Contents

What is Eurozone Crisis. 1

World After Eurozone Crisis. 1

Eurozone Crisis: Possible Solution. 2

References. 3

Introduction

The newspaper article published on skynews.co.au which read “’Worst is over’ in eurozone debt crisis” on March 23, 2012. This article has been selected as this has been in news for quite some time now and has the global impact on the markets and government policies. Below is the complete analysis based on the article which states that the steps have been taken for resolving this issue and thus provide support to the world markets and the economies.

What is Eurozone Crisis

Single currency was introduced in 2002 as the common currency for the European Union comprising of 17 countries. The European Union upon its existence became the largest trading are in the world wherein some of the most powerful nations including France and Germany started trade on a common platform and removing the economic barriers which provided enough rivalry for the dollar in the international market.

Eurozone with huge potential and the market attracting investment resulted in deficit being created in the regionleading to eurozone debt crisis. This resulted in stronger nations in the union to implement strong austerity measures on the nations like Greece and Italy which are hit most badly by this crisis. Thus it can be said that the Eurozone crisis were much attributed to the lack of political integrity even though the monetary intergity had been established in the region (Kenny, 2012). It has been said by the analyst that the stronger nations of the union wanted to establish the union even though the smaller and weaker nations had shown the inability to fulfill the criteria for becoming the member. Thus the weaker nations were made part of the union even without fulfilling the criteria may have led to the downfall as it can be said that they were not yet mature enough to sustain in the global competitive market.

Such is the impact of the Eurozone crisis that it has led to the instability in the financial markets all over the world especially in the developing countries. Thus this has led to the questioning of the future of Euro as a currency and the sanctity of the Eurozone.

World After Eurozone Crisis

With the economic debt crisis in Europe has sent wave of unrest in the world. Some of the financially sound countries have gone in for the buying of the government bonds. The idea is to give away the risky assets and invest in the less risky ones. The countries have been affected by the bond markets which have performed the worst. Thus the stable countries are moving away from investment in such bonds. The effect of eurozone crisis can be made from the fact that US treasury yield fell to all time low during the time eurozone was worst hit.

The possible scenarios of the eurozone crisis has been attributed to the debt driven Greece and Italy. The possible scenarios thus can be seen as orderly restructuring of Greece and other nations (Kenny, 2012). Another scenario is the break up of the eurozone which has led to downside of the international markets.

In the wake of orderly restructuring not happening may lead to worsening of the financial assistance to the debt laden countries of eurozone and will put pressure on the banks and other financial institutions and may also lead to their failures. This will also result in further imbalance in the international markets.

The impact is on the whole world as US funding to IMF will also reduce in the anticipation of using these funds for bailouts. This will put more pressure on the government and the tax payers (Alessi, 2012).

This is to say if the serious and constructive steps are not taken, the crisis which started with eurozone crisis and which is already impacting the world may lead to further deterioration in the market which will possibility erode away the most sound of the economies of the world.

The impact on the small countries will also be huge as they have lot business opportunities that have come up after Eurozone formation. Thus the markets in such countries which are not yet developed will be at risk of performing over a long period.

Also this will have a lot of political implications such as there will be tension created as a result of the debt crisis not being resolved.

Thus the world after the eurozone crisis is looking at resolving the issues as early as possible as it will have huge impact on the whole world. The possible solutions that have been worked upon and further suggestions have been discussed in the next section

Eurozone Crisis: Possible Solution

Financial Austerity which is the application of higher taxes is not a solution to it. It can be seen that this situation has arisen because of the huge spending of small nations and not the unavailability of income for the government. Also if the taxes are increased the income will come down and thus the taxes. Thus this will lead to less growth of the small nations and thus less payment of debt. Thus the financial austerity is not the solution to this problem.

The Eurozone crisis has led the European union to take steps centralizing the governance and better coordination of fiscal policy and the economic policy. In the light of it a fiscal union has been formed (Alessi, 2012). Another important step that has been taken is to establish stability mechanism which is European Stability Mechanism. This will be the permanent bailout fund of above $600 billion

The European Stability Mechanism will replace the European Financial Stability facility. The European Financial Stability facility will expire by 2013. The lending capacity will be reviewed regularly in order to access the potential threats and so that the timely steps can be taken,

With European Stability Mechanism coming into force the effective lending will be increased as well as there will be increase in maximum lending guarantee.

Also many members of the Eurozone does not have legal institutional structures in place. Thus the steps need to be taken that the legal institution structures are in place.

Another possible but least likely and favoured solution is the breakup of Eurpoean Union. In such a case the belief in the markets will be disturbed it will also lead to the conversion of debt to non performing assets and thereby impacting the profitability and the future of the banking industry all over the world.

Conclusion

The eurozone debt crisis have been the major issue some of the developing countries and most of the developed nations as it is resulting in depletion in the current assets of the country there by leading to revaluation of the currency and disturbing the market place in such countries. Thus this has lead to the various undesirable consequences like the increase in inflation rate and the ratings of the markets and the countries by the rating agency.

References

Newspaper article:

‘Worst is over’ in eurozone debt crisis from skynews.co.au dated March 23, 2012, link: http://www.skynews.com.au/businessnews/article.aspx?id=731892&vId=

Christopher Alessi. (2012). The Eurozone in Crisis. Available: http://www.cfr.org/eu/eurozone-crisis/p22055. Last accessed 28th Apr 2012

Thomas Kenny. (2012). What is the European Debt Crisis?. Available: http://bonds.about.com/od/advancedbonds/a/What-Is-The-European-Debt-Crisis.htm. Last accessed 28th Apr 2012

Uri Dadush. (2012). Paradigm Lost: The Euro in Crisis. Available: http://carnegieendowment.org/files/Paradigm_Lost.pdf. Last accessed 28th Apr 2012

Slaughter & May. (2011). Eurozone Crisis: What do clients need to know. Available: http://www.slaughterandmay.com/what-we-do/publications-and-seminars/publications/newsletters-and-briefings/2011/eurozone-crisis—what-do-clients-need-to-know.aspx. Last accessed 28th Apr 2012.

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