Economic Crisis in Europe

How does scotch Crisis Affect European Union and how Does EU Reacts Introduction to the European Union and the Economic Crisis It is a accompaniment world wide that we ar facing an economic crisis. There are m both Countries inside European Union that can hardly respond to the values of the crisis. The whole commission has to Decide and act flop for all those countries that can hardly respond to the crisis. The depth and breath of the current global m onetary crisis is strange in post-war economic history.It has several features in common with similar financial-stress driven crisis episodes. It was preceded by coitionly ache period of rapid credit growth, low risk premiums, galore(postnominal) availability of liquidity, strong leveraging, soaring summation prices and the development of bubbles in the real estate sector. Stretched leveraged positions and maturity mismatches rendered financial institutions very vulnerable to corrections in asset markets, deteriorating loan performance and disturbances in the wholesale funding markets.Such episodes surrender happened before and the examples are abundant (e. g. Japan and the Nordic countries in the early 1990s, the Asian crisis in the late-1990s). But the key difference amongst these earlier episodes and the current crisis is its global dimension. ( http//ec. europa. eu/economy_finance/publications/publication15887 ) THE CRISIS FROM A HISTORICAL PERSPECTIVE A perfect storm. This is one(a) metaphor apply to describe the present global crisis. No other economic downturn after(prenominal) World War II has been as severe as todays recession.Although a large number of crises have occurred in recent decades around the globe, almost all of them have remained national or regional events without a global touch. So this time is different the crisis of today has no recent match. To find a downturn of similar depth and extent, the record of the 1930s has to be evoked. Actually, a new interest in the pictu re of the 1930s, commonly classified as the Great Depression, has emerged as a result of todays crisis. By now, it is commonly employ as a benchmark for assessing the current global downturn. The purpose of this hapter is to give a historical berth to the present crisis. In the first section, the similarities and differences between the 1930s depression and the present crisis concerning the geographical origins, causes, duration and impact of the two crises are outlined. As both depressions were global, the transmission mechanism and the channels propagating the crisis across countries are analyzed. Next, the similarities and differences in the insurance responses then(prenominal) and now are mapped. Finally, a set of policy lessons for today are extracted from the past.A devise a warning should be issued before making comparisons across time. Although the statistical data from previous epochs are far from complete, historical national accounts research and the statistics compil ed by the League of Nations sally comprehensive evidence for this chapter. Of course, any historical comparisons should be treated with caution. There are fundamental differences with earlier epochs concerning the structure of the economy, degree of globalization, genius of financial innovation, state of technology, institutions, economic thinking and policies.Paying due attention to them is important when drawing lessons. (http//ec. europa. eu/economy_finance/publications/publication15887 ) Responses to Crisis In a single market and a huge trading bloc like the EU, coordination of national economic policies is important. Through such coordination, the EU can act with speed and consistency when faced with economic challenges, as the current economic and financial crisis. Sixteen countries have even one step further by adopting the euro currency.The framework for cooperation in economic policy is Economic and Monetary Union (EMU), whose members are all EU countries is a framework w ithin which countries agree common guidelines on important issues of the economy. The final result of the cooperation is to a greater extent growth, more argumentations and higher level of social protection for all. Moreover, this cooperation allows the EU to respond to global economic and financial challenges in a coordinated way. The EU as a major trading creator, is more alive(p) to external shocks and, hence, can effectively address the various economic and financial problems.The EU has faced in a coordinated way the current financial and economic crisis, from the first irregular occurred in October 2008. depicted object governments, the European Central Bank (ECB) and the Commission work together to protect their savings to maintain the run outside(a) of credit at affordable terms for businesses and households, and to establish a better system of global centering of the financial sector. The aim is not simply the restoration of stability but to ensure that the conditi ons to re-launch growth and job creation.So far, EU governments have placed more than 2 trillion for the bringing effort of their economies. European leading have coordinated their hindrances, providing support and allowing banks to grant loan guarantees. The EU also increased state guarantees for clandestine savings accounts to 50,000 euros. The use of the euro as common currency in many European countries worked very positively during the crisis. Helped the EU to react to the global credit crisis in a coordinated manner and provide great stability than would happen without it.For example, as the ECB could cut interest rates throughout the euro area (instead of to each one artless sets its own exchange rate), banks across the EU can now borrow or lend to each other under the same conditions . The euro is used daily by more than 60% of EU citizens Having a single currency was a win-win for abolished the cost of converting currencies at leisure or business trips within the eur ozone, abolished or significantly decreased in almost all Where the cost of cross-border payments consumers and businesses can easily compare prices, thus fostering competition.Participation in the euro zone is a guarantee of price stability. The ECB sets the key interest rates at levels designed to financial backing medium-term inflation in the euro area below 2%. It also manages the foreign reserves of the EU to intervene in currency markets to influence the euro exchange rate. (http//europa. eu/pol/financ/index_el. htm ) Europe, mistakes and the economic crisis The crisis was innate(p) on August 9, 2007, when the European Central Bank (ECB) introduced 95 billion liquidity to markets, while the BNP Raribas forget three investment funds because of subprime had value.The injections are slightly stimulated the patient and the ECB has gained credibility. Apart from the monetary policy should, however, warned governments to take steps to eradicate the evil and to prevent the liquidit y crisis be turned into a solvency crisis. consequently the ECB was slow to cut interest rates. When in March the European Parliament held a debate disposed to these issues in preparation for the European Council in April, the former Irish Finance subgenus Pastor Charlie Mc.Creevy had preferred to keep racing Also the perception of Manuel Barrosos role is questionable. Rather than enshrine it in the spirit of community spirit, arrested him as a dead leaf which is led and borne by the wishes of the Council the Commission should propose only what Member States want. The institution of the Commission creates a blind spot in understanding this crisis. The macroeconomic and related issues with the markets depend on two different committees.In the European Parliament in October 2006 calling on the Commission to pay more attention to the effects of market behavior on the macroeconomic situation in the euro area. Because there had to subvert the morale of the household, mobile motorize d development, and because it was easier not to go ahead, the governments leave the ECB to intervene altogether. Adopt them journey to the lessons of the crisis are not dealt with the pollution of subprime, the address of which is limited to calls for transparency from banks.But this is contrary to the rules of the market because it requires players to risk their reputation. Transparency could be only by on-site inspections, for which nobody had the means. In the spring the International Monetary Fund released figures lineage in growth in Europe while car sales fell in Germany. In the holy alliance of the European executive and the ECB decided that the data were under American influence and excessively pessimistic. By optimizing the expectations we had in denial of reality.After a flagitious error assessment of the Bush administration ran away evil and rotten egg of subprime cut the mayonnaise in the world economy have serious economic and social consequences. The decision to le ave at the Lehman collapse Vrothers on September 15 caused a systemic crisis marking the death certificate of the Reagan-Thatcher era. In Europe-in this new phase of the crisis-the first reflex was to rescue the Irish, which has decided to guarantee all deposits of banks. Angela Merkel initially denied any plan to support the European banking sector.After Nicolas Sarkozy left alone against the German refusal, Gordon Brown presented his own plan and moved to the Eurogroup. As a former Finance Minister of the main economic spot of Europe, he knew very well what he was talking and was able to liquify the political imperative for action control mechanisms. Nicolas Sarkozy, who has made Jean-Claude Trichet in the class of head of state or government, seemed to be trying to play a kind of changing the State Monopoly French capitalism, industry and the media depending on the mood.This was perhaps another reason why the banks refused the first version of the plan and forced the state to of fer loans without taking any involvement. We thus present a massive plan to support banks without exchange intervention to long-term strategy. There is also a risk that the pressure for reforms to evaporate with a new relative stabilization of markets and argued that any significant change endangers the fragile economies. Finally, the European response to banking crisis will be in parallel with national plans.An ambitious Commission will undertake to lead the implementation of these projects to be used in a European strategy. Europe can provide the best, the ability of the default rules, is the soft power of the modern era that is so necessary by globalization. For this reason the Commission should rediscover the nature and take-back initiatives is one of the great challenges of the next European schedule. (http//www. tovima. gr/default. asp? pid=2&ct=6&artid=23784&dt=18/11/2008 ) Economic crisis leading to relaxation of EU rules on deficitsThe relaxation of the rules on deficits un der the Stability Pact (up to 3% of GDP) in fact go the European governments, as the financial crisis requires more government spending to repress recession. Although the head of the Eurogroup Jean-Claude Juncker said at the meeting of four European leaders in Paris on Saturday that the Stability Pact should be respected in its entirety, is a common belief within the EU that will be tolerated a-temporary-breaching the 3% of GDP as the primary objective in this very concentrated international situation is the stability of the system.Officially, most EU leaders insist on fiscal work is, but everyone knows that without government intervention the situation will deteriorate and European economies will slip into recession. The culture that prevails in Europe, captured the French president Nicolas Sarkozy, saying that the implementation of the Pact should reflect the exceptional deal where we are. The exceptional circumstances, according to international organizations, the most serio us economic crisis of the Great Depression of the 1930s.This issue will be addressed by the European finance ministers Monday (Eurogroup) and Tuesday (Ecofin) in Luxembourg. The ministers will discuss the crisis and will refer to measures interpreted in their countries to reduce the impact of the credit suffocation. The EU prefers assistance in case and, for the moment at least, does not discuss the possibility of a common reserve fund (suggested and took back then N. Sarkozy) to rescue the banking and general corporate financial industry tested by the crisis.