eu debt crisis
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7/29/2019 Eu Debt Crisis
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The European Union (EU) is an economic and political union of 27 member states
which are located primarily in Europe. The EU operates through a system of
supranational independent institutions and intergovernmental negotiated decisions by themember states. Important institutions of the EU include the European Commission, the
Council of the European Union, the European Council, the Court of Justice of the
European Union, and the European Central Bank. The European Parliament is electedevery five years by EU citizens. The EU's de facto capital is Brussels.
Reason of debt crisis:
The European debt crisis is the shorthand term for Europes struggle to pay the debts it
has built up in recent decades. Five of the regions countries Greece, Portugal, Ireland,
Italy, and Spain have, to varying degrees, failed to generate enough economic growth tomake their ability to pay back bondholders the guarantee it was intended to be. Although
these five were seen as being the countries in immediate danger of a possible default, the
crisis has far-reaching consequences that extend beyond their borders to the world as a
whole. In fact, the head of the Bank of England referred to it as the most seriousfinancial crisis at least since the 1930s, if not ever, in October 2011.
The European sovereign debt crisis resulted from a combination of complex factors,
including the globalization of finance easy credit conditions during the 2002-2008 period
that encouraged high risk lending and borrowing practice, the 2007-2012 global financialcrisis international trade imbalances, real-estate bubbles that have since burst the 2008-
2012 global recession, fiscal policy choices related to government revenues and expenses
and approaches used by nations to bailout troubled banking industries and private
bondholders, assuming private debt burdens or socializing losses
In my point of view, as a Romanian the first step in doing this is trying to narrow thedifference between the average wage of citizens within the E.U., for example: the average
net income of German citizen is 2865 euro, but one of an Romanian citizen is of 421 euro
with the prices of the basic necessities being almost the same, you can see that there is ahuge difference between the income which shows you really cant have any sense of
equality among the E.U. citizens.
The Euro crisis has entered a new phase not only Europe but also all over the world. Thecontinued survival of the euro is assured but the future shape of the European Union will
be determined by the political decisions the member states will have to take during the
next year. The euro crisis is now turning the European Union into somethingfundamentally different. The member countries are divided into two classes such as
creditors and debtors- with the creditors in charge, Germany foremost among them.
Under current policies debtor countries pay substantial risk premium for financing theirgovernment debt and this is reflected in the cost of financing in general. This has pushed
the debtor countries into depression and put them at substantial competitive
disadvantages that threaten to become permanent.
http://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttp://en.wikipedia.org/wiki/Member_state_of_the_European_Unionhttp://en.wikipedia.org/wiki/Special_member_state_territories_and_the_European_Union#Outermost_regionshttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Supranational_unionhttp://en.wikipedia.org/wiki/Intergovernmentalismhttp://en.wikipedia.org/wiki/Institutions_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/Council_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Councilhttp://en.wikipedia.org/wiki/Court_of_Justice_of_the_European_Unionhttp://en.wikipedia.org/wiki/Court_of_Justice_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/European_Parliamenthttp://en.wikipedia.org/wiki/Citizenship_of_the_European_Unionhttp://en.wikipedia.org/wiki/De_factohttp://en.wikipedia.org/wiki/Brusselshttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttp://en.wikipedia.org/wiki/Member_state_of_the_European_Unionhttp://en.wikipedia.org/wiki/Special_member_state_territories_and_the_European_Union#Outermost_regionshttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Supranational_unionhttp://en.wikipedia.org/wiki/Intergovernmentalismhttp://en.wikipedia.org/wiki/Institutions_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/Council_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Councilhttp://en.wikipedia.org/wiki/Court_of_Justice_of_the_European_Unionhttp://en.wikipedia.org/wiki/Court_of_Justice_of_the_European_Unionhttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/European_Parliamenthttp://en.wikipedia.org/wiki/Citizenship_of_the_European_Unionhttp://en.wikipedia.org/wiki/De_factohttp://en.wikipedia.org/wiki/Brussels -
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Solutions to the European debt crisis:
Estonia is cited as an example of a nation that increased its competitiveness by cutting
spending. At the same time, it is understood that this approach may work for a small
country that managed to export itself out of the crisis and from which many people wentto work abroad. The whole world cannot increase exports, because somebody has to
import as well. A grand-scale migration wave is also out of the question. It is doubtful
that people from southern Italy would go to work in Germany. In addition, such ascenario would cause problems with servicing the debts, regardless of whether the debtor
is a country or a private person. In conclusion, this scenario would probably lead to the
European economy shrinking during the next ten to twenty years.
The situation might be remedied with what the states have done throughout the ages - that
is, with printing more money, as the US government and the Federal Reserve are doingright now. This would be the most painless solution in the short term, but it would have
long-term consequences. The trust in the currency and in saving will be lost, and if thereare no savings, it is impossible to invest. This would mean that the principles of the
European Central Bank would have to be reviewed critically, which would in turn
influence consumer behavior. Imagine if one day it is announced that the target inflation
rate of the European Central Bank is now 10 percent instead of two. What will happen toproperty prices and other prices then? Will everybody demand a pay rise and go on a
strike?
This seems like the most logical solution at first glance, but it has its its drawbacks as
well.
It is doubtful that the countries that will leave will adopt their own common currency
having the so-called northern European and southern European euros is improbable.Rather, the countries with strict budget discipline will converge around Germany and the
countries that will leave will adopt their own currencies. Greece, Italy and other southern
European countries will probably fail to agree on the terms for establishing the new so-
called southern European monetary union. Instead, each country will probably go italone.
This solution seems simple, but it is technically difficult to implement, because such areform cannot be carried out overnight. Besides, it might lead to Greek clients taking
their money to the German banks, which would deal such a blow to the Greek banks that
Greece would be unable to keep them afloat on its own. The IMF and Germany wouldhave to come to the rescue again, but Germany's pockets are not bottomless either.