G-8 Says World Economic Prospects Still Weak - Essay Example

Choice Table of Contents Table of Contents 2 0 Introduction 3 Summary of the Article 3 Factors to be Discussed 3 2.0 Discussion on the Economic Problem Issue 4 Cause of Problem 4 Impact on Economy, Society or Even Political Stability 4 Use of AS-AD Model 6 3.0 Government Policies to Solve the Problem 7 Reasons for the Formulation and Implementation of Policies 7 Comments on Effectiveness & Shortcomings/Side Effects 8 Use of AS-AD Model for Illustration 10 4.0 Conclusion 11 References 12 1.0 Introduction Summary of the Article The article ‘G-8 Says World Economic Prospects Still Weak’ published by Reuters revealed the alarming issues that seemed to occur which were mainly relating to the improper banking regulations that existed in European countries along with the United States and Japan. As per the article, measures have been formulated in order to curb issues in relation to budget deficits and develop strong banking union through the implementation of efficient fiscal policy amid G8 nations for effective growth of world economy. These nations have worked collectively in order to strengthen the banking rules which would underpin the whole of the Euro zone. Additionally, the implementation of these changes in structure along with principles in relation to banking policies is perceived to enhance the economic conditions on a global context. The banking sector of European nations, the US and Japan are required to modify or reform their banking practices and systems with the objective of developing world economy and banking union (CNBC LLC, 2013). Factors to be Discussed The discussion will emphasize relevant studies that are parallel to the common economic events which include recession and inflation. One of the primary objectives of this research would be to analyze the moves that will be made for building a proper banking practice towards a strong banking union. The highlighting factors would be to analyze the underpinning issues that are seemed to trouble the overall banking system. Moreover, the various reforms and modifications in the banking principles and systems will be studied which are to be implemented by Japan and European nations. Along with all the other nations, the economic condition of the United States will be analyzed as well. 2.0 Discussion on the Economic Problem Issue The financial crisis situations had adversely impacted the banking operations and principles in an immense manner on global perspectives. Various reforms and policies have been implemented within banking sector with the aim of enhancing its operations and reviving the economic conditions. Cause of Problem The main factors related to the discussed issue in the article include the extensive economic growth of other countries and structural reforms that seemed to put the European countries under extreme pressure. The main areas of concern were identified to be the reformation of banks and its various policies in order to improve the financial policies of the European countries and G8 nations. The major cause of the problem was that the output was not delivered according to the requirements of the banking customers. Funds collected through banks were not allocated in an orderly manner which resulted in improper regulations of the banking functions or operations (International Monetary Fund. European Dept., 2013). Impact on Economy, Society or Even Political Stability The problems related to financial policies and reformation in banking sector seemed to have drastic effects on the economical, societal and political fronts which were a crucial problem for the Euro zone countries. The situations relating to the above factors were very drastic. The nations on the economic front got adversely affected because of the inappropriate banking regulations and various fiscal policies that were unable to ascertain the monetary standards of the nations. The main point of concern was the ineffective performance of the banking sector. The countries were planning to design various policies and regulations in relation to the issues related to banks and its functions (CNBC LLC, 2013; Hall, 2013). According to a G-8’ statement (which is an alliance of 8 major countries that include the European nations along with United Nations and Japan), the worldwide projections in the economic context are observed to be weak. However, the downside risks were seemed to be lessened due to the policy actions that had taken place in the United States, Japan and the Euro zone. Japan had been on a drive to develop proper structural changes that were very important for the nation but it was a rather difficult move for adopting major structural changes in banking systems in a shorter duration of time. Along with proper structural changes, the banking regulatory policies were also required to be changed as per the new measures for effective growth as well as development in the nation (World Bank, 2013). The implementations of changes or reforms in relation to structure and regulatory policies of banking system were difficult affecting the social as well as economic development of the nation. The overall crisis in the economic and social front seemed to affect the economic situation of the nation as it was unable to attract adequate number of foreign investors for economic growth. The prime minister of Japan wanted to raise the overall income of the nation by way of setting up new economic zones for the sole purpose of attracting new investors. This measure proved to be a costly process and thereby the government planned to follow this process in the future with the intent of further development (CNBC LLC, 2013). The different finance ministers of the Euro zone nations were not holding meetings together in relation to the formation of the new banking regulations in the European region which hampered their political relationship (Singh, 2012). Use of AS-AD Model Source: (CIGI, 2013) The above diagram represents the AS-AD model which stands for aggregate supply and aggregate demand in an economy. The impact on economy, society or even political stability of the European nations, Japan and the US will be analyzed will be assistance of the above diagram i.e. AS-AD model .This model is used to show the co-relation between the total aggregate supply and the total aggregate demand of a particular commodity or commodities in a nation. When the AS and AD lines intersect with each other, it proves that the aggregate supply of a particular commodity meets the aggregate demand in an economy. In accordance with the article, the relationship with the AS-AD model can be shown in a unique manner. The concerning factors for all the nations were to initiate appropriate plans in relation to structural changes and regulatory reforms for developing a strong banking union and stabilize the growth of the world economy. There were numerous efforts that were ought to take place for the overall development of the banks and their functions but it was not successfully implemented because of various reasons which include reformation of banking practices and modification of bank structure on the basis of regulatory framework. In this regard, it could be said that the AD line is unable to intersect with the AS line as the developmental activities that were highly demanded were not met. 3.0 Government Policies to Solve the Problem In this section, various government initiatives that were planned to be implemented for the sole purpose of solving the issues related to the underdevelopment of the proper banking policies and practices are discussed. Reasons for the Formulation and Implementation of Policies The government of various European countries along with the government of the US and Japan were engaged in framing different strategies in order to curb the alarming problems especially related to the banking functions or operations that affected the economic situation of these countries (CNBC LLC, 2013). The government of all these countries were focused on developing effective rules and procedures for the formation of suitable banking union The government of European nations were looking forward to have appropriate discussions relating to Europe’s new banking practices and regulatory frameworks European officials were looking forward to design a special scheme that was aimed for closing troubled banking practices in order to develop improved processes of supervision in the banks which would be initiated by the European Central Bank Japan’s government actively got involved in defining proper fiscal plan for the medium-term The government of Japan will design proper monetary policies for restructuring the overall regulatory policies in the country. The country also planned on announcing strategy for encouraging private investment The prime minister of Japan had planned to raise the income of the nation by 3 percent in an annual rate. Government’s main priority is to raise the income with the help of special economic zones that were needed to be developed and will also assist in attracting adequate amount of foreign investors The government of the US has formulated plans to recover its fiscal deficits by working towards building a proper fiscal plan for the medium term The government has initiated a “resolution board” in order to take decisions in relation to winding up or restructuring of ineffective banks Source: (CNBC LLC, 2013) The rationale of the economic policies chosen by the government plays a very crucial role towards the improvement of the overall structure of the nations. These are various government policies which are implemented or to be implemented with the objective of reviving the financial system and developing worldwide economic conditions. Comments on Effectiveness & Shortcomings/Side Effects The various policies and measures that were laid off by the government of different European countries along with the government of the US and Japan proved to be very beneficial and appropriate. All the aforementioned policies mainly aimed for developing the banking regulations and practices in order to enhance banking activities that can withstand all the discrepancies that arise in all the banking operational activities. Moreover, the major stresses were laid upon to develop the economic situation of the European countries, Japan and the US by formulating different monetary policies which were underpinned for the overall development of the nations and improve the overall economic structure thereon (Information Systems Audit and Control Association, 2012). The banking policies were modified and restructured with the intention of ensuring high rate of development of the nation and for changing the overall financial operational structure. The overall plans and polices of the government were also intended to develop proper schemes and policies that were meant for simplifying the process of banking (OECD, 2013). However, there were certain issues that were needed to be addressed and improved upon. The government of the different European nations made various plans and policies regarding the development of the nations but most of the plans were not implemented rather they were withheld for future purposes. Furthermore, it is also noted that issues relating to non-alliance between the European nations along with Japan and the US were also identified to entail problems in collective decision making and thereby acted as hurdles in the formation of proper banking practices (International Monetary Fund. European Dept., 2013). The nations could have developed effective measures for curbing the effects of inflation and recession for the formation of better economic and monetary policies. Use of AS-AD Model for Illustration Source: (Economicsguide.net, 2013) The above diagram represents the economic concepts of AD-AS model that is linked with effectiveness & shortcomings/side effects in order to be analyzed. The implications of the government policies have been analyzed with the assistance of the Aggregate Demand (AD) and Aggregate Supply (AS) curves. It reveals that when the AD curve intersects the AS curve then the Real National Output is ascertained to be achieved. According to the article, in relation to the European nations along with the USA and Japan, the AD curve can be assumed to intersect the AS partially as the priority of developing new banking regulation is achieved but true result is yet to be delivered and measured thereon. Furthermore, the various advantages that can be achieved with the implementation of new banking regulations are still to be discovered, so it cannot be rightly assumed that the AS curve has intersected with the AD curve. 4.0 Conclusion From the above discussion and article analysis, it has been observed that the major objective of the article was to reveal the various changes and reforms which are formulated and implemented in banking system. These changes are perceived to improve the banking union and assist in sustainable economic growth. The findings of the above discussions has helped in determining the changes which are implemented or are to be adopted amid banking operations of the European countries along with Japan and the USA. The course of the study has been quite beneficial in highlighting the various initiatives that were utilized by the government in order to acquire proper banking regulations in these countries. The key factors that have proven the efficiency of the initiatives were analyzed along with those factors that could be improved upon. It can be comprehended that the introduction of a new banking regulation in the Euro zone nations and the development of strong banking union will assist towards the sustainable growth of the nations. References CNBC LLC, 2013. G-8 Says World Economic Prospects Still Weak. Economy. [Online] Available at: http://www.cnbc.com/id/100822006 [Accessed June 28, 2013]. CIGI, 2013. Programs. Let’s Do Macro Like Its 1936. [Online] Available at: http://www.cigionline.org/blogs/new-age-of-uncertainty/let%E2%80%99s-do-macro-its-1936 [Accessed June 28, 2013]. Economicsguide.net, 2013. Home. Determining the Price Level and Equilibrium Level of Real Output. [Online] Available at: http://www.economicsguide.net/mv/a-level-tutorials/managing-the-economy/macroeconomic-equilibrium/ [Accessed June 28, 2013]. Hall, J. A., 2013. 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