Eurozone crisis

Eurozone crisis

  • Submitted By: PMBA
  • Date Submitted: 01/20/2015 3:27 PM
  • Category: Business
  • Words: 633
  • Page: 3

The current stage of the Eurozone crisis:

Current accounts in the European countries declined dramatically since the 1990, and this downward trend was shown in the region in the case of Cyprus, Malta, Slovenia, Creece, Italy, Portugal and Spain. This pattern led to the 3 following consequences:

- Decline in the current accounts due to institutional weaknesses of European Union: The European crisis is not only the result of the worldwide 2008 financial crisis, but it is a multi-year long debt crisis taking place even before being part of the EC. The Maastrich treaty obliged the partners to pledge to limit their public deficits. At the end of the financial crisis of 2008, public finance deficits increased dramatically and the public debts. Easy credit conditions in the pre-crisis period encouraged high risk lending and borrowing practices, and revealed great international trade imbalances. The concerned countries focused on debts instead of Foreign Direct Investment (FDI), and they experienced a high inflow of bond-related. The fragilized banking sector (liquidation of a lot of banks) by the financial crisis of 2008 couldn’t support the European countries in need.

- Fall in private savings: by 2008 the private saving was below average due to low private and public saving. This was caused by a decrease in net income during this period and a decline of net transfers.

- Fall in the investment: almost all the countries who experienced the crisis witnessed a booming in one or more sector. For example, Spain witnessed a great booming in the construction sector. Slovenia, Malta and Cyprus had a booming in their investment but was lower than what it was in 1990. The ecline in saving and increase in investment was reflected by the fall in the trade balance and the decline of net income.

The detailed causes for running unsustainable budget deficits and debt levels varied by crisis country. In several countries, private debts arising from a property...

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