European Debt Crisis: Facts and Realities - Coursework Example

He stated that “Europe faced a “moral crisis” as much as an economic crisis and hence “European leaders needed to make up their minds on the type of union they really wanted” (Beesley 2013). According him, there was a need for “radical economics” and a “radical rethink” of how Eu leaders were handling the economic crisis” (Ibid).

The debt problem was generated as a result of so many complicated factors from different sectors of the Eurozone. The introduction of the Euro or the formation of monetary union, without uniting the fiscal policies of the countries was one among them. European Union did not give proper attention to confirm whether the member states were obeying EU’s rules and regulations and during the crisis they also accepted the high budget deficits by many countries. The global recession of course has a role in the problem from the year 2008 to 2012. The debt crisis faltered the lending and economic growth because of the bank’s liquidity problems (ACCA 2012). The loans made to both governments and private organizations had assumed certain levels of growth when these expectations failed problems arose regarding the repayment and servicing debts (Ibid). In general, problems from the banking sectors had caused remarkable effects on the whole European economy.                    

 The rating agencies utilized the crisis occasion in a way that led to the rise in bond yields and tensions in the bond market and also made the government hesitate in raising money because of the distrust on creditors about the payment. European Politics had a sound influence on worsening the debt dilemma. Different political parties with different ideas and suggestions always created conflicts between the decision-makers. Germany went ahead with its austerity-led strategy to deal with the crisis and also protected against the anti-austerity parties through their strikes. The responsible authorities or leaders could not take relevant measures at the right time in order to tackle the problem, and it spread uncontrollably. The decisions made by them seemed to be unsuitable and non-practical.

The European Union’s attempts to find proper solutions for the debt crisis resulted in increasing the minimum level of bank capitalization in order to make capable of handling future problems (ACCA 2012). Another step forward by the EU was the formation of the European Financial Stability Facility (EFSF) to raise funds needed to provide loans to the European countries and later developed a mechanism in conjunction with both EFSF and Internal Monetary Fund for the same purpose (Ibid). As the banking section was founded to be a key solution for debt crisis management, the European Central Bank decided to assure low-interest rates to aid and boost economic growth and tried to solve problems regarding liquidity by bringing government and private debt securities to the open market. But ECB lacked other important options like forming a fiscal union or banking union. Internal Monetary Fund is also lending money inappropriate manner joining with EFSF and they are expected to do much more in upcoming years. Morris Goldstein, a former deputy director of research at the IMF said that “If the IMF wasn’t participating at all, the crisis would have been worse” (Eving 2013). While IMF had insisted that the aid recipients must cut government spending and raise taxes Ms. Lagarde the Managing Director of  IMF  has been arguing that “too much austerity could be counterproductive”; and in her opinion, the German views on “the degree of austerity that should be imposed on countries like Greece and Portugal” needs to be moderate (Ibid).

To sum up, the European Debt Crisis has been a major threat and a severe headache for the European Economy for the past four or five years and it is advisable for the whole European authorities to uniquely find out a perfect and permanent solution as early as possible. The latest conclusions and assumptions made by the experts seem to be on the right track but still, they all will have to work hard for the total removal of the debt dilemma. The activities of the European Union and its Institutions have saved the economy to a particular extent and they yet have to be advanced.  As united by the currency Euro, countries are likely to move honestly on unique and definite rules, and violating it should be considered as a very serious issue. By grasping lessons from the previous experiences, and by devising the right tools, it is possible to entirely eliminate the Dept Crisis before it affects our more future years