Economic Crisis Solution Programs

Table of Contents

Abstract

The economic crisis is a situation where there is downfall or sluggish growth in all the economic sectors coupled with the increasing rate of unemployment. Previously the economic crisis was viewed to be the problem of the less developed countries but currently, it’s the problem of all the countries irrespective of their economic and development status. All the countries in the world felt the effects of the global economic crunch which really affected the variables of economic development negatively.

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The 2008 economic crisis was escalated by the high rate of unemployment in the world, continuous inflation, increase in the food and oil prices, and fall in the value of the dollar, problems in the housing market, and the critical problems in the mortgage sectors. These were the main causes of the 2008 economic crisis experienced across the whole world which to test the various policies which were being used by the various governments. Most governments had to react to the economic crisis with a view of reducing it absolutely which is the only way to reduce the problems associated with the economic issues. There are programs that every government had to come up with to bail out these problems which were causing the economic meltdown locally and across the whole world (Tsikata and Moreira, 2009).

Body

In Europe, people could not risk investing in stocks as they considered it to be the worst sector that has been affected by the economic crisis. Europe underwent the worst economic crisis since the depression experienced in the 1930s. There is action as a major response which the European countries have to execute in order to recover the economy from such meltdown. The actions to be done by the government include enhancing the output, improving the labor market mobility, executing the consolidation of fiscal policies, promoting the intra-EU regulations, and calming down the inequalities in world trade. Europe requires a structure that is so enhanced in promoting the management of the crisis; otherwise, the same crisis may as well arise again in the future.

The European countries use one currency but every country has absolute power over their financial and banking institutions. There is a lack of direct control at continental levels hence bailout programs are limited as compared to that of the United States of America to every country. There are general instructions and various aid programs which are being adhered to by all the member states in Europe. All the countries in Europe put in place the liquidity injection packages which enabled the countries’ financial and corporate sectors to run their operations accordingly without much effect on their business. Bailouts ensure that the confidentiality of all the stakeholders of the company is maintained and that families are not affected through the layoffs of the employees (Krugman 137).

European countries used the broad measures which gave instructions to the countries on how to inject the various packages of liquidity into the economy. The government actually utilized the various effects of interest rates by reducing it and also increasing the minimum bank deposits which are secured by the government from twenty thousand euros to fifty thousand euros. The European countries are assuring all the personal depositors of their deposits by offering security over it in a way of building their confidence.

The countries also have to factor in the effects of inflation on the interest rates as this is the main factor that affects it. The ECB set a ceiling of 2% of the interest rates set at the inflation rate is at 3.6% which means that the interest rates were not supposed to reduce at all. The situations which the European countries are facing have prompted such a change in the relationship between interest rates and inflation. The European law and the various conventions should be sidelined in this perspective so that there is a rise in insurance deposits (O’Sullivan and Sheffrin 97).

The European countries have concentrated on increasing the liquidity in their countries through various techniques of bailouts. They have injected a lot of money into the economy so as to increase the amount of money in supply in the country. The bailouts are geared to enhance the ability of banks to lend money at the normal rate and if possible increase the ability of customers to access the loans. The reduction of interests rates in the country has enhanced the inter-bank borrowings and also the money borrowed by the people and corporate sectors in the economy.

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Interest rate is an efficient measure which the country can use in order to attain the expected level of the money in supply in the economy. When there is less money in supply in the economy, people will not be strong enough to make any purchases in the country hence there are tremendous effects on the economy. The economy will be affected on the aspect of the government revenues and that of the corporate sectors, and hence the government spending will decline.

The countries like Germany have established a bailout up to a tune of seventy billion euros for structuring banks and another four hundred billion euros to be utilized by banks in the inter-banks lending guarantees. France and other nations like the United Kingdom also have established such plans with varying amounts on the amounts for capitalization and the loans guaranteed by the banks. The United Kingdom had to seek more funding from the Royal Bank of Scotland of up to a tune of twenty billion pounds (Baumol and Blinder 235).

Spain utilized a different aspect of monetary policy by purchasing the assets from the banks, as a way of injecting money into the system. This has been utilized since most of the bank’s investments are in form of real estate, and this sector has been at a higher risk. The purchase of the assets will enable the banks to be accessed to the cash which they can use for lending purposes. The lending services will empower the people from a financial point of view hence the economy will be boosted through such actions.

On the side of the trade, there are great effects on the sector. The foreign exports have been affected since the demand for goods and services has declined. This will really affect the economy entirely since most countries in Europe depend on foreign exports. Countries like the Czech Republic and Germany have been affected so much by their sector of industrial exports which has since contracted.

The trade inequalities in the economy are so hard to be maintained simply because they will be so expensive since the ability of credit access is limited. The countries which are at great risk are those in central Europe since they have a large amount of deficit on their current accounts with respect to the Gross Domestic Product. These deficits of the central European countries will escalate if the countries on the western part will not be able to purchase their exports hence the current accounts’ deficit will be bloated (Blanchard 172).

The financial crisis has enlightened the entire European countries and the entire world on how to handle such an economic crisis in the future. There is ease on the monetary policies, the banks’ situations of running up and down in search of injections will be avoided, and the government has put in place measures which increase the stimulus injections to the entire economy.

In Europe, some techniques have been developed which will ensure that the crisis will not occur again. The fundamental framework is to regulate the economic crisis and mitigations to minimize the loss in the economic outputs and loosening the social difficulties experienced in the economic crisis. There should be coordination throughout the EU so as to arrive at a point of agreement between the spillover and preoccupation effects. This will ensure that the cost of the tax is reasonable to the taxpayers, and the risks of operating in the economy are maintained.

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The EU organized a summit for the European council which was at the level of the heads of the states so as to coordinate the whole process. The commission’s main task was to ensure that the financial rescues are achieved within a short duration with less interference on the competition and the spillovers which are diminishing. The EU should also assess the issue of restructuring the supervision and the regulations of the financial markets.

Conclusion

The European Union should put in place measures that oversee the financial position of the whole continent. This will ensure that any speculated risk in the future is tackled appropriately using measures that maintain it. The policymakers also should pass laws that enable the whole country to apply the same policies in handling the banking and financial markets.

The interest rates are the main factors affecting the financial position of the countries hence having a central body that determines it is necessary. The economic factors such as unemployment should be solved through the creation of various industries and programs which facilitate the employment of the citizens and be able to sustain it.

Works cited

Baumol, William, and Alan Blinder. Macroeconomics: Principles and Policy. New York: Cengage Learning, 2008.

Blanchard, Olivier. Macroeconomics. 5th ed. London: Pearson Prentice Hall, 2008.

Krugman, Paul. The Return of Depression Economics and the Crisis of 2008. New York: W. W. Norton & Company, 2009.

O’Sullivan, Arthur, and Steven Sheffrin. Macroeconomics: principles and tools. 4th ed. London: Pearson Prentice Hall, 2005.

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Tsikata, Yvonne, and Emmanuel Pinto Moreira. Accelerating trade and integration in the Caribbean: policy options for sustained growth, job creation, and poverty reduction. Washington, DC: World Bank Publications, 2009.

“The financial crisis in Europe”, Strat for Global Intelligence. Web.

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