WORLD ECONOMIC CRISIS
&EUROZONE AND ITS
CURRENCY
PAPANIKOLAOU ANASTASIOS 2492
SEVASTIANOS RAFAIL NIKITAS STREICHER 2477
KONSTANTINOS KOUTLAS 2430
KATERINA TZEREME 2531
1
1.INTRODUCTION
In any system a crisis is a length of time in which the system doesn’t function properly,
signaling the need for immediate help.So in an economy, a crisis can be seen as that length
of time where economy functions poorly.In this length of time the value of organizations ,
particularly fiscal institutions ,falls really fast and all things are seen of no value.Production
is low and sometimes doesn't meet the amount of demand.The world financial crisis that
started in 2008 is a very typical example of a fault that lead the economy not to work
properly.
2.WORLD CRISIS
The world financial crisis started in 2008 came as a result of the real estate bubble in the
US which had as a result the collapse or the risk of collapsing for some financial
institutions such as the Lehman Brothers collapse and the rescue of the Bear Stearns
investment bank .Most of these financial institutions had invested in high risk bonds whose
value went down when the housing bubble shrunk between 2007 and 2008.These housing
bubbles came from two main factors:1.low interest rates in the US and 2) Noteworthy
increase in savings from rising economies.These elements as a result had a large increase
in demand for investments with high returns.Large investment banks linked the housing
markets to this large mass of savings with groundbreaking new securities,feeding housing
bubbles in the US and europe.And the effects when the housing bubble popped are well
known,Economies all over the world
2.1 THE EFFECTS OF THE GLOBAL CRISIS IN THE
EUROPEAN UNION
The European union is an economic and political union of twenty eight countries created on
the first of November 1993 by the Maastricht Treaty. The purpose of creating the European
union was to assist the citizens of Europe with the social, economic and individual
flourishing .
As mentioned previously the global crisis began in the United States of America 2008 .The
crisis spread quickly to the countries of Europe so the European union had to find an
immediate solution. The problems that were created by the crisis were many.
First of all the fiscal deficits and debt continued to increase rapidly , unemployment would
increase so production would decline and there would be discontent among the citizens.
There would be additional imbalances in the current account so the European union would
have to find a direct solution to avoid a long period of recession.
Finally the biggest problems arisen from the fact that some countries had great economic
growth and one by one shall represent the interests of their own country something
impending the prompt resolution of problems.
2.2 WHAT LED TO THE EUROPEAN CRISIS ?
First of all opening the borders to third countries, free movement of goods, services, capital
and non-audit of the financial markets developed the main causes of the crisis. Alongside
the flourishing of free competition and different expectations and requirements of the
countries that are a part of the EU, overshadowed the reason for creating the European
Union. So we see that the policies of deregulation and liberalization of financial markets and
the prevalence of free competition led to the crisis which seems to be a result of
globalization and other structural weaknesses that the system of the European Union
showed.
In the same time borrowing money from the European central bank but also from other
countries to cover previous loans rise the debt because of the very high rates , spending
large sums of money to buy military equipment and various legal barriers that lead to lower
investment and increase unemployment. As we see there are many political issues to be
resolved but also to find a common ground between the Member States of the European
Union
3. EURO AS COMMON CURRENCY
2
The creation of a common currency had been the main target of the Economic and the
Monetary union for many decades and a great ambition for the Europeans. In fact ,it was
widely believed as the most necessary step for a political integration and the creation of a
union European market. So, in 1999 euro was invented and made a huge progress in the
union of Europe by becoming currency of 11 European countries. Nowadays 17 of the 28
countries-members of the Eurozone and more than 330.000.000 Europeans are using it. It is
well known that in order to become a member of the union and adjust euro as currency
countries need to fulfill specific standards .
3.1 POSITIVE AND NEGATIVE ASPECTS
Initially we start with the positive side of having a common currency . First of all the
absence of exchange rates between countries which have euro as their currency facilitates
the exchanges of products , capital and labor force so it leads to an increase of investment
and also the gross domestic product of each member of the EU. Similarly, consumers are
able to compare the real value of products which leads to the increase of competitiveness
and tends to improve the quality of European products. Finally apart from the economic
advantages the common currency has also political benefits as it aims to spread the feeling
of a united Europe.
On the other hand we have the negative effects since every economy is not the same . To
begin with the disadvantages when you don’t have your own currency you lose the option
of a devaluation to overcome some difficulties such as a recession. Although the
existence of different economies shows us that every country will have different problems ,
so the European union institutions like the European central bank will have to solve
different problems in the same time with the same policy in different countries something
that is impossible to happen. Finally we see that having a common currency is more likely
to spread crisis and bank panic to all the members of the Eurozone as we have seen the
past years .
4. Future prospects
There is uncertainty for the future but there will be changes in productivity ensuring
financial development .The money-based outlook is very uncertain and there will be a fairly
slow and bumpy recovery in the US and Europe . Five years after the worldwide major
money-based problem, the world economy is showing signs of bouncing back this year,
pulled along by a recovery in high-income economies, says the World Bank's latest
president. A significant growth is also expected from the developing-countries . Moreover ,
global economy is considered great in all areas and it is growing in unity and rapidly .
Miraculously , Europe is growing and capital is beginning to return, which has made
policymakers "floatable" says CFR's Robert Kahn, but officials face the challenge of
increasing the growth rate . In addition , structural rebalancing in Europe will take time and
possible growth will be low in 2014 and beyond. Recovery in the advanced countries will
eventually restore some growth potentially coming from the trades area, but probably not in
2014 with the huge European market treading water. Despite the fact that euro area growth
is on track to reach one percent next year , there is a risk that the crisis could return making
an uncertain worldwide maturation outlook that will hold down exports , macroeconomic
policies and a framework for monetary union . Furthermore , even this level of growth is not
enough to reduce the high levels of unemployment and more importantly the youth
unemployment, which averages nearly 24 percent for the euro zone and goes beyond 35
percent in several countries, represents a critical threat to Europe's future . It is also said
that Banking union will be the focus of policy efforts to advance money-based union in 2014
, because parliamentary elections in May could set back efforts to negotiate a transatlantic
trade agreement . Finally , it is concerned with the in-depth analysis of its main causes,
policy proposals for a recovery from the serious problem and reform strategies for the
reconstruction of a more durable and equal euro zone in the future.
3
5. Conclusion
To sum up , all these positive and negative situations have had a major impact on real world
problems .Capital for the Future is identifying newly appearing trends of investment and
saving . Of course , every person in this world should overcome negative pressure because
the only missing ingredient to a stronger economy is confidence . In addition , optimism
has helped businesses to reduce their costs and families have reduced the money they
owe ,but growth will not follow easily . The European Central Bank (ECB) also will need to
do more to cause new lending, especially for small and medium projects in the edge . It is
referred that European leaders need to win back their citizens and make a better case for a
faster move to money-based and political union . The challenge, therefore, is to restore
growth before markets lose confidence in the reform process again. Not doing so could
make 2014 the year the serious problem returns. Euro, probably more than any other
currency, represents the back and forth between people confidence at the heart of our
community. It is the first currency that has not only cut off its link to gold, but also its link to
the nation state(Wim Duisenberg , President of the ECB in 2001, quoted in Marsh, 2009, p.
1) . Europe's combination could not succeed if it promised to make the
strong areas stronger and the weak ones weaker(Magnifico , 1973, p. 8) . Yet Europe is in
deep serious problem because its proudest achievement , the single currency adopted by
most European nations, is now in danger now struggling to avoid bankruptcy . Lastly , in
order to create a healthy community and society within the European Union , euro zone
should aim to reach international level in all policies , managing flexibility for get along with
newcomer states and enlargement that was meant to increase the opportunities for the
people of the Union .
References.
1)WORLD BANK (2014) http://www.worldbank.org/en/publication/global-economicprospects [ 16-5-2014 ]
2)cfr (2013) http://www.cfr.org/international-finance/prospects-global-economy2014/p32068?cid=rss-fullfeed-prospects_for_the_global_econo-121313 [ 16 – 5 – 2014 ]
3)PwC (2011) http://www.pwc.co.uk/economic-services/issues/future-prospects-for-worldeconomies.jhtml [ 16- 5 – 2014 ]
oxford journals (2013) http://cje.oxfordjournals.org/content/37/3/463.extract [ 16 – 5 – 2014 ]
4)new york times (2011)
http://devo.lbl.gov/~dhaxton/Site_6/Articles_files/The%20Road%20to%20Economic%20Crisi
s%20Is%20Paved%20With%20Euros%20-%20NYTimes.com.pdf [ 16 – 5 – 2014 ]
5)caspian weekly (2011) http://en.caspianweekly.org/main-subjects/others/europeanunion/3630-what-are-the-future-prospects-of-the-european-union.html [ 16 – 5 – 2014 ]
6)what is economics(2014) http://www.whatiseconomics.org/the-global-financialcrisis/what-is-an-economic-crisis[16-5-14]
7)wikipedia (2012)http://en.wikipedia.org/wiki/Causes_of_the_Great_Recession [16-5-14]
8)the economist(2013)http://www.economist.com/news/schoolsbrief/21584534-effects-financialcrisis-are-still-being-felt-five-years-article[16-5-14]
9) wikipedia(2014) http://el.m.wikipedia.org/wiki/Ευρώ [16-5-14]
10)european committee (2014) http://ec.europa.eu/economy_finance/euro/index_el.htm [16-5-14]
4
11)wikibooks (2014)
http://el.m.wikibooks.org/wiki/Η_μετάβαση_στο_ευρώ_και_η_επίδραση_στην_ελληνική_οικονομία_
και_κοινωνία [16-5-14]
12) economica http://www.economica.gr/files/kafidas_euro.pdf
13) wikibooks(2014)
http://el.wikibooks.org/wiki/Οικονομική_κρίση._Αιτίες_και_αποτελέσματα [15-5-14]
14) europedia (2014)http://europedia.moussis.eu/discus/discus-1330588836-40293419693.tkl?lang=gr [15-5-14]
5
6