The European Debt Crisis or the Eurozone Crisis of 2007 up to the present time is considered as one of the major declines of the European market since the inception of the European Union in 1993. What was considered an ideal move to unite the integrating the European countries into one currency, it became a disaster that has made these same integrating countries experience bankruptcy due to the depreciating rate of the Euro. Not only did the crisis escalate into financial debt and economic instability, it had also influenced as to how the European Union competes with the international market and find means to ensure the continuous survival of both the currency and the member countries experiencing bankruptcy. In recent news, the debt crisis has continued to spread throughout the EU, now on the verge of threatening other European nations and even the international community. Aside from Germany and France, which leads the negotiations on handling out bailout funds to the currently ailing European economies, the European Commission (EC) the European Central Bank (ECB) and the International Monetary Fund (IMF) are also aiding in the recovery efforts to ensure the continuous survival of the depreciating Euro.
As the Eurozone crisis continues to cause problems for the leaders of the EU, such as Germany and France, the troika – or the tripartite committee headed by the EU’s European Commission, the European Central Bank, and the International Monetary Fund – is also working actively to find solutions in resolving the debt crisis and assist Member States throughout the crisis. Collectively, the troika committee had provided drafts to assist in economic reform in the major hit regions of the problem such as in Greece. In the case of Greece, the troika had already pledged almost 240bn euros worth of bailout loans and provided a fiscal programme that would allow Greece to reach the targeted 4.5% of GDP by 2016. The Troika’s financial plan would also enable the country to moderate the impact of the adjustment given to the country, allowing the economy to settle despite the onset of changes. However, it is notable that the extension draft would still foster an additional 32.6bn euros unless the risks inside the nation, such as Greece’s political support to the programme . The triumvirate financial giants also took over bailout programmes for Ireland, Portugal, and Spain, guaranteeing almost $111bn for the rescue package. While the risks are still present over the nations requiring financial bail-outs, the troika still sees a positive assessment over the nations they support as the nation in question acts in compliance to the adjustment programmes provided. The troika stated that their assistance to the ailing European nations is working well due to the continuous action of the European leaders to resolve the crisis .
However, individually, the tripartite committee of the main actors in the Eurozone crisis had also contributed to the recovery programs for those in need of bailout. The European Union’s European Commission had found itself taken aback when the severity of the financial crisis had spread out throughout the Eurozone on September 2008. Back then, the financial and monetary policy of the Union was mostly reliant on the monetary policy operations to sustain liquidity from financial institutions from the freezing of interbank markets in 2007. Nonetheless, by the time the problem had escalated further, the EU immediately ordered all necessary changes to take place. On October 2008, the Commission had established a high-level group that would research and reconstruct the European financial system and ensure the continuous confidence to the Euro by global financial institutions and the European market. The group is headed by J. de Larosiere, and is supported by the various Heads of State or the Government part of the Euro area. The Commission also provided guidance for support to financial institutions across the region without calling for competition. The Commission had also proposed increased minimum insurances for bank deposits up to €100,000 and the creation of a coordinated European recovery action plan to aid bankrupted nations. On November 2008, the European Commission proposed a strategy on improving credit ratings and how it is given to the member countries. The EU had also provided a medium-term financial assistance to Hungary amounting to €6.5 billion. The European Commission had also adopted the region’s Economic Recovery Program (EERP) on December 11-12, 2008, which would aid economies by reducing the main refinancing operations. On December 2008, the ECB and the Commission had maintained the reduced Refi rate set by the EERP, allowing the EERP to be approved by the European Council.
In January 2009, the Commission had adopted decisions that would increase the power of the supervisory institutions under the European Union to assist in improving the financial market, as well as supervisory cooperation between Member States for financial stability. The new policies set by the Commission enabled financial institutions to benefit from a clearer financial framework and decision making. By February, the EC had provided guidance to the EU banking sector to enable them to create asset purchases or insurance schemes that would treat impaired assets. The de Larosiere Group had also advised transforming the supervisory councils for the EU financial markets into European Authorities that have additional influence to coordinate and assist in improving financial institutions. The Commission had also released a Communication on March 2009 outlining the de Larosiere recommendation that would improve financial market reform for the Eurozone. EU leaders had also agreed to speed up legislative proposals to enable the EU financial sector to sustain changes set by the EU. Following the communiqué in March 2009, another communiqué was released in April 2009 that addresses the need to support the Member States’ tax revenues and transparency. The communiqué also stated that the improved tax revenue policy would allow further tax competition throughout the EU and in the international level since it would open up transparency. The EC also proposed ambitious reforms that would reconstruct the organization of financial services throughout the EU. In July 2009, the EC released another communiqué that outlines the risks involving derivative markets. The Commission proposed additional revisions in the banking sector, allowing stronger rules to sustain bank capital. The proposal also covered a simplified management of the European Union’s funding in addressing the crisis. Several asset relief schemes were also approved by the Commission .
The Commission had also proposed two new Regulations in 2011 which would cover additional strategies to strengthen surveillance mechanisms and economic integration for the Eurozone. It would also be a supporting mechanism to the proposed ‘Six Pack’ legislative measures proposed in September 2011. The ‘Six-Pack’ legislation measures would strengthen procedures to reduce the imbalances caused by public deficits.The first legislation covers special provisions to members which needs to undergo an excessive deficits procedure. The second legislation covers rules to ensure influential surveillance policies for the EU. The rules would cover three cases: countries facing financial difficulties due to debt and bankruptcy, for countries in receipt of financial assistance, and finally, for countries that would be exiting the assistance packages. The additional regulations set by the Commission would require Member States to present their budgets each year for assessment and await for the opinions of the Commission. The Regulations would also also enable the Commission to decide if a Member State should be subjected to surveillance and issue recommendations for the Council to take into consideration before offering financial assistance .
Established in 1992 with the mandated European System of Central Banks under the Maastricht Treaty, the European Central Bank sustains the goal of the Maastricht treaty to create a European Economic and Monetary Union. By January 1999, the ECB took over the responsibility in creating a unified monetary policy in the Eurozone and paved the way to its application in 2001. As a key actor in the establishment of the European Monetary Union and the EU’s monetary policy, the ECB is tasked to monitor and regulate the entire Eurozone. When it acts in the international financial diplomacy market, the ECB has full powers to make a stance on issues. However, it is notable that the ECB does not have all European countries as its members due to some nations still using their own currencies and there are also other EU central banks that could influence the European position on the financial sphere, such as the Bank of England. Throughout the financial crisis, the ECB had acted autonomously to increase liquidity of the Euro since August 2007. The liquidity move enabled the Euro to stabilize in terms of its interest rate, as well as enable the ECB to act with fellow central banks to provide stimulus funding that would allow the banks to counter the deflation settling in the European economy. The ECB’s stabilized interest rate had also stabilized the Euro’s exchange rate .
However, many had stated that the ECB action in the Eurozone crisis is a cause of debate between policymakers as some had argued that the ECB must remain the lender of last resort to sustain the aiding Euro much like how the U.S. Federal Reserve and the Bank of England work throughout the financial crisis. However, experts observed that the ECB cannot act as a lender of last resort given the lack of a fiscal union within the Eurozone and the ECB, for it to influence on the on-going crisis, it must buy government bonds from treasuries and accumulate several risks in the process. Throughout 2011-2012, France had continued calling for the ECB to play as the lender of last resort but Germany had kept blocking this appeal due to the notion that the ECB may only foster bad debt habits and led to debt mutualisation. Nonetheless, the ECB had continued to show its willingness to step in risky ventures that other financial institutions would never dare step in, but it also knows as to where the ECB could act upon under their mandate. The ECB enacted its Securities Market Program in 2010 in Greece to purchase government bonds, which was also extended to Ireland, Portugal, Spain and Italy through 2012. The bond purchases enabled liquidity to ailing Member States and allowed them to bring down the borrowing costs attached to major economies. The ECB then launched a Long Term Refinancing Operation (LTRO) in December 2011 to allow $640 billion worth of inexpensive loans to almost 523 EU banks. The LTRO was extended on February 2012 for a second round, enabling 800 banks to gain loans from the $712 billion allotted budget .
Finally, the IMF or the International Monetary Fund immediately involved itself to the rescue programs to aid the European Union to stop the growing deficit and debt. Hungary had immediately requested a Stand-By Arrangement (SBA) from the IMF in October 2008, which is then supported by the EU. The package that was given to Hungary had amounted to €20 billion, with the IMF sustaining €12.3 billion). The Hungary program is one of the first joint EU/IMF-programs for the Eurozone crisis. Shortly after the Hungary SBA program, the IMF had provided Latvia in December 2008 its own SBA program. Romania had followed in March 2009 with a SBA amounting to €13 billion loan. By the time Greece had showcased signs of deficit and debt, the IMF immediately worked with the EU to provide an economic adjustment program and financial aid to Greece. Eventually, with the other European nations succumbing to the same collapse throughout 2008-2009, the EU and the IMF had created collective action to provide financial support. The IMF offered a Stand-by Arrangement to Greece in May 2010 worth €30 billion. For the second round, the IMF and the EU would be providing an estimated €130 billion worth of aid. Ireland had also been given a financial assistance over €22.5 billion and an Extended Fund Facility arrangement in November 2010 that would allow Ireland to pay its debt. Portugal had also received a similar arrangement in May 2011 with financial assistance over €26 billion and the EFF. As the debt crisis escalated to Spain and Italy had been affected by the debt crisis. In November 2011, Italy had approached the IMF to monitor its economic progress while it tries to improve its economic standing .
However, analysts have stated that the IMF’s role in the European debt crisis would be an uneasy role given the deficiencies of the IMF to have its own financial heft to aid larger economies like Spain and Italy without additional assistance. The IMF, according to Frederick Erixon of the European Center for International Political Economy, should be able to act upon issues that they could control without condition. Some have also stated that the IMF involvement in the Eurozone crisis would be politically dangerous since some political leaders would not be able to accept the IMF involvement since the IMF would be monitoring their economies, alongside the other troika groups, if they are following the economic adjustments filed by the group. The IMF may also find itself in the receiving end of the political ire of nations such as Spain and Italy, which may find their interference against their political culture and sovereignty. Nonetheless, it is visible with their partnership with the other Troika members, the IMF is capable of adjusting to the needs of the Eurozone and still sustain other commitments to other nations around the globe .
It is still undetermined whether or not the European Union, alongside the EC, ECB, and the IMF, would be able to reconstruct and strengthen the European market due to the continuous decline of the Member States. With Greece and the first few nations that had declared bankruptcy still in the verge of needing more bailout funds and the still on-going recession taking place around the globe, the troika would have to reassess as to how they could handle giving out bailout funds to these ailing nations and still sustain aiding the other nations in need. The EC must be able to create contingency plans that would sustain EU’s competitiveness and at the same time, a stronger financial scheme that would enable the ailing nations recovery with the help of the bailout funds. The ECB, on its end, must sustain policies that would continue stabilizing the financial status of the Eurozone, the Euro member nations, and the overall rate of the currency to sustain its aid. Finally, the IMF should assist the EU and the ECB actively in resolving the crisis. The Euro Crisis may take a while to be resolved; however, with the troika aiding in the recovery of the Union, recovery would still foster even if it is a slow progress.
References
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