Essay on “Economic Crisis” (730 Words)

Ever since the economic crisis has hit the most developed and prosperous economies of the world, there have been experts trying to research and suggest all that went wrong. It is indeed comparable in magnitude with the Great Depression of the 1930s.

The turmoil began in year 2007 when financial institutions of large scales were threatened to face a total collapse. Many banks saw bailouts by national governments and stock markets across the globe went into bad state. The two bears Stearns Hedge funds collapsing in the summer of 2007 were categorized as mortgage crisis. This started an era of credit crunch, private defaults and huge layoffs in organizations.

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Globalization spread the crisis across the world and media began to cover it extensively. Writers and economy experts sought several reasons responsible for the financial crisis. While some attributed it to the global trade imbalances between the east and west, others held the expansion of “casino” banking in London and Wall Street responsible.

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Relating all the events that were behind this economic failure to a single aspect of political economy was what challenged various writers. British banking crisis that began with BNP Paribas’s collateralized debt obligations bag triggered the start of this economic turmoil that spread all across the world.

Economists at the time failed to see the obvious economic problems of today. Facts and studies prove that banking sector and financial globalization have given way to this economic downturn. Mr. Peston, the eminent journalist to become BBC’s chief editor was the one to foresee Northern Rock, a British bank busting. While British taxpayers had to bear a subsidy of as much as ? 914 per person, as per a report from a Bank of England economist, Andrew Headland; the stock performance had no impact on the spiraling executive pay as per a consultancy named Obermatt.

Not only banking but also housing market suffered a blow in some areas. Foreclosures, evictions and unemployment became a common affair. Many key businesses failed and consumer wealth went in loss for trillions of US dollars.

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Economic activity slowed down to an extent that from the period 2008 to 2012, a state of global recession was faced. European Sovereign was in a debt crisis in this duration. Some experts comment on the European Union’s model, the culprit. It concentrates all monetary policies in European Central Bank while the fiscal policy is left to individual member countries.

Member states cannot recover from the monetary policy levers. In scenario like one that prevailed where different countries faced recession differently, common monetary policy will benefit some countries and not others.

Greece was into debts even when it joined Euro in 2001. Joining EURO may have lowered euro debt rates, but economic boom brought no positive results as borrowing rate and interest rates remained low and debt went on going high.

Greece was in a deep buried financial crisis and the Prime Minister in 2010 had to ask International Monetary Fund and European Union to give them a rescue package. Inspire of the bailout given by the E.U. and IMF, the situation did not improve further and France and Germany had to declare another bailout package. Italy and California has lost natural resources owing to bad governance. ECB’s tight monetary policy has worsened the state of affairs in Greece, Italy, Spain and other nations facing debts and fiscal challenges. Spain and Ireland experienced real state bubble and their otherwise safe financial sector.

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Not only Europe but Asian countries like Japan also faced worst recession in recent times and had to struggle hard to rebound it. Problems with China and seismic disasters were challenges for Japan.

There are many consequences of a surprise in Euro exit for the countries which may think that it is solution. Before everyone would get their money out of the banks, exports and imports would shut down and lending of money would stop causing many firms to go bankrupt. Economic chaos would prevail and the effects would ripple entire Europe.

On the other hand, looking at the positive effects, leaving the euro would mean that a country can ignore the demands from the leaders of the other Euro nations. Long –term benefit could come to the weaker countries in the continent. The problem of crisis isn’t so simple to resolve and an excellent plan must be prepared by countries planning to leave Euro without having to suffer the ill effects at large.

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