The Role of the European Council - Scholarship Essay Example

The role of the European Council The role of the European Council Introduction The aim of this reportis to analyse the role of European Council in the financial crisis of 2007-2008, when the banks were bankrupt, and the countries were facing a great depression. Moreover, the actual and potential growth was badly affected due to the financial and economic crisis. The report will provide the information about the role of the European Council. What roles and implementations were made by European Council in order to overcome the depression by providing budgets, policies and suggestions to the member of European Council under the governance of European Union are discussed in this report. European Council The European Council was formed under the law of the European Union. It was founded in November 1, 1993. It is a union with 28 members worldwide. The members of European Council are a part of European Union, and they are located mostly in Europe. The members of European Council are involved in the entire world to support development and reduce poverty. Its role is to bring peace, stability, and prosperity in Europe. Herein, it should be noted that EU has helped the nation to raise the standards of the living and also launched the European currency named Euro. European Council is under a union of peace speakers who develop and provide humanitarian and rebuilding caused by conflicts and natural disasters. The Union is progressively achieving its target by acquiring wide free market of Europe for goods, services, people and even capital. European Council under the governance of European Union is putting its efforts in maintaining and bringing peace in the countries, which are devastated such as Afghanistan. European Council supports the idea of bringing peace in the entire world1. To bring peace and prosperity, the members of European Union arrange a meeting for discussing the agendas and issues faced by a country two times in a year. In this meeting, the agendas and implementation to the problems are discussed for the near future. European Union does not acquire the power to recommend any new law or legislation, but European Union is authorized to pass any new law. For this purpose, the method of voting is used where the members of the council vote to agree or pass a new law. The council is also authorized and acquires the power to allocate the budgets to impose a law or to deal with a trouble, and this decision is also made through voting2. Financial crisis 2007-2008 The financial crisis affected greatly to the economy of EU essentially because of the large financial institutions implemented the same model of business operated by the United States before the great depression3. The depression started in the United States economy in the second half of 2006 with a quick rise in the losses of banks occurred by mortgage foreclosure. The reason of depression was that the large banks of Europe and US adopted and implemented the same business model and both countries faced similar distress. As a result, large banks of the country found themselves undercapitalized and holding inadequate liquidity4. The report discusses the financial crisis or financial crisis of 2007-2008 and the majors taken by the European Council, European Union, and its member countries in order to overcome the financial crisis and its effects. Role European Council in Financial Crisis The European Council has greatly helped when the world’s major economies were hit by the great depression in 2007-2009. The role of European Council was indeed very important in the financial crisis. When the ministers and authorized persons were unable to bring an agreement to the problem and every country was engaged in saving itself and by this act, aggression was created among the countries. In order to avoid further aggression and hostility, European Council was playing an important role for conducting meetings among the ministers of affected countries so that the crisis could be dealt by mutual understanding and at peace5. The European Council became a platform where the ministers explained their financial conditions and EU advised them on the crisis and bailed out of the condition. The main role of European Council in the financial crisis was to gather the ministers at one place where they could interact and reach a solution factors6. In order to overcome the financial crisis, it was decided by the European Union that special power should be allotted to the European Council. This method would allow the European Council to have many different choices and the authority to consider a better approach and suggestion to the Union. To overcome the financial crisis, European Council under the governance of European Union aimed at observing the situation first and then allotting budgets and suggestions to the members of European Union. The role of European Union was significant during the great depression, and it is still playing a great role in the world facing different challenges7. EU Governance on Financial Crisis The unmatched crisis of the euro zone plagued the area for the time of three years, which triggered the financial, social, and political crisis. As the unstoppable crisis emerged, European Union kept changing its long term and short policies from time to time, European Union continuously upgraded its efforts and policies with more effectiveness and more long term plans8. European Union took exceptional measures to relief the world out of the crisis. When the crisis started the European Union disposed of off the revision of the traditional rules and policies, which were blocking the member countries to overcome the crisis and financial downfall. EU collaborated with IMF in order to provide loans for the affected members. EU not only rescued but also builds a firewall next to the financial disaster by building the European Financial Stability Facility (EFSF). EU established the facility and kept upgrading its efforts9. European Union continued enhancing its long-term regulations and systems, which were blocking in overcoming the disaster. In 2008, when the financial crisis began, European Union and the member countries implemented the measures to impede and overcome the financial crisis10. Monetary policy also is potent and helping the country to overcome the crisis. European Union improved the monetary policy, which helped the country in managing the risk to defend the nation from the effects of the crisis. Monetary policy is considered more powerful and effective compared with the normal time. It can help a country by conventional and nonconventional means to reduce downfall risks of financial disorder and disruption11. Impact of Financial and Economic Crisis on Growth One of the major issues is that these financial and economic crises impacted the actual and potential growth. It is a one clear and big issue that happened because of the financial and economic crisis of 2008. It will not be incorrect to state that the financial and economic crisis had various consequences and negative impacts on the economy of Europe. Financial crises weaken the investment opportunities that impact the potential growth and development of the standard living in the long run. To gauge economic slack, the output of the potential growth gap will define the level of growth. If the level of the potential output is estimated, it can be said that there is risk involve in the financial crises, which can be estimated for lower potential output by around 1.5–2.5% on average12. While discussing projections for potential economic growth, it can be said that prior crisis typically predicted potential growth in Europe. The growth rate slowdown due to the financial and economic crisis and it weaken the structural reform because of adverse effect of potential growth. The potential output and growth was affected by the monetary policy13. It is a fact that the financial and economic crisis in any country or region impacts the potential growth of the county. It leads many issue and problems that can become a reason for the lack of demand in the market and accelerate unemployment. Moreover, financial distress results in less output14. Few of the impacts are known as major factors of financial and economic crisis consequences. Growth is dependent on wealth of individuals and business that control the demand of the market. Financial and economic crisis impacted the actual and potential growth of the Europe. However, it was controlled by the monetary policy. Mechanism of monetary policy worked in a positive manner for the European Council. The reason of generating the monetary policy was to control the actual and economic growth of EU. For the growth of the economy and country, it is necessary that there must be any policy that can increase the level of the economy, and it can provide a chance to improve the businesses of the country. In order to increase the business and to control the downfall of the business the monetary policy worked to sustain the actual and potential growth. According to Columbus research study, it can be said that there are some other factors as well that caused the actual and potential growth15. Financial and economic crisis in connection with the potential growth, unemployment issues and global imbalances impact economic activity of Europe. The major impact on the economic activity and the potential growth was because of the financial and economic crises16. In addition, it can be said that the financial crisis had a pervasive impact on the economy of Europe. It led the adverse effects on the loan books and credit supply. With the collapse of the world trade, the business investment opportunities were declined, and the potential growth level was decreased. To sustain the growth, it was essential that the business investment opportunities remain positively open. One of the factors is that the credit losses of banks that impacted the potential growth of the market. With the export dependency of the economy and the actual growth level, the fiscal and monetary policies were designed by the European Council17. Where, it was focused that the long-term benefits should be considered. To attain the economic balance sustaining the potential growth was the first step by the EU. The risk of deflation also impacted the level of output. Deflation was the factor that drastically caused low growth and output. It badly affected the actual and potential growth of the European countries. To deal with this deflation factor and other factors, if the effective supply of the labour and capital stock work together then the potential growth can be sustained. Therefore, to control the growth of Europe the European Council decided to design the prevention strategies and policies. To deal with the potential growth issues, the European Council focused on the monetary policy. In addition, the European Council under the governance of European Union planned a budget too18. With the help of this budget EU Council supported the European countries. The credit losses of banks were also a major issue that affected the potential and actual growth of the banks and economy as a whole. The Financial Crisis in Economy of European Countries Those crises, which affected the economy of the European countries, were regarding the financial sectors. The financial sector could be significantly control through the monetary policy. Monetary policy refers to the money supply, credit facilities, and public borrowing. Monetary policy is the policy that is regulated by the Central Bank on the permission or advised of the government19. The important issue was that different states of the Europe use to adopt different monetary policy. Some of them were adopting tight monetary policy and were not providing long-term loans to the manufacturers or huge investors. Others were applying loose monetary policy and provide the long-term loans to huge investors. Although it is not necessary that all the states should adopt the same strategies, if the States as a whole is trying to come out of the crises and make a potential growth in the economy they have to adopt same policy20. Few states of the Europe were applying the strategy to provide long-term loans without seeking the potentiality of the business to pay off the loans. The European Council putted an effort to bring the members states on the table to overcome the crises that were generally because of the different in policies of the state. The council succeeded in bringing the majority state to identify the weaknesses and solutions to the problem. The European Council as a whole was agreed at the point that the difference in strategy had created the crisis21. The European Council realized that there is a need of some governess system. The system will provide help in making all the state policies at one forum. The policies would help in overcoming the crises and protecting the European Countries from the recession phase22. It was the reason due to which the policies were designed to sustain the economy and potential growth of the banks and economy. The Impact of the Crises on Economic Growth and Other Factors The impact of the crises could be clearly defined in a way that if the central does not properly regulate the monetary policies or if the States were not working on the similar policies, it could be harmful for the government to control the economy. The debt burden was creating on the states that were then realized by the states. The banks were defaulting and were creating a threat of being bankrupt23. The banking system is most important for the economy to run smoothly. The crises make an impact on the factors other than economic. The level of output became to decrease and the factors of production including labour, capital and technology were also affected by the crises in the economy as a whole. The crises put an effect on the implication of long-term growth as well as on fiscal policy of the country. Stocks of financial crises make impact on the actual economy and subsequently put an impact on the potential output24. The Credit Losses of the Banks Different monetary policies adopted by the countries resulted in the lack of recovery of credits. Most of the banks became defaulters, and they were unable or had difficulties in recovering the losses. The regulatory system is necessary to be followed by the countries as a whole so that the crises in one part of the economy could be recover from the other part. The credit losses affect the banking system badly25. The regulatory banking system can provide help in making the banking system stronger. The banking system is at the core of the country’s economy, and it should be worked in a systematic form. As the system would affect the economy at large, and there is a chance of recession. It is clear from the history of European economy that crises of the banking sector had severely affected the whole economy of European countries26. Requirement of the Policies by European Council The European Council supported banks of the different countries of the Europe to provide the loans to the public at large. There was very weak system of recovery of the loans. The loans were provided on the basis of weak background or not enough inquiries were made that the recovery is possible or not. There were other crises that were harmful to the banking system, but the disaster seemed to be in the long-term loans. The government felt the importance of some strict regulatory system to overcome the crises at that time as well as to the near future. The policies made by the Europeans were beneficial for the economic and governance system of Europe27 Role Played By the European Council National governments and the European Council took some necessary steps in order to overcome the crises at large. They were agreed on mutual understanding that there should be a comprehensive reform of the governance so to overcome the issues that seem to be occurred in the near future. They agreed upon the point that the policy coordination between the member states needs an improvement. It was the step that was to be focused while concerning the economy and growth as a whole. The coordination is an essential factor to run the countries economy. This coordination had started to work from the beginning, and the Parliament signed the legislative package called Six-pack in order to make governance for economic sector28. This package is helpful for the fiscal policy because it could provide stability and growth, which will strengthen the governance system and the economy of the European countries29. The main area of the issue was discussed specially for the member states that were not working on the uniform and common policy. They were mutually agreed on the targets for their budget deficits. The problem of the budget deficit arises when the expenditures exceeds the revenues of the state30. The European Council, government or the central regulatory banking system started to finance states and provided them the strategies to come out of the issues and deficits. The budget financing will help the state to come upon the same position so that they could be able to take part in the economy. However, it is important to note that the budget financing should be in the areas where it is required. The central regulatory policies adopted the control of the budget deficit. It was decided on the floor that the public debt levels will be similar for all the states, and no state would be allowed to terminate the regulator of providing public debts31. The members of the States also recommended making new policies for the long-term stability and potential growth in the weak sectors. There were many states members in the meeting that were following the strategies and policies to run the state affairs smoothly. Some of the members were applying weak monetary policy tools for their states. It was advised to them to follow the regulatory policy or to adopt any other similar policy to achieve the goal of the sustainable economic growth of the state. They were also suggested to improve their policies to set aside with the other states32. The different state members realized that if they have to move along with the other state policies it will help them to get the tools how they could improve their regulatory / monetary policy. The already adopted monetary policy of the other state is helpful, but it coincides with the drawbacks because the economic conditions of the different states might not be the same. The overall policies decided were very beneficial for the economic growth of the European states. The near plans were discussed in the council to counter the drawbacks that could come out through adopting these policies33. The government in order to maintain sustainable economic growth and to improve the performance of the financial sector adopts strict policies. There should be strict check on the policies of the government that all the sectors of the economy are working upon the same strategy or in some cases on their respective strategies. The government plays a vital role in the development of financial sectors because the financial sector helps the economy to run smoothly34. The policies made by the central government or central bank of the country should be followed and applied by all the financial sectors of the economy. The central government should regulate on time basis the strategies and policies of the economy. The duty of the central government is to inspect that all the sectors are working in the same strategy. If some sector needed improvement or changes in the strategy, it is the responsibility of the government to supply available resources to that sector and regulate the economy as a whole. Upon carrying out this activity, the government will be able to achieve its goals. The government objectives include sustainable economic growth along with the control of the economy35. Other Factors Related With the Monetary Policy The monetary policy could help the government economically as well as provide benefits to other sectors. For example, the application of loose monetary policy will help the small investors to get loans at demand in large. It is required that the policy should be loose to protect the domestic industry or to finance small-scale industries at large36. The opportunity cost of the loose monetary policy is inflation. If the government wants to create employment and reduce inflation it, can change the policy into tight monetary policy. The policy could be adopted according to the situations and could be a change according to the situation in the near future. The choice of the policy is to be determined on the basis of the situation or plans of the centralized government in order to maintain economic growth to move forward with the crises comes in the middle37. Monetary Policy Along With the Fiscal Policy Monetary and fiscal policy is inter-related. The objectives of both the policies are similar that they work for the improvement of the economy. The crises occurred could be solved through the monetary and fiscal policy as a whole38. The application of the monetary policy will also put effect on fiscal policy and vice versa. The economy needs to be policies like these two to control the threat of being in a recession, or there should be goals to set before the application of these policies. Both the policies can be compiled or applied on an individual basis. The government is not only concerned with the financial sectors, it has to work for other sectors, which are providing revenues to the budget. The budget system is also a framework that could define what to do next39. The budget system supported the economy of the Europe, and it helped to sustain the potential growth as a whole. Sustaining the potential growth to overcome the crisis was a crucial step that was supported by the budget. The budget system was also one of the factors of the policy that can control the crisis. Conclusion The aim of the European Council was to tackle the issues related to the banking system of the European countries. The issues required a strict policy to work on it as a whole. There were many amendments made in the laws and the new laws were introduced to protect the banking system from bankruptcy. The policies were introduced in the council, and it was mutually agreed that the law is mutually implemented to all the states of Europe. It was also agreed that the policies could be changed in the near future. All the members of the Council also realized that the existing laws of the banking system need an improvement. In addition, due to the financial and economic crisis the actual and potential growth was also badly affected because of the various factors. In order to deal with this consequence of the financial and economic crisis, European Council worked on policies and law. The need of the new law and policy to bind all the state to work on the same footing was also realized in the council. The European Council was mutually agreed upon the same thing that there is a need to change the monetary policies so that the financial sectors including banks could be mutually saved from crises. There were many other issues which were brought forward to solve, but the important one on which the Council arranged a meeting was the issues of the banks, which were recognized and solved to a great extent. The issues seem to occur in the near future, but the European Council with the help of EU is ready to provide its help in order to improve the governance. While concluding the aforementioned information, it can be said that the European Council with the help of European Union controlled the consequences of financial and economic crisis. Policies and laws supported the EU and Council to overcome the impacts of the financial and economic crisis. These policies were planned considering the long-term economic condition and growth of the European countries. Thus, it will not be incorrect to state that the economic and financial crisis of 2007-2008 increased the role European Council in the governance of EU. Bibliography Benedetto, Giacomo, and Simona Milio. European Union Budget Reform: Institutions, Policy and Economic Crisis. New York: Palgrave Macmillan, 2012. Castendyk, Oliver, E. J. Dommering, and Alexander Scheuer. European Media Law. Texas: Kluwer Law International, 2008. Columbus, Frank. European Economic and Political Issues, Volume 8. New York: Nova Publishers, 2003. Eckhardt, Felix, and Ingemar Elander. Urban Governance in Europe. Berlin: BWV Verlag, 2011. Economic Crisis in Europe: Causes, Consequences and Responses. Luxembourg: European Communities, 2009. Eecke, Wilfried V. Ethical Reflections on the Financial Crisis 2007/2008: Making Use of Smith, Musgrave and Rajan. Berlin, Heidelberg: Springer Science & Business Media, 2013. Davies, Karen. Understanding European Union Law. London: Routledge, 2012. Frost, Stephen M. The Bank Analysts Handbook: Money, Risk and Conjuring Tricks. Hoboken: John Wiley & Sons, 2005. Koch, Beate, K., and Berthold Rittberger. Debating the Democratic Legitimacy of the European Union. illustrated. Lanham, Maryland: Rowman & Littlefield, 2007. Langdana, Farrokh. Macroeconomic Policy: Demystifying Monetary and Fiscal Policy. New York: Springer Science & Business Media, 2009. Nanto, Dick Kazuyuki. The Global Financial Crisis: Analysis and Policy Implications. New York: DIANE Publishing, 2009. Maino, Rodolfo, and Kalin Tintchev. From Stress to CoStress: Stress Testing Interconnected Banking Systems. New York: International Monetary Fund, 2012. Mahadeva, Lavan, and Gabriel Sterne. Monetary Policy Frameworks in a Global Context. New York: Routledge,, 2012. Puetter, Uwe. European Council and the Council: New Intergovernmentalism and Institutional Change. Oxford: Oxford University Press, 2014. Peet, John , LaGuardia, Anton. Unhappy Union: How Europe Can Resolve the Crisis it Has Created - and what is Likely to Happen. London: Profile Books, 2014. Peterson, Paul E., and Daniel Nadler. The Global Debt Crisis: Haunting U.S. and European Federalism. Massachusetts: Brookings Institution Press, 2014. Sepp, Jüri, and Dean Frear. The Economy and Economics After Crisis. New York: Bwv Verlag, 2011. Trade Policy Issues. New York: International Monetary Fund, 1997. Welfens, Paul J.J., and John T. Addison. Innovation, Employment and Growth Policy Issues in the EU and the US. New York: Springer Science & Business Media, 2009. Read More