European crises Essay

Pre-sessional Essay:
“The global economy has been in turmoil for the past few years. In additional to global uncertainly, this economic downturn has caused significant problems in the European Union. Identify the causes of the “global economic meltdown” and analyse what could have been done to avoid it. In your answer consider the future consequences for the European Monetary Union”

Student: Mukhina Tatiana P11006626 Pre-sessional course, group 7 Tutor: Lucy Norris

03/09/2013
In this essay we focus on the causes and solutions of the crisis in the EU and describe the possible consequences for European Monetary Union (EMU). In 2008 started the Global financial crisis (European Council, 2010), which has been the worst financial crisis since the Great Depression. The starting point of the economic downturn became the U.S. subprime mortgage crisis in 2007. As a consequence, it broke out all over the world. This has resulted to an economic decline in many countries, particularly in the European Union (EU) countries.

As mentioned before, the global economic meltdown was a consequence of the subprime mortgage crisis in the USA. This was as a trigger for the beginning (Lo Re, 2011) but inappropriate to single out only one cause, along with it was a wide range of other reasons. The root reason of the 2008 Global financial crisis can be attributed to the “global imbalances” and “global savings glut” as confirmed by Journal of Economic (Liang, 2012). These causes relate mainly to the U.S. and China because of a large number of China's savings were invested to the U.S. economy, which resulted to an imbalance between these countries and has pushed down the long-term real interest rates in the U.S. This fact cannot be ignored, that capital flows of countries associated and it was reflected on the EU as well. Because of this imbalance, many European companies were losing money and were trying to reduce costs by firing workers which caused high unemployment rate. Thus, many people have lost their jobs and consequently, the purchasing power has fallen. . Another serious problem for the EU has become a vulnerability of the banking system. The European banks have issued loans at such low interest rates, that everyone used them. In the article about financial crisis in Europe has been noted that: “Cheap credit led to a consumer spending boom” (The Financial Crisis in Europe, 2008). This has rendered a devastating impact on the European banking system and the economy as a whole, because it has resulted to a huge inflation.

In response to selected problems, EU authorities have adopted a numerous measures to restore the Eurozone economy. Firstly, as evidenced by the report of European Commission (2009), was identified the need to sustain demand, boost investment and retain or create jobs for reformatting the financial sector. In view of this was held financial policy reform (Frangakis, 2010), which improved the quality of financial regulation.. / Secondly, the bank system has been subjected to considerable change as well. The European Commission President pointed out in his speech that economic situation in the EU banking system demanded immediate intervention at all management levels (Schechter, 2009). Thus, it was necessary to change the management structure. There was a strong inter-relationship

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