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The Eurozone Crisis Across Europe Essay

1590 words - 7 pages

European identity, meaning unification or integration of Europe, is associated with the European Union (EU). The EU includes 28 member countries, more than half the European countries have already joined the EU for years and thus the EU unifies Europe. The Eurozone crisis is an ongoing crisis that has been affecting the countries of the Eurozone since early 2009, when a group of 10 central and eastern European banks asked for a bailout. Consequently. The crisis has made it extremely difficult for countries such as Greece to refinance their government debt without the aid of third party such as the European Central Bank (ECB) or the International Monetary Fund. Many may argue that the ...view middle of the document...

The ECB have taken measures to prevent a similar issue by monitoring liquidity across Europe to prevent asset bubbles or stimulated inflation. The Eurozone crisis is far from over as growth across Europe is still stagnant. This is complex as loan repayments can only be repaid through real GDP growth. Growth in this case cannot simply be derived from austerity measures or the cut back on spending, which potentially leads to a rise in unemployment.

A variety of business cycles exist inside the Eurozone. Germany is strong in the financial industries and is vulnerable to international financial shocks whereas Spain is much more concentrated in the tourism industry where increases in wages, the value of currency or even bad weather patterns gave an effect on their balance sheets.

The opposite may also be argued, that the European crisis is over and growth has resumed. Even though growth has resumed, real GDP in countries are still facing with a low or negative growth, when taking into account inflation. Figure 4 illustrate that Italy and Greece are still facing negative growth whereas Germany and UK are barely grasping for growth. More the less, growth hasn’t resumed to its potential level where countries in the Eurozone can start repaying its debt. The Eurozone hold a single currency, the Euro (€).
Some of the reasons are due to lack of international competiveness to trade with other countries. Figure 1 demonstrates that the Euro (€) currency is getting stronger. One Euro is nearly equal to the pound sterling where €1 Euro gets you £0.89 sterling. Over the years, the Pound Sterling (£) and US Dollar ($) have devalued its currency, which led to an increase in international competiveness where prices of goods and services will be cheaper in United Kingdom, United States and other countries controlling the international competitiveness. However in the Eurozone, even though Euro (€) have devalued its currency, the magnitude of devaluation wasn’t sufficient to raise the international competiveness in Europe. Hence there has been a lack of growth across Europe, and countries like Italy and Greece are having difficulties repaying debt. A single currency may also account for the Eurozone crises. Therefore it is essential that the European Monetary Union (EMU) hold up enough currency reserve to resist any shocks in any of these countries. Yet, countries in the Eurozone would not face with a balance of payment crisis because it is purchasing imports in the same currency. The southern part of Europe faced seasonal growth such as tourism, hence growth in these areas only face a substantial growth only part of the year. Therefore, it can be predicted that Southern Europe’s main income (exports) will fall due to the high value of Euro, as it is more expensive for people from countries such as the UK to go on a holiday destination in any Mediterranean country where the core source of income is tourism. At the same time, wages in Spain are rising along with...

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