Effect of Greek Financial Crisis on the British Economy - Assignment Example

ACTIVITY 2 Table of Contents Table of Contents 2 Effect of Greek Financial Crisis on the British Economy 3 2.Changes in the NHS led by the UK Government 4 3.The State of the Real Estate Market in UK 5 4.The long-term consequences of the earthquake and nuclear fallout (during the Summer 2011) to the Japanese economy 5 References 8 1. Effect of Greek Financial Crisis on the British Economy Deficit spending in excess and the total debt of Greece going beyond its GDP are the two main reasons that led to Greek financial crisis of 2010. Greece defaulted in sovereign debt because of almost nil economic growth and degradation of credit rating of Greece. During the early days of 2010 sovereign debt was a subject of attention for the whole world. Sovereign debt is the total debt owed by a sovereign country like Greece to its creditors. As a result of this crisis, there was a panic in the financial market worldwide and euro suffered a huge decline in its value. Greece was helped by the EU and IMF to provide them with loans that could rescue the situation. This can be a short term solution to the problem but the obligations of long term debt will still persist or may even get worse (Abboushi, “Abstract”). David Cameron in one of his statements warned that British economy will suffer more due to this euro zone crisis. It remains a threat to the future of euro. There had been a decline in the growth rate of employment, especially in public sector of UK. The investors are losing confidence in the market and the financial market in UK suffered a setback. A deep recession is on the cards if the situation is not handled carefully. More support for the banking sector is needed and the Government should be forced to take some emergency steps to help improve the financial system, before the crisis worsens further. Even though Britain is not a part of euro zone, still budgetary deficit concerns of the country should be addressed immediately. British banks already hold a considerable amount of debt in Greece, which can be an area of major concern. Moreover, with Greece defaulting to pay their debts, the problem can spread over nations like Spain and Italy where UK has a much larger investment. In addition to this, euro zone is one of the biggest trading partners of UK, so obviously this crisis can have an impounding effect on UK’s economy if other big European economies falter (PRLog, “How the Greek economy can affect us all”). 2. Changes in the NHS led by the UK Government UK government took a bold step towards reforming National Health Services (NHS) in the country. There had been many major changes in NHS structure due to this decision of UK government and it is for the first time in the history of NHS that such radical changes are taking place. Hospitals are no longer under NHS. General Practitioners (GPs) and not the management bodies now have a huge role and responsibility and are in charge of major part of the budget. This move resulted in abolition of all the 10 strategic health authorities as well as 152 primary care trusts which are the management bodies of NHS. Most of the budget of NHS is now in the hands of GPs only and they have the authority to plan out things accordingly. The GPs are now to decide on the spending of NHS. This new re-structuring of NHS gives way to the development of a new board which is independent of any kind of political influence. It is completely an independent body now and has control over its own accountability. Health of public is now the responsibility of local authorities. NHS industry is now more of a top-down design with GPs sitting at the top level. The patients are now being provided with more information through ‘HealthWatch’, a new type of body specially designed for the purpose. The patients now have the option to choose the GP according to their own wish and get registered with them. Since its inception in the year 1948, NHS has never experienced such drastic changes. Now the question remains as to what benefits these changes will bring to the people and the society at a large (Triggle, “NHS to undergo radical overhaul”). 3. The State of the Real Estate Market in UK Real estate can be defined as such property which constitutes land and any building constructed on it, including its natural resources. UK holds a strong economy and is ranked as fourth largest economy in Europe (CIA, “Economy”). As a result UK has been known for its strong real estate market as well. Until recently, due to the Global Financial Crisis in 2008-09, UK was affected financially and the prices of houses went down drastically in the real estate market of UK. If we look at the past 40 years history of the real estate market of UK, it can be observed that practically there was a boom in the real estate sector during the early 1970s and late 1980s. The prices of houses were at its peak in UK and the real estate sector of UK was booming. But in the 1990s, UK real estate market suffered a huge setback and the house prices went down drastically. It can be called as a real estate crash. It will take much longer time, for the house prices to reach levels that they were before the crash. It is expected that the UK house prices will continuously go on falling. Amongst the most important developments in UK housing finance market is that short-term fixed-mortgages are more popular now. These mortgages have tenure of around 2 years. Securitisations of mortgages are not that high in UK like that of USA but still it is a very important part of UK lenders today. Subprime mortgages also constitute a very small part of UK mortgage market compared to that of USA (Martin, p.13). Not only are the house prices falling in UK but the mortgage interest rates are also rising. Thus it is a crunch time in the real estate market of UK and needs to be revived sooner than later. 4. The long-term consequences of the earthquake and nuclear fallout (during the Summer 2011) to the Japanese economy Japan was hit by the strongest earthquake recorded ever in Japan on March 11, 2011. The earthquake was followed by tsunami and also a nuclear crisis which occurred at Fukushima Nuclear Complex in Japan. Japan is facing an economic crisis as a result of this earthquake. Japan has already suffered a huge loss in terms of physical and human capital. Japan also suffered huge shortage in electric supply as well. The long-term effects of earthquake and nuclear fallout are many and it can have a compounding effect on Japanese economy as well. With the electricity capacity of Japan taking a hit, it will take years for the electricity capacity of Japan come to a level which was prevalent before the earthquake occurred. This in turn will automatically affect the manufacturing capacity of Japan as a result of shortage in electric supply. Japan is a leading manufacturer of automobiles and electronic goods in the world. Now with this shortage in electricity supply, it will affect the companies in Japan on a large scale. But strong governance on the part of Japan can reduce the aftermaths of earthquake in Japanese economy to a considerable amount. Japan already was well prepared for earthquakes due to its strong policies and regulations (Kaufmann, “The earthquake”). But the nuclear disaster caused, is taking its toll on Japan. It failed to control the nuclear disaster. The nuclear plant was quite effective in withstanding the earthquake but could not manage the tsunami. A lot of reconstruction work needs to be done after a disaster like this. It will require huge reconstruction spending, but it will lead to new economic activities as well. Different new economic facilities will come up in Japan and will help restructuring the Japanese economy. Japan’s level of debt is not of major concern but the gross debt of Japan going above its GDP is obviously a reason for long-term concern for the Japanese economy. Also, the nuclear crisis leading to loss of nuclear power can have a greater effect on Japanese economy because it is very difficult to rebuild a nuclear power plant. Consequently Japan is forced to revert to the use of fossil fuels as energy sources. This will have a negative impact on the mission to curb carbon emissions. The ageing population of Japan can create a large barrier to the long term recovery plans of Japan. Recovery of Japan will also largely depend on how well the energy infrastructure of Japan is repaired. Japan depended a lot on its nuclear power production for its energy supply requirements. But the disaster has lead to nuclear fallout in Japan. So this can have a long term effect on Japanese economy affecting mainly the production or manufacturing sector. Thus, the March 11 earthquake, followed by tsunami and nuclear emergency witnessed by Japan can have many long term consequences on Japanese economy, which may lead to a new economic look of Japan. References Abboushi, S. Abstract. Analysis and Outlook of the Greek Financial Crisis. February 28, 2012 . Kaufmann, D. The Earthquake. Japan’s Triple Disaster: Governance and the Earthquake, Tsunami and Nuclear Crisis. March 6, 2012. . Martin, R.F. Mortgage Market Innovation: An Extra Risk in the United Kingdom. Housing Market Risks in the United Kingdom. March 6, 2012. < http://www.federalreserve.gov/pubs/ifdp/2008/954/IFDP954.pdf>. PRLog. How the Greek economy can affect us all. February 28, 2012.. CIA. Economy. The World Factbook. March 6, 2012. . Triggle, N. ­NHS to undergo radical overhaul’. News Health. March 6, 2012 . Read More