The Impact Of The Global Financial Crisis On The European Economy

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The Impact of the Global Financial Crisis On
The European Economy

12/08/2014

The Impact of the Global Financial Crisis On
The European Economy

1. Introduction
In the second half of 2007, the Wall Street crisis triggered by the United States subprime mortgage crisis triggered a world financial crisis. In the process financial crisis spread out the globalization, the European financial was the first to be affected. In this project, I will focus on the impact of the European economy and the European debt crisis. The focus of my interest in this topic is attempting to find the reason of European economy’s effects. Firstly, the project will introduce the origin of the global financial crisis. Secondly, the effect of European economy leaded to the European debt crisis. Thirdly, introduce how it affected the European economy. Finally, it will state what the EU government did and prevent recurrence of the same risk as much as possible in the future.

2. Main body
2.1 Overview
The US subprime mortgage crisis triggered a global financial crisis. The biggest impact from the global financial crisis to the European economy was the European debt crisis (Park, 2013). It has impacted the banking sector and the Real Economy. The Real economy includes: the real estate, investment, trade and employment. Sovereign debt crisis is intensifying and that might be spread to more other financial sector (Schuman, 2011). The euro zone economy is recession. Therefore, the financial crisis may not only cause the debt crisis, but also the affect the banking sector. According to Brandt (2013) the Real Economy is relevant with the financial. Therefore, the Real Economy had also been affected. The reason of how this crisis began is that the financial crisis makes the Europe countries exposed unsustainable financial policies (Kenny, 2012).

2.2 Main Idea
From the autumn of 2008 to the 2009, the United States financial crisis invaded the Europe economy through financial sector firstly. Due to the first shock, the governments were forced to deal with this emergency, this is the first step of the financial crisis had affect the Europe economy (Merrouche & Nier, 2010). Due to the impact of the United States crisis, the funding gap and the threat of bankruptcy of Belgium Fortis Group, Bradford & Bingley, Iceland National Bank, ING Group and HypoVereinsbank AG accept government funding and change to nationalized. Iceland is a representative of excessive financialization. External debt is four times of GDP. Each citizen has debt about $250,000 (McKibbin & Stoeckel, 2009). Finally, the national finance announced bankruptcy. In the dominated financial sector, the British and the Irish economy suffered heavy losses, which decrease investor’s confidence and the economy’s expectation. That makes the investment and consumer demand decreased, industrial exports declined, the real economy damaged and the national economy entered into recession.

The European Debt crisis is the main result of the financial crisis. According to Kenny (2012) “The European debt crisis is the shorthand term for Europe’s struggle to pay the debts it has built up in recent decades.” On October 20, 09, the Greece authority announced that current deficit to GDP rates beyond 12%, exceeds the 3% limit set from the EU. Subsequently, the 3 major level agencies of world have downgraded Greek’s debt credit level. The European debt crisis erupted in Greece at first (Kenny, 2012). The debt crisis began to spread in Europe. Some countries in order to avoid being implicated are trying to negotiate out of the European region. That also reduces the confidence of investors greatly. For example Elliot, Stewart and Hooper (2011) point out “Italian bond yields surged through the critical 7% mark, at one point hitting 7.5%, amid concern that the deteriorating situation had moved the crisis into a dangerous new phase.”
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