--%>
Assignment Help - homework help

Economic crisis situation in Europe

Question: Describe the present economic crisis situation in Europe.   Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world if Europeans are not able to agree on a solution.

Answer:

The crisis which Europe is facing right now is primarily due to fiscal debt. Due to easy borrowing conditions during most part of the first decade of the 21st century, loans were issued to even subprime borrowers. Financial markets were leveraged, and investors were looking for avenues which yielded more returns than the risk free US treasury bonds. This led to investment in risky and high return yielding assets and markets. During the same time, Greece economy was doing well powered by a substantial fiscal deficit. However, as the global economic upsurge stalled a bit and the economy was hit hard because its shipping and tourism industries faced a downturn. This resulted in a fall in revenues, and there was a rise in the fiscal deficit. The country asked for help from IMF and EU and immediately after this S&P downgraded the debt rating of Greece to BB+. This led to an immediate fall in the value of Euro and the stock markets throughout the world. This led to a lack of confidence among the investors about the economies of the EU countries, and consequently, Ireland, Portugal, Italy and Spain also were hit by the crisis.

The main reason why this originated and persists is the high fiscal deficit which these countries persist with. This is further exacerbated by the lack of growth in these economies. Also, the workers in these economies are highly paid, and there are a range of subsidies assigned to masses. Lack of growth implies that there is not enough employment generation on one hand and an increase in fiscal deficit on the other. This situation is hard to sustain as most of the lenders to these countries are foreign investors who are looking for returns and flee away as soon as risk factors become high.

The financial markets today are more connected and interdependent upon each other than ever. Market runs on sentiments and expectations. Any fluctuation in one major market affects the markets worldwide. So, the European debt crisis has not been limited to Europe in its aftaermaths. Investors turn bearish in case of any major setback and that affects their investment pattern overall, which in turn affects other economies/market. So a resolution to the European debt crisis is essential for the global economy, and the failure to reach a consensus on the solution is bad news for the entire world, and not just Europe.

   Related Questions in Business Economics

  • Q : Technological advances in producing

    When given resources can now produce additional goods than was previously probable, then there have been a: (1) Stock market boom. (2) Competitive spurt which shrinks entrepreneurial gain. (3) Concavity reversal in the production possibilities frontier. (4) Bigger rel

    		•
  • Q : Drawbacks of capital budgeting Write

    Write down the drawbacks of capital budgeting?

    		•
  • Q : Production Possibility Curve Production

    Production Possibility Curve: Similar to the individuals, a society as entire has restricted resources. It has to decide what to manufacture with restricted resource

    		•
  • Q : Exploit consumers in highly competitive

    This is difficult for firms within highly competitive markets to exploit consumers since: (i) consumer advocates organize boycotts that generate bad publicity. (ii) market pressures force fair distributions of products. (iii) the government sets price

    		•
  • Q : Perfectly competitive market and its

    Which of the given is not a characteristic of a perfectly competitive market structure: w) there are a very huge number of firms which are small compared to the market. x) All firms sell the same products. y) There are no restrictions to entry through

    		•
  • Q : Illustrate Scarcity and choice of

    Illustrate Scarcity and choice of Economic Perspective?

    		•
  • Q : Guardian implies that there really is

    Evaluate and explain the statements: “Market is its own guardian implies that there really is an invisible hand or taskmaster that watches over the decision makers in the marketplace”

    		•
  • Q : Categorization of economists for buying

    Assume that you bought a ton of gold in Santiago, and Chile for $450 per ounce and immediately sold all of this in Antwerp, Belgium for $480 per ounce. Therefore economists would categorize your movement as: (i) arbitrage. (ii) scalping. (iii) screening. (iv) speculat

    		•
  • Q : Economic sense production methods

    Evaluate and explain the statements: “In the economic sense production methods are the most efficient methods, once resource prices are considered and are lesser in sense of engineering”.

    		•
  • Q : Super committee failure Question: Some

    Question: Some commentators have argued that the failure of the "Super committee" is good thing for the economy?  Do you agree? Answer: The Super committe

    		•