Influence of Greece Debt Crisis on Overall Balance of Payments in The EU - Essay Example

?Topic: Macroeconomics Essay European nations in 2002 gave up their right to own and control of their currencyto enjoy the benefits of the euro. They formed the European monetary union which was the result of forming the Euro. This has lead to a single currency by the states members. The euro focused in ensuring the well being of the economic conditions (Jonung and Martin, 2006, p. 55). The monetarists was based on long term issues of the economy, it embarked in balancing the euro supply aimed at balancing the domestic money supply. It tried to cover for the deficit in the economy. For our case the euro had been affected by the debt crisis in Greece and was need to act in the benefit of the entire region. The Greece government had to curry out the reforms needed in conjunction with European monetary union to create balance of payment of in the region. Their where factors that affected the effectiveness of the theory. They included the exchange rate number of export and imports the Greece government had carried on. This had affected the Greece government GDP. The theory focused on the way the economy heals its self with the inclusion of government solution. The Greece crisis had affected the demand of money in the region .The issue of balance of payment usual involved the goods and workers movement across all member states this come with the abolishing of tariffs between member countries. They included transport of goods between countries; people working along the countries had the flexibility of working along the countries without any limitations this was enabled by the rules and impacts by EMU to bring a systematic economical balance along the euro zone. This was done without compromising the independence of the nations involved in the euro zone. The sovereignty of each nation was not to be affected by the move. This was to done with respect to the each nation’s political consideration. This was not to affect the political ability of each state rather it was bringing a sense of balance across Europe. The balance was in such a way that it was to solve some issues that was affecting some nations and create a sense of regional balance and bring a Balance of payment in the economy. The troubles included the rate of unemployment in France and the Greece debt (Jonung and Eoin, 2010, p. 45). For the case of Greece the European Union found a sense of imbalance and there was need of invention. The EU through the European commission contemplated on measures to undertake. As request the EU suggested measures and action. The measures were taken to ensure a balance of payment. It engaged in a semiannual strategy. This was to close the deficit to 3 per cent since there was an assumption that the deficit of GDP in 2010 was 4.2 per cent. There was need to revise the figure given by the Greece authorities the figures had changed and need revise them, in a bid to ensure balance (Jonung, Martin and Jonas, 2008, p. 34). As much as there it was a collective role of the region in controlling the foreign exchange, it advice the Greece government to ensure that it sells its reserved to ensure a balance in the foreign exchange holdings. This in term ensured the balance of payment of the region’s currency this was to ensure an equal equivalent capital inflow. Thus a surplus in the economy was been experienced in that there was to be an increase in the imports and hence forcing the Bop in an equilibrium. Risks where on the rise in Greece and the rate was described as dramatic, government bonds and the increasing awareness and securities. There was need to safe guard the effects of financial effect in the entire euro zone. There was doubt that Greece will pay all its debt including the accrued debts without affecting its economy or there was also a doubt whether they were in opposition to pay the debts at all. The debate continued till the beginning of May in 2010 when the matter was not only a debate but the reality. There was need of intervention and on May second it requested for financial assistance (European Economy., 2009, p. 55). The balance of payment was not only a one state affair but it involved the entire continent and the world as a whole there. The euro was in that many traders shifted from the dollar to the euro due to the higher values. This came within its positives to the need for balance of payment in that each state considered the euro a superior to their own currency and it was easier to convince them to turn to the euro and its demand raised to a level that was accepted to the entire region the demand of the euro high across Europe. Unity of doing business was unique in the entire world since it was easier to carry on business across the continent without barriers hence trade among the members of European Union (De Grauwe, 2006, p. 107). There is the other issue of balance of payment against foreign exchange, in that the demand of euro becomes high due its market value as compared to the other major currencies of the world including the dollar. The euro remains stable in the market even though it overcame challenges such as the Greece effect. The European Central Bank (ECB) is the only monitory organizing that controls the Policy interest rates around the entire euro zone. The international markets also influence the rate of interests across the region. Financial crisis by a single state is seen as the problem of the entire the problem of the region since the interest paid on a bond which made it possible from investor to build investor confidence (Buti and Daniele, 2005, p. 78). One individual could invest in any country under the euro zone without fear of the interest effect in any of the country. The interest rates where low to encourage interest inter trade amongst member states. To achieve an equilibrium the Greece had to check on the unplanned adjustments in order to upset the items and ensure a balance of payment in the issue of balance of payment this was to be done to offset the deficit in the region caused by the debt crisis of the nation. The Greece crisis caused the accommodating items to fall and as a result causing the disequilibrium in the balance of payment. There is need to create a balance which is a equilibrium to balance between different economies to keep at bay and monitor those whose economies are not sustainable since Europe is the leading economy in the world and provides a lot to the world in that a change in actives by a single state of the euro zone will have effect to both the other countries and past the continent. For instance the Greece debt resulted to a euro zone being affected the entire world including the dollar (Begg, 2009, p. 46). There should be a level playing ground across the entire region. To ensure a balance of payment some factors had to be kept in to consideration they include allocation of cash and regulating its circulation to ensure there is sense of stability across the Euro zone (Shapiro, 2009, p. 67). The stability of the euro is essential to the whole region, in that it is the common denominator. Its inflation means high cost of doing business thus affecting the region’s economy. In conclusion the EMU laid down policies to ensure that there is a balance of payment across all the define sectors. In that any change in the euro zone affects the equilibrium of the economy. The effect of the region impacts negatively to the economy not only to the region but entire region. A balance between the exports was to be initiated to create a balance between the balance of payment. The euro plays and imposes measures to balance the equilibrium as effects of the nation may be felt by the entire region (Artis and Nixson, 2007, p. 89). The financial assistance facilities is a permit solution in the time of orderly adjustments, reduce uncertainty among financial market and key players and the as a result, reduce the effects that the equilibrium of European countries. The effects in the past, however, measures were very often taken only in the last moment and subject to domestic policy considerations, which significantly affected the impact of the actions in the financial markets. Fiscal measures also play a role in ensuring the region gains a sense of balance in the region. They all act in the same interest to ensure that the economy comes to equilibrium (Molle, 2006, p. 88). References Artis, M and Nixson, F., 2007. Economics of the European Union. London: Oxford University Press. Begg, I., 2009. Fiscal federalism, subsidiarity and the EU budget review. 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