy of the hard saving mode. This means the cut of the governmental expenditures with the aim of saving money. In contrast with countries mentioned above, Germany, which is supposed to be the engine of the European monetary union, and some others countries implement the different policy. They are more oriented at growth but not cutting of the governmental expenditures. These countries, by the way, suffer from the euro zone crisis not so much. This brings us to another problem that is the growing gap in the welfare of various countries in Europe.
The great obstacle in the way of dealing with the current recession is also a terribly high unemployment rate. Unemployment rate in the euro zone set a new record at the end of the last month. Taking into consideration official European statistics, the number of people that does not have jobs is great. There are around 18.490 million unemployed people in all 17 countries that have Euro as a currency. Moreover, in addition to that number, there are 146,000 of new people, who joined the unemployment lists in October 2012 (Kollewe & Inman, 2012).
Furthermore, the experts do not make a common decision on how to deal with the problem. Perhaps, one of the most popular proposed solutions were the Eurobonds, which should be underwritten by all member countries of the euro zone. Eurobonds should include a low yield. In this case, it would enable the states to find necessary funds for their way out of the current crisis and eliminate the lack of funds for expensive bailouts. What is more and really important for dealing with current Euro Zone Economic Crisis, all countries have to improve their international economic competitiveness, which will allow them to continue further economic growth as well as better terms of trade with the third countries. One of the most popular ways of turning this plan into reality is the currency devaluation. To reach this goal, governments have to reduce internal wages. As a result, wages in Greece in 2012 dropped to the level of the end of the previous decade. This policy led the country to the enormous decrease of purchasing power. Moreover, as members of the European Union, countries have a common monetary policy that automatically does not allow individual state neither to devaluate nor to issue new money to pay for its debts.
When talking about solutions for the long-term period, the experts often argue that it can be reasonable to continue further integration process in the European Union. As Jens Weidmann mentioned it, the next stage of international integration (fiscal union) will provide countries with a new central body that will have additional power. That will help to run a strict policy regarding Euro zone states budgets.
Here it is also possible to mention that according to the widespread viewpoint, the decisive factor that leads to economic boom is a demand for products. Thus, if a government wants to reach a sustainable growth, it should focus on an aggregate demand. In short, it is crucial to provide customers with resources in order to make them buy products. Buying products will cause the growth of production. The higher the production rate is, the more tax revenues the government obtains and the more money it receives to cope with crisis.
To sum up, there are no easy answers to the crisis but the experts of financial markets continue monitoring it with the hope that a common solution will be made.