- Published: October 31, 2021
- Updated: October 31, 2021
- University / College: University of Nottingham
- Level: Undergraduate
- Language: English
- Downloads: 22
The European Economic Crisis What Are the Underlying Causes of the European Economic Crisis? International finances have become an important factor in the global economy and the financial health of one country can directly affect the prosperity of another especially when the said country is largely involved in joined business relations that drive each other’s economy. A good example of this can be seen in the current economic crisis that is being faced by the Euro zone at the moment. Though not every country in the European Union is facing financial hardships, the trials that members such as Spain and Greece are undergoing have affected its fellow members in one way or another, especially those involved with the Euro currency and thus, the European Union has taken it upon itself to come up with measures that will successfully resolve the matter.
However, to understand the issues being faced in the crisis, one has to first determine the underlying causes that were responsible for the European economic crisis in the first place. Though a number of factors can be said to have been put into play, one major cause is the poor management of the banking systems in countries such as Spain, which left them in dire need of assistance to maintain their operations and remain afloat. This occurred as a result of factors such as lenient lending policies that led to a huge number of defaulters as the economic situation worsened in these countries, meaning the banks were not able to get their money back. The recession that is being faced worldwide also played a big role in the development of the crisis as investors were no longer willing to risk delving into the market due to the fear of losses.
What Were the Outcomes of This Crisis?
The crisis led to a number of outcomes as various markets were affected and were not able to function sufficiently due to the lack of investments. Banks that were not able to regain their money collapsed and even the major ones stumbled as a result of the defaulters while the Euro also dropped in value as a result of people choosing to switch to more stable currencies in their business dealings.
Assess the UK Current Position Towards the EU and Euro?
Though the UK supports the recovery of the Euro, the steps that have been taken by the European Union, such as the formation of a Single Supervisory Mechanism (SSM) for all banks, may lead to a fading influence of the UK in the Euro Zone. The development of these bodies may lead to the interests of the UK being ignored or overlooked during the voting process on various decisions as the bodies focus on what will help the member states rather than the interests of the UK.
What Could Be the Effects of the UK Position on the UK Financial Sector?
As a result, the UK has requested for financial safeguards that will protect the powers that the Bank of England holds, which, if not met, may result in Britain pushing for exit from the European Union. This may affect the UK financial sector as most Euro dealings occur within its vicinity, and if this reduces, it may have a similar effect on the business dealings that take place.
The Impact on Other Businesses
Other businesses such as banks and even retail shops may be affected by this outcome as the use of the Euro goes on the decline in the UK, which may lead to a potential loss of jobs. The best solution would be a quick resolution to be reached between the UK and the European Union, which will serve both interested equally to avoid an economic fallout.