History Of The Impact On The Real Economy

Published Date: 02 Nov 2017

EXECUTIVE SUMMARY

The financial crisis hit global economy since summer 2007 is without any earlier event or action in post war economic history. The European economy is in deepest recession since 1930s, with the real GDP estimated to deteriorate by about 4% in 2009. The Europe started creating a single currency before its nation’s members were ready for doing that. Their economies were not Come from different directions sufficiently for the one currency to fit at all as a result of this the currency tended deliberately to push the Europe further apart like Spain and Ireland which were booming in an not to be supported manner or unsustainable manner. They developed huge trade losses with Germany as they imported lot and then crashed this condition created a condition of crisis. And also the European banks were allowed to be spread to be diverse in financial businesses with government backing them in doing this as a result of this their bank became too big and this created a problem for government to rescue them easily. The crisis was an action of long period of happening in a short time credit growth, risk premiums which was low, liquidity which is abundantly available soaring asset prices and development of property bubbles in sector of real estate. The recession is thus likely to leave the long lasting and deep traces on the economic performance. There will be eventually impact of the rising unemployment along with fall down of housing markets. The financial position of government will continue to shrink in manner of tax bases.

Central banks and governments in the European union started to work on massive and well planned co-ordinated policy action as they were aware of the financial and economic meltdown. The European union has played an important role in providing guidelines as how state aid policies like the financial sector could be shaped so as to pay respect to competition rules. And also with the help of Imf and world bank they have provided balance of payments to states in central and eastern Europe While the possibility of a Fail to fulfil an obligation or an exit of one of the euro zone countries is now much lower than it was in the early 2011, the problem in the region which is high government debt remains in place.

Introduction

Europe has also not escaped from the effects of global financial crisis because it has living beyond it means. There is no single European country to be blamed for this as entire eurozone is responsible for this condition as they threw economic caution to the wind.during the good times eurozone countries borrowed the money cheaply and that to in low intrest rates as a result of this cheap debt it encouraged the prospect of economic growth which in turn borrowed more and more if intrest rate would have been low then nothing would have happend but they didn’t they increased eventually they sufferd losses. Any market where capital may flow freely in the European union, which formed a number of merger of European banks with the cross border banks it really complicated the task of rescuing the European banks as it became bigger and bigger. The euro zones trouble came in the US credit crisis wall street made an unnaturally very big profits by repackaging the debts which was backed by the subprime U.S mortgage and by selling to the European banks. When there was a crisis, it was Europe’s banks that were sitting on the losses which was very obvious and they might need help from their government to bail them out. In such conditions government just prints the money and in turn devalues its currency, which makes the debt to be payed .all those countries who were using euro as their currency this was no longer possible for them.

BACKGROUND

When there was a falldown of an little known part of the US mortgage, Europe was unaware of it as market started to dry up the credit at home. This eventually spreaded from financial sector to businesses and households with damaging effects on lives of the people across the continent. In the year 2006 crack was starting to be appearing as the US interest rates and house prices fell failure to fulfil the loans went on to record level.as a result of money stopped flowing number of investors around the world were affected.

3.1 Financial meltdown

The European unions first sign of crisis came in the year august 2007, when Bnp Paribas which is French investment bank which halted withdrawals from it funds on a ground which explained that it was just unable to value its holdings. By witnessing this European central bank responded promptly, which invested 95 billion euro’s into banking market, their aim was to improve the liquidity.

IN the year 2007 and first half f the 2008, the policymakers were confident that European union economy will not be much damaged. But when the Lehman brothers the US investment bank in September 2008 they took the crisis too entire new level.

Impact on the real economy

In September 2008, the crisis deepened more, as the stock markets in the world-wide crashed and it had entered time where it became more volatile, and then many banks, insurance companies and the mortgage lenders also failed in the upcoming weeks. By end of year 2008 economic outlook of the European union was darkened to very large extent.eurostat figures were showing that euro zone and European Union had entered recession. Clear that In spring 2009, European Union had struggled to get back on track again. Eastern and central European member states were in most pain as the investors uncertainty was on the rise and the demand were diminished for manufactured products in the western markets were credit was starved.

Implication for European union policy

The financial crisis had tested European unions institutional reflexes like The handle of a weapon. The critics external and internal ,charge that responses of the policy that is fragmented as a result US could be trailing in pulling out of recession. At the end of October 2008 European commission’s detailed framework was drafted which titled as A European framework for action it was an action which was taken for financial recovery which could form the ultimate backbone of European union’s responses to crisis. This framework was set as it would Take apart in order to examine it and repair of the blocs financial infrastructure, their stimulus efforts in the co-ordination and   the automated arrangement or the coordination, of international action.

Aspects or Issues & Problems

Impact of the crisis and European citizens’ concerns

Soon the the financial crisis turned into an economic and social crisis.

European unions figures show that unemployment rate in European union countries which were using the euro reached to the 8 percent in December.It was the highest rate in more than 2 years. According to EUROPEAN union statistics office Eurostat the Average unemployment was set to rise to about 9.4 percent in the year 2009.  while the government deficits inside the 27-member union was having an average of 6 percent of GDP, which was double the figure which was allowed for the euro-area countries. In the year 2009 january, millions of European citizens went to the streets in France, Latvia, Lithuania, and also in UK, there demand was for that government should have an end to job cuts and voicing their opposition against the government reforms.

Published in year 2008 december the survey showed us that those most hit by the crisis are: 

- people who were living in poverty 

- young peoples

- single parent families 

- unemployed people and people renting apartments from private sectors

A major analysis of the European health that have found out that financial crisis is costing lives, and with increase in suicides and other infectious diseases. The report in The Lancet journal tells us that the austerity measures which are been introduced to tackle the crisis the politicians are not even addressing the problems.

THE IMPACT ON ECONOMIC ACTIVITY

The financial crisis had strong impact on the European Unions economy from autumn of year 2008 onwards. There are essential three types of the transmission channels.

via the connections within financial system itself-As initially losses were mostly originated in US ,write downs from banks were estimated as considerably larger in the Europe then in united states.

Via the wealth and confidence effects on demand-as the standards of lending stiffened the households suffered there was decline in their wealth in wake of drops in prices of asset and the savings ,demand for cars and residential investments went down considerably.all this had considerable effect in the financial markets.

Via globe trade-The world trade was collapsed in the year 2008 final quarter as the business investments ,demands for the consumer goods that are not destroyed by use was both credit dependent and intensive trade had fallen considerably.

Accordingly, the Commission forecasts (European Commission, 2009a and 2009b) that the recovery will be relatively slow moving, with economic growth flat in 2010

Main features of commission forecast

2008

2009

2010

GDP(%growth)

0.9

-4.0

-0.1

Private consumption(%growth)

0.9

-1.5

-0.4

Public consumption(%growth)

0.9

-1.5

-0.4

Total investment(%growth)

0.1

-10.5

-2.9

Unemployment rate(%)

7.0

9.4

10.9

Inflation(Hicp %)

3.7

0.9

1.3

Source: European Commission Spring Forecast

IMPACT ON BUDGETARY POSITIONS

The fiscal costs of financial crisis will be immense. Sharp fall down in the public finances is taking place and decline in growth potential due to crisis may add more pressure to public finances related to financial rescues and interventions which add sustainability risk.the improvement of fiscal position in recent years associated with inter alia with growth of housing and construction market in tax rich activity. The fiscal stimulus adopted by the EU government as part of their strategy is likely to depend heavily on fiscal challenges before budgetary cost kicks in. One of features of financial crisis saga is been widening in the sovereign risk which affects in the credit ratings of the member states.This concerns about fiscal solvency about financial crisis as the European unions governments have guaranteed the recapitilization and to resolve financial institution. And have offered deposit guarantee in the past . widening of risk can be termed as indicative of insurance premium in which financial markets participants demands the sovereign borrowers who provides these guarantees.

The Impact of the Financial Crisis on European Defense

Two problems currently are colliding in the European defense policies: the inefficient capability generation mechanism and effect of financial crisis