The world has continued to experience problems in both  economic and financial sectors since 2007.  Several economists consider these problems to be similar to the ones faced in 1930s. The economic crisis caused and has continued to cause  problems across  various sectors of the economy. These changes are different in every economy. However, there are some general characteristics of the economic crisis that are experienced in nearly all the economies. These include downturns in stock markets, the collapse of leading financial institutions and the bailing out of the national banks by the government. This paper will discuss  the effects of the economic crisis in the United Kingdom, and changes in investment trends.

Effects of the Economic Crisis on Investment Decisions and the Banking Sector in the U.K

One of the main economies that have suffered mightily  is the United Kingdom. The effects of this crisis have been  markedly felt in the commercial, business, and other sectors in the economy. The main cause of the economic crisis in Europe was a failure by the government to regulate the amount of money available in the economy. The government could not control the firms which conducted businesses over a wide territorial area and in different economies. Many financial institutions lowered their lending rates to avail capital to different firms that sought to venture into the business world (Anderson & Wiessala 2007). These financial institutions and merchant banks were quick to lend money to investors, without necessarily considering the cash-liquidity ratio they were to maintain. The government was also reluctant to control  the amount of depositors’ money and funds  available for lending to customers. The government also allowed the financial institutions to borrow funds from across the world to cover for their loans, as well as  get enough funds to lend out to other local investors. This led to easy access of credits. With easier borrowing, different firms, individuals, and corporations had a lot of loans, including personal debts and mortgage loans.

The first effect in the UK was felt in the property markets. The availability of credit caused the prices of property to rise. The real estate business boomed and enabled  the institutions, and individuals who had ventured in this field to make supernormal profits. These investors did not want to lose their market share. Therefore, they expanded their lending capacities, offering loans even to individuals who would have otherwise been non-eligible. Thus, borrowers could get up to six times their annual incomes. This also led to securitisation. This is whereby lenders would extend their loans to other borrowers, without necessarily considering the source of the money they were lending, which also came from borrowing (Baumohl 2005).

The economic crisis also caused liquidity problems in financial institutions in the UK. This is whereby the banks were unable to meet their financial obligations, including short-term expenses. The prices of oil also went up drastically. This led to unemployment as the trading costs went up. The employers and investors had to lay down some workers, to compensate for the rising costs of conducting businesses. The employees, who lost their jobs, were the same ones who had multiple loans in different financial institutions. This led to further aggravation of the situation. The banks and other financial institutions were unable to repay their short-term loans, leading to lending at higher interest rates. The institutions even began offering loans to individuals who were not credit-worthy, with higher interest rates. The financial crisis saw falls in asset prices in the UK. The house prices dropped drastically, with the Nationwide House Price Index dropping by approximately a fifth. The FTSE all-share index experienced a significant drop, by almost a third. The household wealth also decreased (European Union 2010).

The UK's attraction of Foreign Direct Investments (FDIs)

The UK is ranked as the topmost country in attracting foreign direct investments in the European Union. The economy has strong ties with America, both in the economic and corporate fields. According to a report in the latest survey by Ernst and Young,   the economy of the UK has received the greatest foreign direct investments over the last decade. However, these investments have reduced considerably in the last few years. The report was based on the attractiveness survey of how monetary resources flow to the economy in Europe in the last  decade.  The total number of investment deals that the UK secured was 3,303 in 2009. However, this was 1% less than those in 2008. These investment deals went a long way in helping the economy by creating 20,017 jobs in UK only (United Nations2007). They contributed to  empowering the economic growth. The main investors in the UK were the United States of America, Germany, and India. This posed a formidable challenge to the political leaders, whose roles are to try and market their economy to other investors and new markets.

The main reason why the country attracted these foreign direct investments was the strength of London as an economic hub. This city is believed to be   a gateway to the European Union. The city attracts different investors, with the main aim of venturing into Europe as a whole. London has been for eight years in a row, the most attractive city for investment in Europe. It is ahead of other large cities, such as Berlin and Paris. The economy, however, could lose its attractiveness in the coming years. This is mainly due to lack of clean technology in Europe. The other problem is the economic crisis that profoundly affected the European Union, mainly Spain, Portugal and Ireland. In the future, the foreign investors might be interested in bigger economies such as the Western Economies (Ethier 1983).

Factors and Problems Faced by the UK in Export Strategies

After the global economic crisis, the UK Trade and Investment (UKTI) came up with a new strategy for exports. The main aim of this five-year strategy is increasing the exports for the economy with a target of 20 billion US dollars in five years' time. It is also aimed at raising the market share of the UK to 10%. This will be from the current market share of 6%.  The UK Space Agency is also responsible for setting out different strategies and pushing the government to implement these new export strategies. One of the main factors in these new strategies is encouraging the firms to spot and utilise new entrepreneurial and investment opportunities abroad. The government makes sure that it provides information needed for all  foreign investment opportunities for investors. This is mainly by organising trade fairs, sending out economic surveyors to different economies and providing audio-visual information through the media and the Internet. This goes a long way in encouraging investors (European Union 2006).

After providing  investors with knowledge about these new opportunities, the government  makes sure that it helps the interested investors in pursuing these new opportunities. The UK Space Agency helps encourage customers to take advantage of the current trade regions. It avails the knowledge about sanctions, regulations and trade promotions available in different investment opportunities. It also gives timely market information to these ambitious investors. The UK Space Agency plays a key role in marketing the different products from local investors in foreign markets. It helps create contact and a business relationship with customers on behalf of the investors. This creates a ready market for investors and also encourages them to take up investments in different foreign markets (Filger 2009). The UK government also enters into agreements with foreign governments with the aim of making trade between the two countries easier. This is by signing trade treaties and creating trade regions and free trade areas. This lowers the costs of exporting, thus encouraging investors to undertake different investment opportunities abroad. The UK Space Agency also signs bids with foreign customers on behalf of investors. They also give loans to investors to enable them pursue their opportunities.

The UK Space Agency in collaboration with the UK Trade and Investment set up these strategies to ensure the increase in exports in the coming fiscal years. It is also a signatory with numerous countries. It comes  in the form of Memorandums of Understanding. These memorandums create commercial diplomacy between governments, which is crucial in the trading process. The UK aims at being the largest exporter, like China and Japan. The main market it is seeking to explore is mainly in the sub-Saharan region and  in Asia. The UK government has realised that the export drive is key in economic growth as seen in Brazil, China, and Japan (Florax, De Groot & Mulder 2011). The economic recovery and development in the UK will become possible with greater emphasis on the Small and Medium Enterprises (SMEs) focusing on the foreign market. The government needs to encourage these enterprises to sell their products overseas. Therefore, the economy needs to focus more on services such as construction, communication, financial and medical services, which are its leading exports.

The European Union’s Policies and Agreements

The European Union was founded on  November 1, 1993. It consists of 27 member countries. Each country in this union is an independent state. The main reason why this union was formed is to foster economic, political and social co-operation. The European Union also provides a Free Trade Area among the member countries. Additionally,  the European Union  gets into agreements with third parties. This is with the aim of promoting a certain political, human rights, and trade or economic reforms in a certain country (Gaens, Jokela & Limnell 2009). The European Union also gets into agreements with other trade regions outside Europe with the aim of harmonizing their trade relationships. This union also coordinates the economic policies of member countries. This is because with the creation of a common trade area, there have to be similar economic policies in different member countries.  This helps the economic region to adapt quickly to different economic changes. There is also an agreement by seventeen member states to use a similar currency in all economic transactions, hence the use of the Euro. All  members of the EU are also members of the economic and monetary policy. This ensures that there is general handling of different economic situations without external interference. The members react similarly to different crises. Therefore, the union becomes stronger and more resilient to economic changes.

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Since the economic and financial crisis began in 2008, the European Union has undertaken joint measures among the member countries to curb the crisis. The banking sector in the region has been in the frontline in fighting the crisis in this union. The Commission, national governments and the European Central Bank are major institutions that are co-ordinating to sustain  the economy (Merino 2008). They are specifically concerned with the welfare of households, firms, corporations and maintain a smooth flow of funds and credit in all these sectors. These measures are aimed at the economic stabilisation and creation of more jobs. The governments of different countries in this region have used up to two trillion Euros in the stabilisation efforts. This action has saved the economy of Europe up to one hundred trillion Euros, with average individual savings of a minimum of a hundred Euros by the members in each single state (Naas & Lysne 2010).

The European Union have also set up policies and agreements to enable easy investments by members in different countries. One of the main policies is the use of the Euro as a common currency in the region. This makes the trading process in different countries easier because one does not have to change currencies in each transaction. This increases the profit margin of investors and also reduces the interest rates in lending institutions. Today, about 60% of the citizens in the union use the Euro. This harmonizes the trading process and encourages multilateral and bilateral trade. The harmonization of the currency  encourages the banks to harmonize their interest rates, regardless of the country of origin. It also ensures price stability of similar commodities in different countries.  Another policy that encourages trade is the free movement in the member countries. The members are free to move from one country to another without necessarily having to go through customs and acquire passports. This free movement  encourages trade and movement, with different investors looking for new opportunities and greener pastures (Nabli & World Bank 2011).             The European Union is trying to set up new policies to avoid the occurrence of another economic crisis that would affect its economic stability. The economic crisis, which  the main cause of the global economic recession,  is also the main reason for the European sovereign-debt crisis. The countries that were profoundly affected were those with large account deficits in their central banks. The economies with large and open financial sectors such as Spain were also suffered tremendously. Some of the states that promoted  large export orientation could  not escape the blow of the economic recession either (Pring 1991). These states are all coming together in the Commission to set up new laws that will eliminate large and manufacturing sectors. They also aim at eliminating large debts in foreign nominated currencies.

Adaptation of the Banking Sector to the Worldwide Economic Recession

The banking sector is the main sector that faced a serious blow in the economic crisis. The main response in the banking sector came from the World Bank Group. This group was in the central position to cater for all  changes and problems experienced in the world economic recession. This is because the World Bank Group studies all  patterns in the world economies and was the only institution that could provide  necessary information on the banking sector. Many economists all over the world blamed the World Bank Group for unpreparedness in the matter concerning the economic recession. This is because all the economic mistakes that happened due to the deregulation of National banks  happened with the knowledge of the World Bank (Rasmus  2010). Other financial institutions such as the International Monetary Fund (IMF) could not control their lending to commercial banks. Banks such as the Barclays Bank were borrowing money from the institutions so that they could maintain their financial base to lend to other investors. Despite these mistakes, these banks were in the frontline to restore economic stability globally. The economic crisis is being solved by banks in collaboration with National Governments (Smith 2005).

The first action in the banking sector to adapt to the economic recession was increased lending by the bigger financial institutions. The World Bank, International Monetary Fund, International Finance Corporation and Multilateral Finance Guarantee Agency had to extend loans to other financial institutions such as commercial banks. This is because the commercial banks and other financial institutions  borrowed more money to maintain their financial requirements than they could possibly pay in the short run. The households and firms also had increased personal and corporate debts with high interest rates. The liquidity of the economy went down to unsustainable levels. The loans that these large institutions extended to the commercial banks helped distribute funds  through the economy. The banks could now take care of their short-term expense costs, awaiting repayment of debts by other institutions and individuals (Strange, Slater & Molteni 2000).

The second action by commercial banks to adapt to changes in the economic recession was to lower the lending rates. This further increased availability of credit to investors. They also made sure that they followed the cash-liquidity ratio and maintained their specific compulsory deposits. With availing of more money in the economy, the banks then increased the interest rates, to prevent the economy from cost-push inflation. This action then saw the regulation of money available in the economy to sustainable levels. The Central Banks in different economies also made their regulation policies stricter (Weigel, Gregory & Wagle 1997). The shareholders of the commercial banks also ensured that their policy-makers made the right decisions, to avoid the repetition  of such a crisis. This was followed by radical reforms in the banking sector, where corrupt policy-makers were sacked. These adaptations by the banks ensure that the economy stabilizes.

Trading Relationship between Asia and the European Union

There has been an establishment of Asia-Europe meeting, bringing together 27 member countries of the European Union and 16 Asian countries. This meeting has been a process of informal dialogue. It has also been a form of co-operation between the European Union and Asia. Such  meetings aim at realizing different economic, social, political and even commercial benefits from the co-operation between these two economic regions. The regions aim to have an intimate relationship and equal mutual benefit. The two regions have held meetings every two years in Europe and Asia to discuss on the way forward (Peyrouse 2009). The senior official and delegates from the two regions also meet regularly during  meetings that focus on global issues. There have also been initiatives, with more than a hundred trade fairs, forums and exhibitions between the two regions. The two regions have elected a certain number of  members whose main task is to commission fairs, meetings, workshops, and studies. The members have not yet established a common trade region and agreement. However, agreements to formulate policies and harmonize the relationship between the two regions are underway.

There is also a foundation that exists between the two economic regions. This foundation is known as the Asia-Europe Foundation. The main aim of this foundation is the exchange of information, workshops and research programmes. The European Union is specifically interested in investing in clean technology, such as the investments already in China and South Korea. This network is also aimed at creating  necessary platforms for exchange of information, such as culture and religion. The Asian countries are rich in culture, and immensely diverse in religion. The main hindrance to trade with the Asian countries is mainly because of their diversity in languages and culture. This relationship aims at bridging the gap between the two distinct regions. The Asia-Europe Foundation has also set up a communication network between Asia and Europe (Vacas 2011). This network is known as the Trans-Eurasia Information Network. It plays a key role in connecting students and researchers between the two regions. These people share information freely through the Internet, thus bridging the gap between the two regions. The network is currently under expansion. The foundation aims at covering particular  South Asian countries such as India, Pakistan, Sri Lanka, and Nepal (Great Britain: Parliament: House of Commons: Environment, Food and Rural Affairs Committee 2009).

The main approach in supporting the relationship between these two regions is cultural rapprochement. It  will also enhance cultural and economic relationships. This relationship is crucial in uniting the two regions, and is the most efficient way in doing so . Asia is a region of cultural, political, economic, and religion diversity. It would therefore be close to impossible for each country in the European Union to try and engage in individual negotiations in each Asian country. It would be similarly difficult for the Asian countries. Thus, this relationship will play a key role in uniting the two economic regions which economists refer as the world’s economic giants (Doole &  Lowe 2008).


This essay discusses in detail the main changes that occurred during the economic and financial crisis. It also focuses on the main areas affected during the crisis, with special emphasis on the European Union and the banking sector. The essay also focuses on different changes in investment with changes in the economic situation. This essay explores the relationship between the European Union and China and its effects on investment in both regions. The economic, political and social situations in the region materially affect the level of investment in this region. The social and political flexibility of  people in an economy affect the adaptability of the economy after an economic breakdown. Therefore, the preparedness of the world to avoid another economic crisis  lies solely on  people and their leadership. People must be ready to control the economic forces and steer them to the desirable situation. It seems  people cannot blame the "invisible hand" on the economic recession. The recession was created by people and their  carelessness. Thus, proper investment behaviour and regulation of economic forces can prevent the world economy from stumbling into another recession.

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