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European Financial Crisis - Essay Example

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The situation was worsened by the series of worsening economic events around the globe at the time of the crisis. The causes of the European financial crisis encompass individual member…
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European Financial Crisis
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European Financial Crisis

Download file to see previous pages... Over and above individual member perpetration to the crisis, the European region as a whole triggered the crisis. Exacerbated credit growth, low risk premia prevalence, liquidity abundance, and real estate bubbles are some of the major causes of the European financial crisis (European Commission 4). Other causes relate to the primary currency of the region; the Euro. Deteriorated euro value resulted in economic poor performance in key sectors of the European economy. As a result, recession scenario was looming, characterized by fluctuating business cycle. On the same note, the rush by financial institutions to safeguard their interests amid the economic downturn exacerbated the occurrence of the European financial crisis.
Parties responsible for the crisis spread across different sectors of the economy. These sectors and their relevant parties perpetrated the crisis in different ways. In the financial sector, financial institutions were primarily responsible. Commercial banks rushed to make windfall profits at a time when the euro was performing poorly in the money market. On the same note, these institutions sought to safeguard their business portfolio by being slow to adjust their operations in such a way that would ease pressure in the economy. The bid to secure business interests at the time when the economy was starting to decline in terms of performance plunged the region into a financial crisis.
In the government sector, central banks are primarily responsible. Central banks’ monetary and government spending decisions influenced interest rates negatively. Surging interest rates were realized even before the crisis exploded. Another aspect of responsibility in the government sector emanates from the fact that some European governments have defaulted debts (European Commission 9). Doing so has subsequently affected investments in the region to a point where financial crisis has been realized. The implication is that investors have to share in ...Download file to see next pagesRead More
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