The Eurozone and the Effects Caused by the Eurozone Crisis - Article Example

Monetary economics Monetary economics examines how currencies access commercial centers and become accustomed as mediums of trade for goods and services. It also analyzes the government regulation of money and banking institutions, the structure and alternation of fiscal systems, banking history and the interest for cash.It’s principally concerned with controlling the cash supply, detect changes or variances in premium rates, foreign exchange rates of currencies, costs, and the total assets in terms of net worth of businesses and or people.Cash, in the same way as very nearly anything in a business economic sector, is liable to the law of supply and demand. Business demand for cash decides its value or worth. At the point when supply surpasses demand, it’s fiscal worth falls, making wastefulness and setting an awesome strain on the economy. When interest surpasses supply, shoppers and businesses may do not have the intentions to lead essential exchanges, bringing about the economy to be low or totally fail. It’s the work of monetary economics to then, try to keep the supply of cash adjusted with demand.Like everything else that does exist, monetary economics has its own short comings which lead to serious negative effects on the economy globally. In this paper we shall focus on the Eurozone and the effects caused by the Eurozone crisis. The Euro zone is one of the biggest monetary zones in the world and its cash currency known as the euro is seen as very strong compared to most currencies. Since the establishment of the Economic Monetary Union (EMU) as a part of the Maastricht treaty signed on the 7th of February 1992(Association, 2009) and due to the development of the Euro over the years, it has taken a conspicuous position in many national banks. There are nineteen countries that have adopted the Euro as their currency, Germany, Austria, Netherlands, Finland, Belgium, Spain, Italy, Portugal, Luxemburg, France, Ireland, Greece, Slovakia, Cyprus, Estonia,Latvia, LithuaniaandMalta(Wolf, 2013). There have been extreme benefits of this countries joining in the Euro zone(Branch, 2001). These include, the reduction of all costs incurred by consumers while changing currency on entry into another country, this has seen the Gross Domestic Product (GDP) of these countries increase variably and also leading to an increase in tourism owing to the Schengen agreementsigned in 1985 (Karanja, 2008)among these countries that eliminated their border. There has also been a good way for consumers to compare prices among this countries increasing rate of purchase and for producers it has been easy to buy raw materials from other euro zone countries increasing their production rate. Owing to the single currency among this countries there has been improves trade and massive economic growth because of the elimination of the exchange rate uncertainty. It has also seen many firms invest in the Euro zone as the rate of transaction costs is lower with this countries involved. Low interest rates in terms of bond yields as the currency is strong. Since the setup of the Euro there has been an improvement if the inflation performance among involved countries as the regulated by the European Central Bank (ECB). Regardless of the strength of the Euro it has faced some economic crisis. An economic crisis can be portrayed as that time of troubling financial performance especially by financial institutions. It is usually a time where, the value of businesses, particularly monetary institutions, and its economic performance drops very widely and everything ends up having little or no value at all. Productivity is low and often doesnt meet the law of supply and demand. This economic crisis are brought about by several factors these include, where money is misused both by governments and consumers leading to a problem in the way money flows, hence the investors having fear that their investments might run at a loss, especially in the case of the euro in case one country experiences recession it affects all other countries meaning the Euro price in exchange will go down, in cases of political instability and frequent changes in government policies most investors are uncertain as to what to expect from their invested cash and often in the cases where the bank and other financial institutions do not know how to match the assets and liabilities together. These crisis have really affected the labor market, external imbalances in terms of the euro and affecting the global economy and changes in a lot of the fiscal policies in the euro zone. The Euro zone crisis(Kaarlo Tuori, 2014) is the multitude of debts that occurred in some of the euro zone states since the end of 2009. These states were not able to reimburse or refinance their government debts or too indebted banks on their own. This states experienced a rise in the interest rates of government bonds. They needed help from financial institutions like the European Central Bank (ECB), International Monetary Fund (IMF) and the European Commission (Maria Joᾶo Rodrigues, 2014)to repay these debts. This borrowing of money from this financial institutions to repay their debts was as a result of other stronger economic countries present within the Euro zone. The Schengen agreement did see the abolition of most of the borders within member states of the European commission making it easy for the citizens of this countries to virtually move in search of better jobs. This was enhanced more by the coming of the Euro. Before 2008 the unemployment rate in Europe was specifically low with most men working. This however changed after the great crisis in 2009 leaving the rise of unemployment really high and most the employed workers being forced to leave their jobs especially in places like Greece and Ireland that did undergo massive changes during this crisis. This also saw the reduction of educated labor movement within the euro zone as most of the educated students decided to leave the continent after their studies in search of better jobs. The crisis has also seen to it that most of the highly educated personnel settling for meagre jobs within the union. In return it has helped other countries outside the union gain this experienced labor and make use of it in improving their technologies(Marco, 2013). This reduced the rate of production in companies in the Euro zone affecting their GDP greatly. Even though the Euro is not as widely used as the dollar, the reduction in price of the euro in the foreign exchange markets did have a great deal of impression in the global recession on 2009. This was caused by the fact that capital investors from all over the world became uncertain of their financial gain in the companies that they had established in this euro zone and slowly started reducing the amounts of products that they were producing, some even did leave the zone totally. This affected the prices of other currencies totally especially the dollar(Allen, 2013). This saw an increase in borrowing rates all over the world and a reduction of loans being offered by banks as they had to regulate their borrowing terms making most consumers run away from this. Government bonds rate also increased owing to this uncertainty that was brought about by the euro. It saw the increase in the amount of money that was spent on buying items such as German make vehicles, as their prices was increased rampantly due to this crisis. This also saw a reduction in tourism as the travel rates have become so high especially in countries that have great tourist destinations for example Spain and Italy. There are however measures that have been laid for the short term and long term basis to ensure that the euro gains its power and the crisis are over. With countries like Germany and France being their strong hold, they are assured of continually getting support from financial institutions to help solve this crisis. Bibliography Allen, W. A., 2013. International Liquidity and the Financial Crisis. s.l.:Cambridge University Press. Association, A. B., 2009. Consumer Protection Law Developments. In: Consumer Protection Law Developments. s.l.:s.n., p. 717. Branch, A. E., 2001. International Exchange Rates. In: International Purchasing and Management. s.l.:Cengage Learning EMEA, pp. 155-156. Handa, J., 2002. Monetary Economics. In: Monetary Economics. s.l.:Routledge, p. 4. Kaarlo Tuori, K. T., 2014. Eurozone crisis explained. In: The Eurozone Crisis. s.l.:Cambridge University Press, p. 76. Karanja, S. K., 2008. The Schengen Legal Sources. In: Transparency and Proportionality in the Schengen Information System and Border Control Co-Operation. s.l.:Martinus Nijhoff Publishers, p. 26. Marco, M. S. i., 2013. The Economics of the Monetary Union and the Eurozone Crisis. s.l.:Springer Science & Business Media. Maria Joᾶo Rodrigues, E. X., 2014. Financial aid for eurozone. In: The Eurozone Crisis and the Transformation of EU Governance: Internal and External Implications. s.l.:Ashgate Publishing, Ltd., p. 74. Wolf, C., 2013. Introduction. In: The crisis in the public finances of the Euro Zone countries on the example of the problems of Greece, Ireland, Portugal and Spain: Different approaches and political opinions. s.l.:GRIN Verlag, p. 3. Read More