The impact of the crisis - Essay Example

It has been found out that the cause that resulted in such a drastic financial condition was the excessive borrowing that the countries belonging to the Euro zone had undertaken. Adding on to this problem there was lack of competitiveness in specific countries of this zone which resulted in the imbalances in the trade of these countries and also an increase in the current account deficit. This led to a weakening of the financial condition of the banks and they had problems in getting any further funding.

Hence the credit and cash crisis in the country set in. While in Greece the problem surrounded every aspect of the economy in the countries like Spain and Ireland the problem was solely linked with the crisis that took place in the banking sector due to the unavailability of credit. This essay would look into the various aspects of the financial crisis that have taken place in the European Union and the effects of such liquidity crisis on the financial markets of these countries. The crisis in the Euro zone had far reaching effects on the entire world.

Background of the crisis Most of the economic systems of the world are interconnected and therefore any adverse situation in one country would have its effect on the other countries as well. . 726-741). The major problem that the countries faced was a common monetary policy but a different fiscal policies for each of the countries since the countries had different sets of government. The European Union was formed with a motive of maintaining a uniform monetary policy in all the member nations of the EU.

The nations included in the list of the nations in the EU would have a common currency known as the Euro and it would be circulated over the borders of these nations. The main motive behind this process was bringing in all the countries of Europe in the same platform for international trade and to increase the intensity of competition. This in turn would increase the domestic production of the countries and would add to the GDP of the individual nations. In the previous days most of the East European countries followed the communist ways of governance.

The EU would ensure that that the market economies structure along with free trade and competitive atmosphere is introduced in the country. The Euro Crisis was a combination of a debt crisis, lack of competitiveness and a banking sector credit crisis. The credit condition of the countries during this time was at a worse situation. The Monetary union of the European nations made a provision to the countries for guaranteeing loan for each other (Galil and Soffer, 2011, pp. 3101-3119). Since most of the nations lacked the creditworthiness due to the shortage of immediate cash and the financial conditions of the countries were intertwined, the entire Euro zone fell under this debt trap.

Therefore along with the countries with adverse budgetary conditions, the ones which had proper condition of public