European Debt Crisis Essay

1. What is the European Crisis all about, especially on the Greece situation?
The European Debt Crisis is the failure of the Euro. Over the last years,
Greece, Portugal, Ireland, Italy, and Spain are on the brink of a financial
collapse. Their dire situation poses a threat of an economic meltdown, not
just to the continent of Europe, but to the rest of the world.
The crisis began when the global economy experienced slow growth since
the collapse of USA Housing Market. Borrowings ceased, and several
economies cant function well. This event exposed the unsustainable fiscal
policies of European countries and other countries around the world. Even if
the European Central Bank is imposing monetary policies over the European
countries, each of these countries fiscal policies are not parallel with the
ECBs monetary policies. The main problem then lies here.
The first ones to feel the impact of the crisis are those countries that have
unsustainable fiscal policies. They suffered weaker growth than the others
who have exercised thrift fiscal policies. One of the countries that are
greatly hit by the crisis is Greece.
Greece has embarked in huge deficit spending programs. This means that
it has spent more money than its collections. It has also borrowed a lot of
money to pay for their programs. Their programs include high retirement
benefits and pensions. It also has a problem with tax collections. Majority of
its citizens never pay taxes. So, even before the crisis, it can be concluded
that Greeces tax revenue is low.
So, during the crisis, Greeces growth slowed down even more, and
caused the tax revenue to plummet further. By this time, Greeces debts
were so large that they actually exceed the size of the nations entire
economy, and the country could no longer hide the problem. And not only
that; this problem also affected the rest of the Euro Zone.
Investors responded by demanding higher yields on Greeces bonds,
which raised the cost of the countrys debt burden and necessitated a series
of bailouts by the Euro Zone and European Central Bank (ECB) because
Greece shares the same currencies with the countries in the Euro Zone. The
markets also began driving up bond yields in the other heavily indebted
countries in the region, anticipating problems similar to what occurred in
Greece.
2. What are the issues concerned on the financial market and ECB?
a. European countries have a long history of war
The long history of war between European Crisis built trade barriers
between them. Many years back, before the establishment of the Euro
Zone, in order to trade, they must pay a fee to exchange currencies,
then another fee to pay tariff in order to buy and sell. The economic
growth was very slow during that time. History has shaped the present,
including the way these countries relate with one another, up until
now.
b. Unparalleled monetary and fiscal policies
Monetary policy determines the money supply, and the interest
rates for borrowing funds. Fiscal Policy determines how much money a
government can collect and spend. Today, even if the money is supply
is determined by the European Central bank for the whole Euro Zone,
each country in the Euro Zone is responsible for its own fiscal policy.
The crisis existed because of the unsustainable fiscal policy of some
countries. Some countries are thrift, while others just keep on
borrowing and spending more, but collecting less.
c. Collapse of USA Housing Market
The collapse of the USA Housing Market stopped all the borrowing of
funds in Europe. There was an economic lockdown in it. Greeces
economy stopped functioning. It cant borrow money to pay for its
deficit spending programs. It cant borrow money to pay its debts.
Since it cant pay its debts, its lenders also suffer the consequence by
becoming weaker. And since the countries of the Euro Zone share the
same currency, Greeces problem is everyone elses problem as well.
d. Cultural Differences
Germany has been a responsible spender of money. They do not
embark on huge deficit spending programs. They meticulously collect
all taxes from the people. And they have been very careful in
borrowing money, and spending these borrowed funds.
Greece, on the other hand, has embarked on huge deficit spending
programs, like giving generous retirement benefits to its workers. It
also has a problem in collecting taxes imposed on its citizens. Only a

few people pay their taxes.
3. What are you in favor of? Why?

I am in favor of establishing a United States of Europe as a solution to the
European Debt Crisis. The main cause of the crisis is the absence of a body
that will regulate the fiscal policies of all European countries, and make sure
that the fiscal policies are parallel with the ECBs unified monetary policy. A
unified fiscal policy would have been able to prevent this crisis.
This solution might seem hard to achieve because, first of all, the
countries in the Euro Zone will have to give up their sovereignty to a higher
body. It might sound simple since these countries share the same currency,
but its not. Yes, the share the same currency, but they also share a history
full of war and conflict. Even today, there are armed conflicts in Europe.
However, instead of dwelling in the past, they should just think prospectively,
and solve the problems that currently exist. Otherwise, the problem will be
big enough and they will never solve it.
During the World War II, Germany tried to take over Europe, and the rest
of the world. Now, as Europes most powerful country, Germany seems to
babysit other countries with huge debts by bailing them out. It might seem
unfair for Germany because these countries might just say Ill just borrow a
lot since Germany would just bail me out if I get in trouble. But, then again,
they just share the same currency, and the problem of a country in the Euro
Zone is the problem of the whole Euro Zone. And what if Germany cant bail
out for others? The economy will fail, and dragging the rest of the world with
it.
If there is a unified fiscal policy, no one has to bail out for another, no one
can embark in huge deficit spending programs, and no one will accumulate
debts that exceed the size of the economy because everyone will be
responsible in handling money. Also, future problems that arise from the
absence of a unified fiscal policy will also be prevented.
There are other alternatives to be considered. First, they could just make
the Euro disappear, and theyll just go back to their old currency. But, if this
happens, the weaker countries will be more exposed to economic meltdown,
especially if that country has an existing debt. And since they have a long
history of war, there is a tendency that another one will occur after dissolving
their union. Second, Germany will bail out countries with debts only if they
adopt Germanys Austerity Measures. But still, there is no assurance that the
countries bailed out by Germany will abide by such conditions. So, of all
solutions available, the establishment of United States of Europe brings more

promising long term benefits.

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1. What is the European Crisis all about, especially on the Greece situation?

also has a problem in collecting taxes imposed on its citizens. Only a

3. What are you in favor of? Why?

solutions available, the establishment of United States of Europe brings more

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