The European Debt Crisis And The Expansionary Fiscal Policy

This article analyzes the underlying causes of the current crisis, estimates how bad the crisis is likely to be, and discusses the government economic policies pursued so far (by both the

A contractionary fiscal policy occurs when government spending is reduced either through from an increase in tax revenues or reduction in public spending and is used in periods in which it seeks slow the growth of aggregate demand. While an Expansionary Fiscal Policy implies an increase in public spending through increases in public spending or lower tax revenues. You can apply expansionary fiscal policies when seeking to increase aggregate demand.

The fiscal policy is one form of the expansionary policy, which comes in many form, In addition to transfer payments and rebates, the two major example of expansionary fiscal policy are increasing government spending and tax cuts. The goal of an expansionary fiscal policy is to improve the growth of the economy level of a country. Also to help the government reduce unemployment, and increase consumer demand and avoid an economic collapse.

The government has two tools of expansionary fiscal policy which are expansionary and contractionary. The difference in the two tools is that by taking the expansionary route the government is opting to stimulate the economy. Expansionary is most often the path taken during times of high unemployment or during a recession. The government cuts taxes, rebates as well as government spending. Lastly, another option the government may choose to take is called the contractionary fiscal policy this means that the government decides to decrease the amount of money such as increasing taxes and reduce the amount of money the government is spending.

Expansionary fiscal policy results in a reduction of taxes and increased government spending and therefore increasing the demand level in an economy. The institution of expansionary fiscal policy raises disposable income through reduction of taxes in the economy and this improves the rate of consumption. Therefore, tax reduction is an appropriate expansionary fiscal policy that can be deployed to help an economy that could be undergoing a recession (DeLong & Summers, 2012). Consequently, tax reduction could be a vital government tool for increasing the Gross Domestic Product. Low taxes encourage individuals to work hard and thus boosting the county’s GDP.

Deficit spending takes place when the expenses of a government surpass the revenues over a specified financial period, resulting in the creation or enlargement of the government’s debt balance. The need to move out of n recession prompts governments to consider adopting deficit spending as a fiscal policy aiming at fostering economic recovery and eventual growth. In this respect, deficit spending is seen as an advantageous fiscal policy that seeks to improve the economic state of a particular country. Deficit spending is detrimental since it triggers significant losses in savings, as well as private investments. Consequently, interest rates heighten, denoting the “crowding out” effect in a troubled economy.

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.

The Eurozone debt crisis has been and continues to be a hot button topic in the economic and financial world with Greece at its center. As the possibility of the first default by a country in modern history looms over Greece there are a multitude of questions to be answered. This paper will focus on the effect joining the euro had on the Greek current account deficit. Was there a deficit problem before Greece joined the Eurozone in 2001? How did Greece’s deficit change after joining the Eurozone?

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.

In 1999, ten European nations joined together to create an economic and monetary union known as the Eurozone. Countries, such as Germany, have thrived with the euro but nations, like Greece, have deteriorated since its adoption of the euro in 2001. The Eurozone was created in 1999 and currently consists of eighteen European nations united under the European Central Bank and all use the euro. The Eurozone has a one point six percent inflation rate and an eleven point six percent unemployment rate in 2014. Greece joined the Eurozone in 2001 and was the poorest European Union member at the time with a two point six percent inflation rate3 (James, 2000). Greece had a long economic history before joining the Eurozone. The economy flourished from 1960 to 1970 with low inflation and modernization and industrialization occurring. The market crash in the late 1970’s led Greece into a state of recession that the nation is still struggling with. Military failures, the PASOK party and the introduction of the euro have further tarnished Greece’s economic stability. The nation struggles with lack of competitiveness, high deficit, and inflation. Greece has many options like bailouts, rescue packages, and PPP to help dig it out of this recession. The best option is to abandon the Eurozone and go back to the drachma. Greece’s inflation and deficit are increasing more and more and loans and bailouts have not worked in the past. Leaving the Eurozone will allow Greece to restructure and rebuild

The Greek sovereign debt crisis has required multiple controversial bailouts; due to deflation and tense political that have caused Greek citizens to unsatisfied current economic condition. This is a large problem of economic stability and political unity facing the European Union. This study seeks to answer two main questions. Firstly, why should European Union help Greece bailouts its economy woes? Secondly, should Greece change its domestic economic policies in response to demands from the EU?

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.

This paper is concerned with the concepts of accountability; representation and control explain the euro debt crisis in detail. The author takes a deeper journey into the meaning of occurs of Euro sovereign debt crisis by use of definition of ARC to in-depth explain this issue. We propose further examination of the ARC relating to the Euro sovereign debt crisis in order to propose a prosperous and harmonious of Euro zone.

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.

In addition, the impact of moderate debt reduction on fiscal adjustment program is discussed. If one takes the baseline scenario, a moderate reduction in debt stock does not significantly reduce the degree of austerity required. This is probably because Spain is suffering from high levels of private debt of households, companies, and Spanish financial entities, which has majorly accumulated as a result of the large real estate bubble. After the property market crash, Spanish banks and savings banks have been dependent on the Spanish authorities and European Central bank for covering most of its losses. There is uncertainty about the scale of future losses and its influence on the government’s budget. Moreover, since the domestic banking sector has a stake of in the 40% in debt, reduction in the principal value of government securities may lead to large losses on the bank's balance sheet, and threaten the stability of the domestic banking sector.