European Economic History Essay

639 words - 3 pages

9. What are the economic causes and consequences of the Eurozone deficit and debt crisis 2010 – 2013 and does the survival of the euro prove that the crisis has been contained?

There are four main reasons to explain the economic causes of Eurozone deficit and debt crisis 2010-2013. The European deficit and debt crisis is not a typical crisis, like empire is no longer affordable for the debts or military deficit in war. The Eurozone deficit and debt crisis is domestic, internal and more difficult to deal with. Firstly, the 3% deficit limit and 60% debt/GDP ratio were always over-optimistic because so many participants in the Eurozone had never met these targets even in good times, and of course in bad times. Greece had a budget deficit of 12%, which was much higher than the 3% limit. Secondly, Social Model had been promoted since 1980’s, was a long-term cause of the ...view middle of the document...

This implies the importance of deposit. However, many of the European banks made 70% of their funds from borrowing of other banks and only 30% from deposit. There were too much risk lending and too much bonds purchasing that turned out to be worthless. There was an interesting statement from the president of European commission-‘Introduction of the euros had been a sleeping pill to the EU economy’ Euro reduced the ability and intention of European government get economic in competitive shape. Euro became an alternative to structural reform in Europe rather than a manifestation of it. The thinking was that the euro would complete the Single Market and economic growth would increase, as exchange rate risk was no longer a concern. This would be the forth reason of the crisis, the illusion of Euro.

After the crisis, many of the EU countries are in deep debt, with low growth rate and high unemployment. EU is protecting its inside members, providing protection and rescue to the countries as much as possible. The majority of the rescues are from Germany; a country contributes 1/3 output in EU. Germany has the ability to rescue the countries because it has a strong economy. What’s more, most of the Germans are willing to pay for the bailout because they are proud of it. Although some of the Germans begin to think the bailout is too much recently. European Central Bank also offers its help by buying lots of bonds to rescue the countries in deep debt.

The survival of the euro does not prove that the crisis has been contained. The Eurozone survives but with low growth and high unemployment. The huge bailing out is paid by Germany. Germany pays a lot to keep the survival of euros because it has the ability and willingness to do this. However, if Germany does not have the ability to afford the bailing out in the future or the country changes its mind, or if the economic burden becomes too great, the survival of euro would be extremely difficult. So, it does not mean that the crisis has been contained.

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