The European Debt Crisis - Research Paper Example

The crisis accentuated the economic interdependence of the EU, as it highlighted the deficiency in the Eurozone’s political integration which was vital for the provision of a well-harmonized and effectual financial response. To ease the debt crisis and improve economic status, EU’s richest members encouraged the most highly indebted EU members to cut down on government expenditures and programs and to increase their taxes. Despite efforts, market instability continued until the end of 2011, thus questioning the future of the euro (Alessi).

This paper will discuss the European debt crisis and the mitigation measures implemented to resolve the issues. The European Debt Crisis The Maastricht Treaty outlined the conditions for European nations aiming to be a eurozone member by organizing its finances through guaranteeing an annual inflation not exceeding 1.5%; maintaining finance debits up to 3% of GDP; and keeping a debt-to-GDP ratio below 60%. The European nations agreed to tighten budgets by decreasing public expenditures and increasing tariffs.

However, the enforcement of the EU conditions was not strictly implemented (Wignall and Slovik). Since the 1930s, the European Union was in serious economic downturn with actual GDP expected to plummet by 4% in 2009, the biggest decline ever recorded in the EU history. While indications of improvement have been observed, economic revival stays improbable. The response of the EU to the recession had been fast. Besides the intervention to steady and restructure the banking sector, the European Economic Recovery Plan (EERP) was commenced in 2008 for re-establishing reliance and reinforcing demand by increasing the economy’s purchasing power through balanced tactical financial schemes and measures that would support the business and employment sectors.

The entire economic incentive and the outcomes of regulated fiscal stabilizers total 5 percent of European GDP (“Economic Crisis in Europe: Causes, Consequences and Responses”). The execution of crisis emergency measures by European members momentarily sustained the labor markets and heightened investments in the public infrastructure companies. To guarantee the economic resurgence and to continue the European nations’ future development possibilities, the focus must change from temporary demand administration to a long-term supply management, otherwise, it could hamper EU’s reformation or build damaging deformations to the Internal Market (“Economic Crisis in Europe: Causes, Consequences and Responses”).

European Crisis Mitigation Measures In 2010, the leading European nations implemented an emergency protocol to cease the mounting fiscal market strains arising from distress about the financial recovery of indebted European nations (Ahearn et al). Financial Aid to Greece, Portugal, and Ireland In 2009, existing alarms concerning the sustainability of household finances in some Eurozone nations started when the sentiments of financiers turned against Greece. Over the past ten years, Greece had loaned deeply in the global capital markets to sustain soaring government expenses, banking system inflexibilities, and deteriorating competitiveness (Nelson).

Access to funds at minimal interest rates and poor imposition of EU regulations regarding debit limits facilitated the onset of today’s European sovereign debt dilemma (Nelson et al). Greece, Ireland, and Portugal have been given considerable financial supports by the International Monetary Fund (IMF), the Eurozone and EU monetary