Essay on ARC model in euro crisis

The bursting of the United States housing bubble during the period of 2006-2007 had triggered the 2008 financial crisis which also spread to the European Union zone. Many major European banks, many of which had significant holdings in the American market, started to crumble, followed by bailout requests, initiating a subsequent crisis that led to the Eurozone crisis. The combination of government debt crisis, a banking crisis, and further worsen by a growth and competitiveness crisis had thrown what could probably the biggest challenge faced by the enlarged Union at the dawn of the twenty-first century. In light of the crisis, the European Council has initiated three relief institutions: the European Financial Stabilisation Mechanism

Prior to the introduction of the Euro there was a lot of debating to what extend the Euro could function in the Eurozone. Some of the criticism came from the OCA theory where it was argued that the euro zone was not an optimal currency area because of the regional disparities among the member states. A monetary policy that might be right for Germany and the Netherlands might not be as beneficial for countries like Spain and Italy. Other criticism originates from the period of the European Exchange Rate Mechanism (ERM). Before the Euro was introduced the Bundesbank had been running German monetary policy and because it was effective in maintaining low inflation rates, other countries were pegging their currencies to the Deutsche mark as well as they could. Therefore, a major concern also was on the

The Global Financial Crisis revealed many flaws in the institutional framework of the Eurozone, as well as the flaws in the policies implemented in the aftermath of the revelation of the crisis. One of the major flaws revealed in the institutional arrangement of the Eurozone project, is the clause in the Maastricht Treaty which limits the ceiling on the ratio of the annual government deficit to gross domestic product. As a result of the Global Financial Crisis, The Maastricht Treaty put into place structural impediments that prevented member states from implementing counter-cyclical policies. It is likely that the crisis left a deep and long-lasting effect on economic performance and overall social hardship. Job losses were contained for some

The European Debt Crisis often referred to as the Eurozone Crisis, struck the European Union at the end of 2009.

The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the centre of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.

One cannot understand the Greek Financial Crises and the general European Financial Crises without understanding the history of the European Union, the creation of the euro, and the Eurozone. The countries involved in the European Financial Crises were Spain, Portugal, Iceland, Ireland and Greece. The Maastricht Treaty created the European Union in 1993. The treaty gave citizenship to all people living in the 28 member countries. This treaty led to the creation of the Euro. In order to join the Eurozone, each member country must maintain sound fiscal policies. Essentially, each country must limit national debt to 60% of gross domestic product and limit annual budget deficits to a maximum of 3% of GDP. The main reason for the greater European Financial Crises and Greece 's crises was the country 's violated the treaty restrictions. Spain, Portugal, Iceland, Ireland and Greece were unable to maintain spending within these limits. Additionally, the European Union has a monetary union but does not have a fiscal union. Each member country maintains its own independent tax and spending policies. The absence of a common fiscal tax for every member country in the EU is the reason for the current crises.

The European sovereign debt crisis, which made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.

European Union (EU) plays a major part in facing this Greek financial debt crisis, which requires a major restructuring in the economic sector and to tighten stronger integration among EU member country. The primary focal point is on restoring the sustainability of public finances and addressing other macroeconomic imbalances by fostering fiscal discipline. In addition, new rules are set to ensure stronger and more effective economic governance, particularly in the euro zone area, with adequate mechanisms to monitor progress and ensure enforcement.

After the Lisbon treaty was signed, it became noticeable that the Eurozone (which started in Greece) was in a deep financial crisis. The EU has taken a number of different steps to deal with the financial debt crisis throughout the Eurozone. These are the European Financial Stability Facility (EFSF), the European Stability Mechanism (ESM) and the European Financial Stabilisation Mechanism (EFSM). Throughout this essay I will concentrate on the EFSF and the EFSM and if and how the provisions of the Unions treaty were violated by these. I will evaluate different case law throughout recent years to show us the illegality of these, which often violated the treaties of the European Union while also talking a little bit about the ESM, ECB and the IMF. I will also talk about the Greek Bailout and the bail out clause with a small reference to the Pringle case.

In 1957 the European Economic Community took birth. In 1979 was the first experiment with a currency union by linking European currencies which led to the European monetary system, the precursor of the euro.

EU as a whole experienced significant economic slowdown in 2008, as reported by the EU commission . In response to this in 2008, the European Economic Recovery Plan (EERP) was launched. The plan aimed to increase demand by bolstering purchasing power, revive the labor markets, and raise confidence in the financial system. Since the EU is only a common currency union and not fiscal union, it limited the ability of EU leaders and institutions to respond. In result, the crisis escalated and in 2009 the European debt crises hit the EU. During this period, some EU members were unable to pay their government debt or to bail out their indebted banks on their own and called to EU financial entities for help. In 2010 leading European countries created various entities such as the European Stability Mechanism (ESM) to deal with the crisis, while the Central European bank (ECB) helped by providing cheap loans and reduced interest rates in order to sustain the money flow between European banks. As a result, European banks became owners of substantial portion of sovereign debt. Due to these stabilizing measures Ireland and Portugal were able to complete their bailout plans in 2014, Cyprus is expected to complete its bailout in 2016, while Spain never received bailout assistance and is slowly recovering. Greece experienced the most dramatic crisis in 2015, since the state was on the verge of financial default. Greece refused to accept the repayment conditions offered by the ECB, and

What is the European Debt Crisis? The European Debt Crisis is the failure of the Euro, a currency that ties seventeen European countries together. In this paper, I will be describing the cause and effect of the debt crisis along with what would happen if the European Union stayed with the economy they have. Then what I believe is the best solution to fixing the debt crisis.

Due to the economic recession which started in 2008, several members of the European Union became historically known as PIIGS. These states include Portugal, Italy, Ireland, Greece and Spain. The reason why these countries were grouped together is the substantial instability of their economies, which was an evident problem in 2009. The reason why the five countries gained popularity is a serious concern within the EU, with regard to their national debts, especially for Greece. The latter country was involved in a controversial affair after allegedly falsifying its public financial data. In the year 2010, it was evident that the five states were in need of corrective action in order to regain their former financial stability.

The Greek debt crisis has been an ongoing problem officially beginning in 2009, but later discovered to have begun in the 1990’s, and what began as a national disaster has quickly spread to become a worldwide catastrophe. The steady income of many Greeks has declined, levels of unemployment have increased – to the highest in the EU - Elections and resignations of politicians have altered the country 's political landscape

The European Central bank in Frankfurt, Germany defines the monetary policy for the entire Euro area. It is a single monetary authority with a single monetary policy and primary objective to maintain price stability. The ECB sets interest rates at which it lends to commercial banks in the Eurozone. This controls money supply and inflation. It manages the Eurozones foreign currency reserves and the buying or selling currencies to balance exchange rates. It ensures that financial markets and institutions are well supervised. This makes sure the payments systems work well. It produces Euro’s banknotes by Eurozone countries. Last, the ECB monitors price trends and risks to price stability. There are three decision-making bodies: Governing Council, Executive Board, and General council. Governing Council is the main decision-making body that assesses economic and monetary developments. The Executive Board implements monetary policy and manages day-to-day operations. The General Council has more of an advisory and coordination role to help prepare for new countries joining the euro. The ECB works with the national central banks of all EU countries. Together they are the European System of Central Banks. This helps with cooperation between central banks and the Eurozone. The ECB chose a quantitative definition of price stability with three main reasons: to make monetary policy more transparent, provide a yardstick against what the public can hold the ECB accountable, and is