In this assignment, I will take a closer look into the current development of the situation that is affecting the world at large: Euro zone crisis. It would not be wiser at all to examine the situation without defining the basic term and the reasons for its coining. Moving forward, the assignment will put relevant illustrations into use so as to fully bring the matter to a rest.
As much as I am concerned, the assignment will further its evaluation and analysis by highlighting personal opinions about the matter at hand. These opinions will therefore be included into the conclusion part of the assignment. It’s worth noting that this crisis affects almost all components of a given economy and therefore a distinctive examination of complete factors in hand will not go unmentioned: these components of the economy incorporate all of the industry sectors that oversee the running of the entire economy.
Current Insight into the Euro zone Crisis
Euro Zone crisis is considered a monetary crisis that originated from an irreverent central bank which had plans of calling a halt upon the recovery of entire economies. The Central bank commenced with its effort of bringing stability by raising lending rates to commercial banks which in turn raised loan rates beyond measure to their respective customers thus allowing for a collapse in the money supply in most parts of southern Europe. The whole blow resulted into a recession that has continued causing havoc and tension amongst most of the European Union countries. Another methodology that has been put forward to explain the phenomenon is that the European Central Bank allowed for an ostensible mode of spending that resulted into an immediate fall of minimal amount of income thus rendering the economies of member countries unable to service their respective debts (Beckworth, 2011).
The first economy to undergo this worse case scenario was Greece whose debt had increased to a figure approximated at $19Bn (The Economist, 2011). As a result of this condition the country had gone into turmoil hence its political instability. Greek PM received constant threats of facing a vote of no confidence. Efforts made by other member states of the trading block proved in futile. The whole bloc through IMF decided to bail-out Greece of its debt and on July 2011 IMF approved the release of close to $2Bn. Analysts came up with a preposition that required Greece to sale its islands so as to retrieve itself from its own debt although the plan was not executed it was considered the only option left for curbing the situation. For a moment the condition was held at rest until other economies like that of Italy and Spain ensued with difficulties to service their own debts thus depicting a possible collapse of the European Union trading bloc. The debt crisis has hit both Spain and Italy economies and to be exact it has hit its industrial capacity to manufacture products thus the diminishing source of revenue since November 2011. According to an article in the Guardian news journal (2011), manufacturers in Spain were in constant threat of collapsing out of the fact that they were experiencing worst case scenarios. These manufactures were forced to cut their material input-buying at a very sharp speed in line with the strong reduction in purchasing of the already finished products. This desperate position made Spanish companies embark on retrieving most of their savings from the European Central Bank which resulted into a substantial increase on interest rates. Italian business community followed suit as most of its manufacturers cut down production so that they could only produce to a more reliable market. This unrest ensued to most of other members states like Portugal and even as of today, most of these European manufacturers are still cutting down on production.
As a move to curb this situation, stable member states of the European trading bloc have been in constant meeting as leaders of these countries meet frequently to discuss their way forward. For instance, Germany’s Vice chancellor has come up with a proposal that is considered to be effective if assimilated. The plan is to advice workers to accept wage freezes and acclimatize to a more flexible working pattern. The plan however has been termed as opportunistic since most of these countries will be forced to increase their debts even further so as to be able to purchase products from Germany. Another major challenge to this remedy is that it might cause higher inefficiencies that may result into a higher rate of unemployment as is being witnessed in an economy like Spain whose youth unemployment rate is expected to rise to a level of 40% by the end of this year. This is a great threat in the sense that it can result into a social unrest such as the ones that have hit Portugal (Gye, Allen & Groves, 2011).
As of 3rd December 2011, an article by Oborne (2011) stipulates that there are underway plans for meetings whose main agenda is to examine and bring to an end the financial crisis hitting banks in the European nations. Germany, which was considered to be having a more stable economy as compared to other members of the bloc has had its stock fall terribly in the market thus pushing for an emergency meeting that, will be held on 9th December 2011. The crisis which had initially started as a mere threat has now outgrown its borders and economies of super powers like Britain and France are under the major threat of an irreversible banking crisis. It’s argued that the infectivity has continued to spread all across the world resulting into tightening of credit markets of China and the United States. Germany and France are the official brokers for this crisis and they have been in constant meetings whose main aim is to formulate a stricter governance of the Euro zone as well as a stronger co-operation between the 17-strong blocs. Britain, one of the core members of the bloc has vowed to increase its commitment to bring the crisis to a minimal by advocating for reforms that will be aimed at winning back laws governing unemployment and social unrests. The aforementioned meetings are intended to initialize a reform that will advocate for reviews governing the euro zone. New treaties will be formulated to re-found and refurbish the organization as a whole. Mrs. Merkel, on the other hand, has commenced in putting up with her ground by rejecting the proposed euro-area bonds as well as the need for a single central bank action that will centralize decision-making process. She has in turn advocated for closer and strong economic ties that will assist in bringing about tougher and stronger budget enforcements within the various economies forming the Euro Zone (Bucks, 2011).
All in all, plans are underway and the situation has caught the attention of most of the existing blocs across the globe. The matter has ceased to be a European issue as other countries has vowed to assist in curbing the matter lest it destabilizes the economy of the world as a whole.