Introduction:
This article gives an analysis of the recession and the youth unemployment in EU. This gives much focus on the economy of countries like Spain, France and Italy in relation to their budget and the impact on the youth unemployment and the general effect on the economy. The article also shows measure taken by the European Commission in trying to curb the economic recession with help of various monetary and fiscal policies.(Basci,2007:19) The commission also gave the measures taken in relation to the debt crisis in Germany and the EU in general without much alteration of spending programs. Labor markets were also given focus in relation to the youth unemployment in the economy of the European Union.
The effective action to be taken with regard to recession has been discussed in length in order to curb the effectives of inflation in the whole economy of the EU. The appropriate economic policies which have been used in curbing various economic problems have also been elaborated in this article. (Basci, 2007:22) The fiscal framework used by the EURO zone is discussed in the article. The measures taken by the central bank is shown in the article as the means used to curb the effects of the recession in the economy of the EU.
Economic Analysis:
Monetary policies:
The EU has applied various monetary policies in curbing the inflationary effect that led to the recession in the economy. This involved control of money circulation through forces of demand and supply in the market in order to control the flow of money in the economy. (Buti, 2003:16) This is possible through the use of interest rates as well as lending rates in order to control the circulation of money in the economy. The lending rates for banks are raised during recession in order to discourage borrowing as a measure to reduce the amount of money in circulation. The central bank also raises the minimum reserve requirement such that the commercial banks have less amount of money to lend to customers. This will help ensure that the amount of money in circulation is reduced and this helps reduce the inflationary effects. (Carlberg, 2005:34).
The operation of the hard exchange currency helps in reduction of inflation due the decrease of the amount of money in circulation. This acts as the tool to reduce the recession by curbing the inflationary effect. The currency board insists on the use of fixed exchange rates since they are effective in curbing the inflationary effects thereby reducing the recession on the economy. The use of local currency should be emphasized in order to avoid the chances of imported inflation which may worsen the situation in the economy of the country concerned.
Fiscal policies:
The EU has put various fiscal policies in place in curbing the problems and effects of the recession in the economy. The main techniques or tools used relates to the cutting on expenditure in order to reduce the inflationary trends and effects in the economy. (Netušilová,2008:26). The government therefore puts much focus in imposing taxes in specific goods and services as a means of reducing their consumption in order to discourage spending as a measure to reduce the inflationary effects.
The government also considers reducing the government expenditure in order to reduce the amount of money that circulates in the economy and this in turn help reduce the inflationary effects in the economy. This will ensure that the taxes do not exceed the revenue of the government. (Semmler, 2005:17).
The government may also issue treasury bonds and treasury bills a means to reduce the amount of money circulating in the economy therefore reduces the inflationary trends which in turn helps in curbing the recession.
Conclusion and suggestion:
The use of both the monetary and fiscal policies has been of great help in curbing the effects of recession as well as reducing the inflationary effect in the European Union. Their appropriate application have helped curbed the problems such as debt crisis and youth unemployment in the economy.
References
Basci, E., Togan, S., Hagen, J., & Türkiye Cumhuriyet Merkez Bankası (2007). Macroeconomic policies for EU accession. Cheltenham, UK: Edward Elgar Pub.
Buti, M. (2003). Monetary and fiscal policies in EMU: Interactions and coordination. Cambridge [u.a.: Cambridge Univ. Press.
Carlberg, M. (2005). Monetary and fiscal policies in the Euro area: With 59 tables. Berlin [u.a.: Springer.
Netušilová, P., Hranaiová, K., & Západočeská univerzita (2008). Monetary and fiscal policies in the EU. Pilsen: University of West Bohemia.
Semmler, W., Greiner, A., & Zhang, W. (2005). Monetary and fiscal policies in the Euro-area: Macro modelling, learning and empirics. Amsterdam [u.a.: Elsevier.
