From a retrospective perspective, the Eurozone’s performance within the first decade exhibited outstanding success. One of the key indicators of its success was the attainment of European Central Bank’s policy objectives. Of these policy objectives was reducing and stabilizing inflation. However, the end of the Great Recession of 2008 that led to global financial crisis seems to have ignited the Euro crisis in Europe. This was the case because European banks exhibited faults in the banking system, which were responsible for the global financial crisis. During the pre- euro crisis period, banks in the Eurozone carried out extensive borrowing based on the perceived low-risk macroeconomic environment which was created by the rising asset prices Similarly, other financial institutions within the Eurozone increased their borrowing, in order to gain benefits from increased lending. Unfortunately, asset prices took a downturn, thus prompting European banks to reduce their reverage.
In turn, reveraged financial institutions, especially banks within the Eurozone attracted few investors who were willing to buy mortgage-based assets, leading to further assets prices fall. As a result, European banks within the Eurozone began experiencing solvency problems. Despite the existence of a common monetary policy within the Eurozone, regulatory responses to the increasing Euro crisis were based on national government fiscal policies. In this context, national governments were concerned on the stability of their financial systems. As a result, banks within the Eurozone introduced bank guarantees which accompanied increasing fiscal deficits; thus raising concerns over the solvency of national governments. In retrospect, the issuances of bonds in euros by countries which are members of the Eurozone seem to have driven the Euro crisis.
To the respective Eurozone members, this situation is, more or less the same as that in emerging countries which issue bonds in foreign currencies. This implies that their central banks cannot buy newly issued government debts, leaving the European Central Bank as the only financial institution that can address the euro crisis. Since the beginning of the euro crisis in 2009, malfunctioning of the single European market, primarily the liquidity problem has made it difficult to solve the problem.
Inhaltsverzeichnis (Table of Contents)
- Public Policy and Foreign Policy in the European Union in Relation To the Euro Crisis
- The Euro Crisis: Causes and Solutions
- External Causes
- Internal Causes
- The Underlying Causes of the Euro Crisis
- Increased Skepticism
- Monetary Policy Inflexibility
- Structural Issues Within the Eurozone System
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay provides a comprehensive analysis of the causes and solutions of the euro crisis, examining the historical context, key economic factors, and structural issues that led to its onset. The focus is on understanding the euro crisis as a complex phenomenon arising from both global and internal factors.
- The impact of the global financial crisis on the Eurozone
- The role of investor skepticism and market dynamics in driving the crisis
- The limitations of monetary policy and the lack of a fiscal union within the Eurozone
- The structural weaknesses of the Eurozone system and their contribution to the crisis
- Potential solutions and policy recommendations for addressing the euro crisis
Zusammenfassung der Kapitel (Chapter Summaries)
The essay begins by providing background information on the Eurozone's performance in the first decade of its existence, highlighting its initial successes and the challenges posed by the global financial crisis. The essay then delves into the causes of the euro crisis, separating them into external and internal factors. The external causes are linked to the global recession, while the internal causes stem from specific economic and structural issues within the Eurozone. The discussion of internal causes focuses on increased investor skepticism regarding the Eurozone's financial stability, the inflexibility of monetary policy, and the structural weaknesses inherent in the Eurozone system.
Schlüsselwörter (Keywords)
The main keywords and focus topics of the text include: euro crisis, global financial crisis, investor skepticism, monetary policy, fiscal union, structural issues, Eurozone, European Central Bank, debt crisis, current account deficit, internal devaluation, and economic growth.
- Quote paper
- Caroline Mutuku (Author), 2018, Public Policy and Foreign Policy in the European Union in Relation to the Euro Crisis, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/432829
