Fabian Peters, Elin Porten, Marietta von Meien
Outline European Economic Integration
Our paper will focus on the consequences of the financial crisis on Europe in general. There
are many negative aspects connected to the financial crisis that have resulted in all sorts of
counter efforts to stabilize the economy in Europe. Although we focus most of our attention to
the consequences for Europe in general we will use the example of a few countries to
illustrate that even within a unified Europe there are differences in the impact the crisis had
and in counter measures. Bullet points that we want to include in our paper are presented
below (whether all the countries mentioned will be included is still unsure:
EUROPA
Consequences






drastic drop in share prices, especially in the financial sector
banks in danger  some went under! Others had to be saved
credit crunch  it is difficult to get financing for companies, this is dangerous for
growth.
Expensive euro  in the U.S. the crisis is worse, therefore the dollar dropped in value
and the euro is therefore more expensive. This is also a threat to economic growth.
Economic slowdown  growth projections are negative, see reasons before
Awakeness and political changes concerning financial world
 Discussion question: liberalism (total free market)-socialism
(government interference), what to do? Should governments bail
these banks out or not?
Reactions


-
The only real measure taken is lowering interest rates, to get the money supply rolling
again
Intentions:
more and better supervision of the financial sector
more regulation on complex derivatives
generally different financial world, which is not based on greed
no fund like in the U.S.! not necessary in Europe
Consequences

fewer imports from the rest of the world appreciation of the Swiss franc higher
financing costs for companies
 results in rising credit risk premiums increase in commodity prices


results in increase of the inflation rate unemployment will remain stable at just
2·5 per cent
Several factors, like a robust labour market and a competitive industrial sector,
could cushion the negative repercussions of the financial crisis in Switzerland
Reactions




UBS, the Swiss financial behemoth, has so far been forced to write down about $43
billion after dabbling in sub-prime debt.
Banks have huge deposits to draw on and are less dependent on short-term money
markets, the freezing-up of which has brought so many to the brink of collapse.
Swiss national bank: We are providing liquidity generously to Swiss banks and will
continue to do so.”
While countries around Europe are snapping up financial institutions, “the Swiss
government says it doesn’t need to”
However, the SNB will keep a close eye on further economic developments and inflation so
that it is able to identify when action needs to be taken and react in a quick and flexible
manner
Consequences
 The looming Recession
The UK economy shrank by 0.5% in the three months between July-September, after sixteen
years of growth. The government is now predicting that the economy will continue to
decline through most of 2009 but recover in 2010.
 Rising budget deficit
The economic slowdown will dramatically increase the budget deficit to levels not seen
since the recession in the 1990s.
 Increased debt
The total government debt is now projected to rise to £1 trillion, up 50% to nearly 60% of
GDP.
 Rising unemployment
Unemployment is now rising rapidly, and some forecasters are predicting that there will be
3 million unemployed by the end of next year, based on the ILO measure that the
government prefers.
 Falling pound
The pound has declined sharply on international currency markets, and hit record lows
against the dollar and euro.
 The property squeeze
House prices in the UK peaked in the autumn of 2007 and are now falling at the fastest rate
since the 1930s, as mortgage availability dries up.
 Inflation peaks and falls back
Inflation rose sharply over the summer of 2008 with rising food and oil prices, but is now
falling. There are fears it will turn negative, leading to deflation. The Bank of England's
target rate of inflation, set by the government and based on the CPI, is 2%.
Reactions



"We will need to make sure that we can live within our means in the medium term
and start to raise money as we come into the recovery," he said. "There were two
parts to what I proposed last year: supporting the economy but also, critically,
making sure that we can pay for it."
Brown is spending billions of pounds on an economic stimulus plan that will sharply
increase government borrowing. The opposition Conservatives, ahead in the
opinion polls, attack Brown's spending plans as unsustainable. In his New Year's
message, Conservative leader David Cameron accused the government of wasting
billions of pounds on "useless schemes" such as a temporary cut in sales tax.
The spending plans unveiled on Monday will give a 20 billion pound ($29.8 billion)
fiscal boost over the next three years, and push national debt towards one trillion
pounds. Darling said that he was setting a 'temporary operating rule' within the
main fiscal framework, which meant the government only expected to attain a
balanced budget in the 2015-16 tax year. Even that assumes the economy starts to
recover in 2010, and only then will the government start to cut the deficit each year
by a sum equivalent to 0.5 percent of GDP each year on a cyclically adjusted basis
Germany
Consequences



Economic crisis result in a recession in Germany
Unemployment rate increased with a time lack from 7,7% to 8,5%
Automotive industry is strongly affected – receive governmental help through
“Konjunkturpaket I”, OPEL will probably not receive financial aid
 Germany is world’s greatest exporter: sub-suppliers strongly affected
Reactions


Two “Konjunkturpakete” were signed by the government to stimulate the economy;
they aim growth and employment guarantee, total cost 80Mil. Euro
o “Abwrackprämie” to mobilise the automotive market; demolish your old car
and receive 2,500€ for buying a new one
o Government promoted and supported short-time work in order to reduce layoffs
o Governmental investments in education and infrastructure
Government assist national banks (Hypo Real Estate) and is just about to sign a law
that allows a temporal nationalisation of banks