Eurozone Essay

2584 words - 11 pages

The European Union, officially implemented in 1999, created history as the first political and economic integration of its kind. However, in recent news, this union has been undergoing a series of severe economic crisis among member countries. The following paper will look to analyze this issue by examining its main causes, the reasons behind their severe suffering when compared to United States, European nationalism, and the future of international businesses in the case of a Eurozone collapse.

Main causes of Eurocrisis
The causes of the Eurozone crisis are both numerous and complex creating somewhat of the perfect storm within the member countries’ respective local economies at the ...view middle of the document...

4%, and 61.3% respectively (Roscini & Schlefer, 2012, p.69). Evidently, this illustrates that the European Union, as a whole, was already experiencing critical debt issues, but chose to ignore them in favor of the political agenda, hoping they would disappear. Ten years later, the Euro debt had gone from 71.6% in 1999 to 87.2 % in 2011 (Roscini & Schlefer, 2012, p.69). Article 25 or the “no-bailout clause”, which implied that no member’s government should cover or support any of the other member’s debt, only created a downward spiral into a greater debt for the European Union where governments had no other choice but to adopt recessionary policies (i.e. spending cuts, increased taxes) that forced their economy further into a depression.
As a result, this lack of solvency created major issues with the banking sector as governments had overextended themselves, which increased the risk of defaulting on loans. Interest rates surged and the price of bonds fell dramatically. Taking Greece as an example, the value of its government bonds became close to nothing, which spread fear of losses within the private sector and discouraged any further investment. The once established relationship between banks and government had disseminated, and a new role of which they took on government debt emerged. This created a vicious cycle of debt replacement with more debt without really re-establishing confidence among investors.
Last, the role of politics and labor comes into play. It may seem that the unification of European states may not have been principally for economic reasons (less variation in the currency). Namely, after the fall of the Berlin Wall, France was somewhat skeptical about the German’s unification and saw the Euro as a way to ensure Germany’s good behavior, bringing both peace and stability to Europe. Therefore the structure may have had more flaws than initially believed. Also, the unification brought labor problems especially in Italy, who lacked unemployment insurance, limiting their ability to let someone go based on the size of the business (article 18 claiming firms with more than 15 employees cannot fire employees without a proven misconduct). This discouraged firms from hiring more than 15 employees at a time in order to maintain the option of letting someone go. This limited the growth need to recover an already falling economy.

US vs. Europe: Who suffered more?
Before discussing the reasons for which the EU suffered extensively, one must consider the differences in regional economic integration. The United States has a political union that allows its governing body more control than that of the economic union of the European Union. This difference in power can have enormous effects on the macroeconomic level as illustrated by the Euro Crisis. For example, the Treaty of European Union’s “no-bailout clause” restricts member governments from assuming the debts of other members. When the Global Financial Crisis hit the EU,...

Other Papers Like Eurozone

Discuss the Impact on the Likely Success of Uk Membership of the Eurozone (40 Marks)

657 words - 3 pages Signing up to the Eurozone, would be one of the biggest risks that Britain could take, it could be very successful but it also runs the risk of being terrible for the UK economy. Around Britain there is very little enthusiasm towards joining the Eurozone, and this is due to the impacts it will have. The likelihood of it having negative impacts on the UK is quite high, first of all there will be no devaluation. When in the Euro, you can’t

What Are the Implications and Problems That the Eu Have Faced Because of the Recent Eurozone Debt Crisis? What Does the Future Hold?

2954 words - 12 pages This essay will talk about what is currently going in Europe with the Eurozone sovereign debt crisis and the fiscal state the European Union is in, it is important and interesting because it is still current affairs and there are various factors and decisions that have helped the path that the crisis is going in, this essay will look at the crisis but on the implications and problems that European union face as well as what they have faced

Greek Debt Crisis

809 words - 4 pages  Greece hosted the Olympics games. The roots of Greece's crisis are simple. Before Greece joined the Eurozone, investors  treated  it  as  a  middle­income  country  with  poor  governance  — which  is  to  say,  a  credit  risk.  After  Greece  joined  the  Eurozone,  investors thought that Greece was no longer a credit risk — they figured, if push came to  shove,  other  Eurozone  members  like  Germany  would  bail  Greece  out. They were

Europian Union

368 words - 2 pages European Union Structure/Law Gc exit Austerity Mesures : * Gov spending * Reduce pension * -Salaries * -benefits * +taxes Eurozone & EU two different things 1)Intergovernmentalism vs.2) Federalism 1)individual country cooperate 2)Centralize government 1)the government don’t lose the sovergnity(sovranita) Problem in EU * Eurozone 1. Grecs exit 2. how much power to give to ECB

Greece's Economic State

1515 words - 7 pages finances than they have fluctuating within their own nation. Countries deficits are still increasing after the US financial crisis and it has led to continuous austerity agreements and negotiations to prevent these issues from relapsing. Greece is in a classic sovereign debt crisis and while struggling to fix their deficit, (currently the largest in the Eurozone) this turned to controversial debates whether or not to let Greece free of the euro, or

Ia Commentary

709 words - 3 pages bought government securities from the Spanish and Italian governments. The whole purpose behind the ECB’s actions was to bring down the interest rates on Italian and Spanish government securities which would then lead investors to believe that Italy and Spain would have the funds to be able to pay them back and as a result reducing interest rates in the Eurozone. P-Level P-Level FE FE MS2 MS2 MS1 MS1 The ECB bought government securities from

Inflation Essay

868 words - 4 pages What policies can a government and central banks undertake to increase inflation in the Eurozone? One way in which governments and central banks could increase inflation is by the application of Quantitative easing. This would mean that AD would increase price and price levels raise, thus increasing levels of inflation. What QE is, is the banks buying government bonds or gilt’s from private sector companies, this will make the price of the

Euro Zone Interest Rate

1097 words - 5 pages Overview of ECB The European central bank (ECB) has recently implemented a series of measures aiming to fight low inflation and stimulate the euro zone economy. They announced to cut the key interest rate below zero to stimulate lending and economic growth. Draghi said the ECB still saw no evidence of eurozone deflation but said the longer inflation remained at very low levels, the greater the risks. ECB president Mario Draghi said the

Global Finance

800 words - 4 pages Kingdom, Sweden, and Denmark. Other European countries such as Monaco, Andorra, San Marino, Kosovo, Liechtenstein, and Vatican City have switched to the euro, and have a solid relationship with the European Union. The members of the European Union qualify to join the Eurozone if they conform to the monetary obligations. The overseas territories of Mayotte, Guadeloupe, French Guiana, Saint-Pierre ET Miquelon, and Martinique the euro is their legal

Causes of the Sovereign Debt Crisis

2475 words - 10 pages and journalists that blame the inability of Southern European states to manage deficit spending, the Eurozone crisis is firstly determined by imbalances in the European Monetary Union, and secondly by imbalances in the global political economy. This paper argues that the vast amount of sovereign debt is therefore not the result of weak Southern European nations, but of inherent structural illnesses that ultimately led to the current crisis. This

Economics Essay

697 words - 3 pages Introductory Essay. I’m discussing “Prospects of the Eurozone” by Stephanie Balnkenburg, Lawrence King, Sue Konzelmann and Frank Wilkinson. In terms of a summary, the Journal suggests that general economic theory proposes that the European Union would benefit all memebers. That the crisis in 2010 was fisical in nature that it was the prolifery of governement spending in certain European nations that caused the crash

Related Essays

Eurozone Crisis Essay

2582 words - 11 pages Mukitul Alam Prof. Anzenberger. MGT-330, Sprn-12 Final Paper 10-July-2012 The Eurozone Debt Crisis Most of the people know how it feels to owe money, even if it is only to a mortgage company, or to a four-year college loan provider. But it is a different matter for an entire nation to be deeply

Eurozone And The Euro Essay

1556 words - 7 pages Eurozone: Euro Falling? In recent news, many of the Eurozone Financial Ministers met to discuss the value of the Euro, how they will reform the outstanding debt situation within the Eurozone, and how they will respond to strengthen its power. However, discussions have come to a standstill as German Chancellor, Angela Merkel, is only looking out for the best interests of her country. She wants those financially irresponsible countries, such as

Crisis In The Eurozone Essay

1010 words - 5 pages with significant reforms, slashing their deficit and debt levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving pause to euroskeptics and glee to euroboosters on both sides of the Atlantic. And yet the EU is far from out of the woods. The past two years of global economic upheaval have sorely tested the EU’s Economic and Monetary Union (EMU) and its crowning achievement, the euro. At base, the

Should Greece Leave The Eurozone? Essay

2253 words - 10 pages Greece Should Not Exit The Euro Zone In recent years, there has been an ongoing debate over whether Greece should exit the Eurozone or not. The reasons are the seemingly current inability of Greece to compete within the euro currency, its tremendously high amounts of government debt which is on the verge of default, the inability to pull through with the anticipated austerity measures and the acceleration of the downward spiral of the Greek