Although the Euro Zone Has a Unified Monetary Policy, It Does Not Have a Unified Fiscal Policy, Is Such a Situation Sustainable? Address This Issue Using Greece and Ireland as Case Studies.

The European Debt Crisis often referred to as the Eurozone Crisis, struck the European Union at the end of 2009.

In some cases though, the Sovereign Debt Crisis lacks the power to harm the global economy. Take the United States of America and their recent Standard and Poor 500 downgrading form AAA, the highest and most prized global rating to AA+, a lesser rating. Essentially, the United States of America harmed the world economy more so than the Eurozone. First off, in examining the conditions of the U.S.A., one finds that the net debt was approximately 80% of the GDP (of the national GDP, to be exact) in 2011. It has been forecasted that this number could breach an astonishing 90% according to a study conducted by the American Institute for Economic Research in 2011. Now, taking into account the fact that the United States of America is the largest and most powerful economic force in the world, the issue deepens. This further develops into a weakening global economy, and a loss of trade (the driving force in the global free market economic system. The United States of America is on the verge of suffering other downgrades; yet the Standard and Poor 500’s downgrade is by far the worst, as it shows a global decline, not just a domestic decline.

In 1999, ten European nations joined together to create an economic and monetary union known as the Eurozone. Countries, such as Germany, have thrived with the euro but nations, like Greece, have deteriorated since its adoption of the euro in 2001. The Eurozone was created in 1999 and currently consists of eighteen European nations united under the European Central Bank and all use the euro. The Eurozone has a one point six percent inflation rate and an eleven point six percent unemployment rate in 2014. Greece joined the Eurozone in 2001 and was the poorest European Union member at the time with a two point six percent inflation rate3 (James, 2000). Greece had a long economic history before joining the Eurozone. The economy flourished from 1960 to 1970 with low inflation and modernization and industrialization occurring. The market crash in the late 1970’s led Greece into a state of recession that the nation is still struggling with. Military failures, the PASOK party and the introduction of the euro have further tarnished Greece’s economic stability. The nation struggles with lack of competitiveness, high deficit, and inflation. Greece has many options like bailouts, rescue packages, and PPP to help dig it out of this recession. The best option is to abandon the Eurozone and go back to the drachma. Greece’s inflation and deficit are increasing more and more and loans and bailouts have not worked in the past. Leaving the Eurozone will allow Greece to restructure and rebuild

financial crisis that is still affecting the European continues have destroyed the EU reputation of being a formidable economic block. Over the past seven years, Greek, Portugal, Spain and Ireland have all been on the edge of finical collapse threatening to bring down the economies of Europe.

The European sovereign debt crisis, which made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.

Since the 1990s, the Greek economy has been suffering from a deficit in its accounts due to years of funds mismanagement and poor fiscal policies. However, the task of dealing with the issue was passed on from one executive to the next, hence exacerbating the problem.

The European Sovereign debt crisis describes the era where various European countries were facing a government deficit which affected the Euro zone. There are numerous solutions that have been implemented to try eliminate this problem. One of the major solutions was the austerity fiscal policy which aimed to decrease the government expenditure in order to decrease the government budget deficit. This essay will outline the austerity policy and use the IS-LM curve to show how that was implemented by the Eurozone and the effect had on the Eurozone. This essay will furthermore outline the effect that the policy had and how it had an effect on the economy and the major effects and countries that triggered this crisis. The essay will then evaluate the effect that the monetary policy. This essay will then offer other recommendations on how to decrease the government budget deficit resulting in the economy returning to the natural rate of output.

The global financial crisis which began in 2007-2008 in the USA had a negative effect on the economy of the European Union, mainly in the Euro area. The falling budget revenues during the recession were coupled with an increase in public expenditure resulting from the implementation of anti-crisis programs, which led to an increase in the budget deficit and public debt. Anti-crisis packages have been used to the greatest extent in countries such as United Kingdom, Germany, France, Austria, Denmark, Sweden, Belgium, and also in Spain, while the countries that have proven to be the weakest links in the Euro area, i.e., Greece, Ireland, and Portugal, almost did not use them at all (Owsiak 2011, pp. 71-75, Mering 2011, pp.209-215). As a result, they began seeking higher yields to compensate for the higher risk of default. This led to higher interest rates for troubled governments.

European sovereign-debt crisis is still going on in some countries in eurozone, such as Greece, Spain, Ireland, Portugal. The origins of these crises started from Greece when the government borrowed a huge amount of money from foreign investors and was unable to repay. As a result, a financial crisis started to hit Greece as the starting point of the crisis over countries in Eurozone. While the old deutschmark (DM) bloc – Germany, France, etc. experience lower than average growth and inflation, the Eurozone experienced the contrary. In general, instead of global factors as the causes of the crisis, the Eurozone itself should hold responsible for the start and spread of the crisis.

The introduction of the euro also allowed Greece to borrow money due to the lowered interest rates. In 2008 when the global financial crisis took place, two of the country’s largest industries, tourism and shipping, were badly affected. This resulted in the countries revenues dropping by 15%, and the beginning of a fall into an irrecoverable debt. In order to keep within the monetary guidelines of the EU, Greece has been discovered to have deliberately misreported the official economic statistics of the country. It was found that Greece paid banks, such as Goldman Sachs, hundreds of millions of dollars to hide the true level of borrowing which took place (ABC News). This then enabled Greece to spend beyond what it was ‘permitted’ to, and hiding the actual deficit from the financial leaders overseeing the spending of the EU countries. Due to this over-spending and running on a false economy, Greece has plunged itself into an incomprehensible debt worth 113% of their GDP, which is equivalent to over $250 billion (CIA World Factbook). As Greece was without a bailout agreement, it was likely that they would have to default on some of their debt, meaning that it would not be paid on time, and potentially not paid at all. Economic analysts stated that there was somewhere between a 25%-90% chance of them being forced to default. This would result in Greece only paying back 25%-50% of what they owed, and this would effectively remove Greece from the euro, as they would no

The sovereign Euro crisis inflicting the Euro zone nations have both internal integration significance and international economic. It rarely truncated the internal integration of economic crisis but also accentuate effects to immediate distant nations including Australia (Malcolm Edey, 2011). The Euro zone member states experienced sovereign debt crisis which largely affected international economic and European integration. Regional economic crisis had immediate and clear effects on the far off nations including Australia. The sovereign debt crisis emanated from Euro zone governments facing bond market rates and unsustainable to repayments. These culminated in low resolution measures and high public debt (Prideaux, 2000) This meant potential decline in the GDP and decreased levels of exports. The EU summit was seen as a hope to a resolution of the European crisis but the agreement by the European leaders lacked focus on resolving the immediate issues. Its great attention was guaranteeing the survival of the Euro zone in its current form. There is a real possibility of departure of one or more countries from the Euro zone. Financial markets geographically distant from Europe to face European crisis.

This section contains a summary of the article, The Euro Area Crisis Management Framework: Consequences for Convergence and Institutional Follow-Ups by Ansgar Belke, in the Journal of Economic Integration, published in December 2011, pages 1 – 33. The main thesis, methodology of the report, results/findings and the final conclusion and recommendations of the articles will be addressed below.

What is the European Debt Crisis? The European Debt Crisis is the failure of the Euro, a currency that ties seventeen European countries together. In this paper, I will be describing the cause and effect of the debt crisis along with what would happen if the European Union stayed with the economy they have. Then what I believe is the best solution to fixing the debt crisis.

Greece has joined Europe Union since 1981. In the 1990s, it steadily ran substantial budget deficits while using the Drachma as its currency. As a result, in 2001 Greece decided to adopt the euro as a solution of its budget deficits. After using euro, all went well for the first several years. Like other Eurozone countries, Greece benefited from the power of the euro, which meant lower interest rates and an inflow of investment capital and loans. Greece enjoyed a period of growth from 2001 to 2007. This boom was described by several analysts as unsustainable growth.

The five main factors that participated and caused the debt crises in Europe are the Violation to EU rules, at the beginning of the whole story European nations were a little eager to form a monetary union that took them some several steps ending with the beginning of the euro 1999 as several participants violated and dishonored the circumstances required under the Maastricht Treaty in the year 1992. Well, there are countries such as Cyprus and Greece, these countries did not really give actual data or facts about economic and financial condition, whereas the EU completely knew about the fact that they didn’t give any real figures or facts, they just went on and ignored it but yet accepted and acknowledged the agreement of such regions to enlarge and widen the European union. The whole problem does not really position at that extend and the amount but it stands in where the EU also accepted the high budget deficit that has occurred and the debt stages /levels by some numerous countries through the crisis. Another factor that caused this collapse is the banking sector, the banking sector faced some problems that lead to debt crises, talking about the European banking sector here. It dramatically appeared to be vulnerable by showing an intense collapse since it got into the financial global chain that was unfortunately been dragged down during the financial crises in 2007. Basically there are some of the financial instruments involved that has high risk such as