Is Europe headed on to a new recession and why - Essay Example

Introduction Economic situation in Europe The economic situation of Europe has not been stable since the financial crisis of 2007 Countries have been struggling to bailout commercial bank and other financial institutions from scrubbing. Moreover, there have been growing tension between Europe and Russia, and this has hampered trade among the two trading block. Though British has remained in recession for the longest time with another country such as Greece, the countries are showing a great improvement.

However, other countries are worsening off and could plug the continent back to recession. According to Mark Carney, the Eurozone requires a modest growth to avoid a recession in the near future. He argues that the content biggest export market is in turmoil, and more revenues are lost every day when goods and services are not exported to Russia. Moreover, another indicator that shows a weakening economic conditions is the falling wages. The average wage has decreased to its lowest level since the recession of 2009.

However, the low-interest rate has ensured people and government expenditure favorable and thus boosting production and consumptions. However, economist argues that an economy that relies on consumer spending is shaky because consumers and household may scale down on consumption in readiness of a future increase in interest rates. Overview of the economic recession. Economy recession refers to a phase in the economic cycle whereby the economy of a given country or region experiences slowed economy activities.

It involves a macro –economy catastrophes such as unemployment inflation, low Gross domestic product (GDP) and low levels of investment. Such scenario can be caused by various factors such high interest rates increased inflation among other factors (A., 2008). Europe as a continent is expected to undergo a serious economic very soon. In this easy, we shall be looking at some of the reasons why this ensures expected to befall this content Brief history of Europe’s economic prosperity efforts What are the roots of Europes economic crisis As around May 2010 Greece (one of the main countries) in the European Union narrowly escaped bankruptcy.

Despite the fact that Greece escaped such embarrassing situation it still has poor state of public finances. Hence, it has been put to a lot of pressure on the Europeans currency, the Euro (Friedman, 2007).These catastrophes have a deep history as they can be traced back to the two world wars between 1914 and 1927. European Union (EU) hoped that its countries could help each other in time the economic crisis.However, this has never borne any fruits as there are very sharp differences among the individual major nations hence making the intended goal impossible.

Reasons for the probable European Recession What the reasons behind the great financial crisis that are just about to befall Europe as a continent. How can Europe then avoid the probable recession The European Union lack adequate structures and this makes it very difficult to deal with the challenges posing a negative impact to its economy. There are three main probable problem that require analysis. These include restructuring the state of the public affairs, correcting the demographic gap that exists and balancing the ageing of population with young populous.

Moreover, the European countries need to handle challenges posed by cultural integration of the immigrants. From the historical backgrounds it is easy to think that financial challenges are only limited to some countries at the periphery of European zone. However, this is not true because even some of countries that are stable are experiencing the same crisis for instance Britain and Germany. The European nations need to avoid debt accumulation and live within the budget constraints. As a result, they have put themselves in enormous debts, too great to finance with their already strained budgets.

Surprising a bigger part of the debts is hidden in pension liabilities. To prevent further strain on public funds that causes the recessions these countries should, therefore, avoid any further borrowing and try to live within their means avoiding both internal and external borrowing. Balancing the demographic structures. European population is mainly comprised of a very old people. In this context am using old to refer to people who are between 60 and above years. Any country that experiences this type of demographic structure its economy is always under a threat of collapsing.

This is for various reasons, first and foremost there is an issue of the labor force. Labor is not only the most significant influence of production but also the most vital. Old people may, therefore, not have the required energy to produce, and this, therefore, poses a challenge to the production of the country hence the GDP drops automatically and drastically. Another reason ageing population is very dangerous is dependency ratio. As I have mentioned, aged people lack enough energy to work and hence they have a dependence on the working population becomes very high.

This means that the Gross Domestic Product will also go down. The European governments should, therefore, try and introduce bills that aim at correcting and this existing age gap. This is to avoid any strain on the human capital that is so important for any economy that at stake already. Harmonization. Many nations have been impacting economic sanctions on each other and hence restraining trade activities among the nations. This has been to the advantages of other nations and various blocks. For instance, the United States of America has puts limits on the Russians largest oil company to use dollars as it foresees the upcoming financial crisis in Asia and Europe.

All the European countries in their attempt to deal with the problems facing their economies have been driven towards very high budget deficits. It is, therefore, very unclear how these countries will be able to spare their public finances even increase whereby any intervention by international monetary fund’s such crisis comes to end. Therefore, if Europe is to avoid the upcoming crisis the European Union has to be stronger than ever, sit and talk their issues over to allow free flow of capital among the nation Let the economists take control of the economy.

If there is anyone who can blame for the entire crisis that have befallen, Europe is their leaders. Over and again, leaders have weakened their countries through making irresponsible and unreasonable policies. , Fiscal policies are made with less consultation and analysis. The fact that European governments have not shown any serious attention towards correction of the existing demographic challenges. Technological progress. With a very ageing population, Europe have experienced low rate of innovations and inventions.

Hence, this again poses a big challenge on the productivity of these economies since technology is a very important factor in the efficiency of any production firm (Zichengen, 2008).The reason the U. S. economy has thrived and got a way out of the great financial crisis that befall the world in the year 2008 is due to the technological progress that is better to Europe. Encourage Diversity among the members of European Union. European Union is comprised of 27 members. These members are however very different, and each seems to pursue their interests.

As results, this has given their interest and, as a result, this is given a common enemies advantage over them economic wise. For instance, there are some bigger countries such as Germany and Britain that have a greater influence though they have unstable economies. Hence, countries such as Luxembourg and Malta which are very tiny may always suffer inferiority complex and may always oppose sanction policies moved by the heavyweights such as Britain and Germany. It is also important to note that members within the European Union are also divided into the religious basis some been Catholics for instance Poland and others been protestants.

This worsens the gap between various members and hence weakening their ability to make sound and firm decisions. Conclusion The European country can manage and avoid a possible recession, but only if they adopt stringent fiscal and monetary policies. The European Union parliament need to pass policies that ensures individual governments increase on the aggregate demand. This would result to increase spending on consumption, exports and even on investments. However, though there is guarantee that the economy will grow the success will depend on legislation of macroeconomic policies.

Moreover, if a recession is caused by high interest rate, it would be prudent to cut on interest rate when it is increasing consistently. References Frieden, A. J., 2008. Global capitalism. New York: Norton & Company. Friedman, J. A., 2007. International political economy. Poland: New Adventure Press. Mazow, M., 2014. Governing the world. Chicago: Harvard University Press. Zichengen, B., 2008. The European Economy since 1945: Coordinated capitalism beyond economic history. New York: Harvard publishers.