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G10h0103 Macro-Economics: Assignment TOPIC: There are important differences between the financial crisis that started in the United States in 2008 and the current economic crisis in Europe. Discuss these differences. What are the implications of both crises for South Africa and what policies are available locally to offset their impact? Use economic growth theory to illustrate your answer. ABSTRACT: The recent financial crisis that was felt around the globe and most significantly in the USA and Europe has had various detrimental and long lasting effects. Superficially the effects felt by the USA and Europe appear to be the same, but there are important differences in its effect, and the way in which both dealt, and are still…show more content…
In response the USA had to bail out the banks of the US in order to begin the struggle to recover the economy. The primary difference between how the EU was affected lies in the fiscal coordination and sovereign debt, public financials and the state of liquidity. Mismanagement of the financial public accounts and the lack of coordination and stronger policies led to such financial failures such as the Greece bailout. The USA in its approach to dealing with the problem was primarily motivated by the USA’s greater belief in markets and their resilient mistrust of specific regulation. “The EU and the U.S. are in the midst of a fundamental institutional and regulatory overhaul in response to the financial crisis” (Lannoo, 2009: 1). The frameworks of the US and the EU response to the crisis differ quite importantly. For example on the East side of the pivotal Atlantic the initiative is mainly positioned with the EU commission and the 27 member states in the EU council. On the US side of the Atlantic, the ingenuity is with congress. After the bankruptcy of Lehman, the EU and the U.S. moved to save their monetary structure with enormous national support and financial aid, by equity contributions and debt funding of the monetary sector. “Their central banks, primarily the Bank of England, the European Central Bank (ECB) and the Federal Reserve have provided massive liquidity to the financial system, and have, primarily in the case of the UK and U.S.,
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