Accountability, Representation and Control and the Euro crisis - Essay Example

? ACCOUNTABILITY, REPRESENTATION, CONTROL, AND THE EURO CRISIS By Accountability, Representation, Control, and the Euro crisis Analysts and economic scholars have assessed the Euro crisis from a variety of angles including the impact of accountability, representation, and control on the creation or resolution of the crisis. Some of the common perspectives on the crisis suggest that the weaknesses in the accountability processes, compromised systems of control, and poor representation are at the core of the Euro crisis (Hopwood, 2009, p. 797). Those who hold onto this view contend that revamping the structural basis of the three features is fundamental to resolving the crisis. The banking sector, the government spending practices, and the corporate world remain some of the areas that have received significant focus by analysts of the Euro crisis. Poor controls feature in the manner in which governments have failed to put in place regulatory systems to stem bad spending practices, which lead to increased deficits that imperil economic growth. Weak accountability systems encouraged unethical accounting practices that threatened the collapse of the banking sector in the region attracting large amounts of bailouts that burdened the taxpayers. The genesis of the Euro crisis stems from failure of some member states to regulate their sovereign debt. The sovereign debt, which had been capped at the 60 percent of the gross domestic product GDP, determines the state of stability of the economic stability of the member states (Arnold, 2012). Proposals for austerity measures, which have been suggested by countries like Germany have incurred the displeasure of some of the most affected countries such as Greece and Poland. The central thinking of the affected countries is that austerity measures will stunt economic growth and leading to states of economic instability, which would expose the affected countries to more damage from the systems. It is important to consider some of the reasons of the economic crisis in terms of the structural germ of their causes. At the bottom of the debt crisis is the need for stronger and reliable regulatory frameworks that would enable accountability, control, and representation in order to shield the Eurozone from the adverse consequences of the crisis. Pursuit of economic self-interest among the Eurozone member states remains one of the challenges facing efforts of addressing the Euro crisis (Lynn, 2011, p. 31). Entry into the Eurozone necessarily required member countries to cede some control of their economic structures to a centralized operational framework without mortgaging their sense of autonomy. Further, the challenge also involves the question of competition, which drove some countries to practice subjective accounting practices with the intention of protecting certain self-interests. According to some economic policies, the Euro crisis would have been averted had the member countries adjusted their accounting policies and operations in ways that embrace the aspect of representation as understood within the framework of fair trading practices (Arestis, 2012). Such structures would have provided the necessary points of economic convergence, which would have shielded the countries from the threats posed by the crisis. Much of the focus of the Euro crisis has involved unqualified accounting practices in the corporate world (Knight, 2012, p. 13). A number of banks, for instance, presented unqualified audit reports, which gave hints of growth based on misrepresentation of certain disclosures on assets and mortgages. Such banks later encountered numerous operational challenges that led to their being declared bankrupt. On this account, many banking institutions led to massive government expenditure in terms of bailouts, which were necessitated by the fact that failure to put in place appropriate regulatory mechanisms would expose the banking sector to the threat of collapse, which would then touch of a series of economic challenges that would eventually culminate in a recession. The concept of representation entails the presentation of information that is representative of the actual facts as they occurred in the business processes and transactions. Information in balance sheets and financial statements did not accurately represent facts about processes and transactions, which they were supposed to represent. The mismatch between reality and the type of information relayed in the financial disclosures exposes the level of risk that determines the stability of any economic system (Habermas & Cronin, 2012). Adjusting the level of representation in the EU member countries would be a fundamental step in resolving some of the threats that continue to push many of the economies to the brink of ruin. The German and British governments are some of the examples that have set aside significant amounts of money for the purpose of bailing out their banks in the event of financial dysfunction. It is important to regard some of the challenges of the economy within the broader picture of the effects of regional disharmony and lack of representation in accounting practices. An erosion of control in the dependent economies has generated sharp differences between the EU member states with some of them failing to meet the cost of operating some primary systems of the economy. Regarding the element of control, critics contend that many EU member states have failed to organize appropriate structures that could be relied upon for the purpose of regulating the processes of expenditure among the member countries (Morgan, 2012). Greece remains a primary example of countries that still face challenges of capping her expenditure. Recommendations for reversing the trend of things in the Eurozone have involved the creation of special structural provisions for controlling the spending and borrowing by member countries. The challenge lies in the fact that legal challenges often impede the desire by counties to reduce their levels of borrowing and expenditure. Political competition within respective governments also makes it problematic for countries to carry out certain control mechanisms due to the resultant competing interests of the member states. Scholars have recommended the overhaul of the legal and structural foundation of the economies of the member states as a strategy of enhancing a sense of harmony in the member states (Council On Foreign Relations, 2010). Such an overhaul would involve the repealing of various laws that make it difficult for member countries to reach some levels of consensus regarding the development of certain controls necessary for stabilizing the region. Imposing limited controls in the accounting practices of the banking sector and other sensitive systems of the combined economies would provide thresholds and limits of safeguarding the companies against the possibilities of collapse as determined by the economic systems. In essence, poor control mechanisms are largely to blame for the series of events that culminated into the Euro crisis. Critics contend that placing controls on the operations in the region would hamper the spirit of competition and go against the principle of free markets (Lorca-Susino, 2010). However, studies have shown that limited control mechanisms are important in shielding some sensitive aspects of the markets from the danger of economic ruin. The banking sector requires specific control mechanisms that would, among other things, set up rules of determining the format and procedure of disclosures and methods of verifying the information supplied in the financial disclosures, such a system is important in safeguarding the sector from the adverse effects of the irregular accounting practices. The systems would be less susceptible to the perils of trade as determined by poor controls in the economic systems of the various countries in the member states. A fundamental challenge facing the Eurozone is that different countries do not seem to agree on the most appropriate way forward of settling the debt crisis. In essence, there is the lack of an appropriate control mechanism and a representative accounting structure that could be used to regulate the actions of governments and businesses in ways that are representative of terms and conditions of business. The role of responsible accountancy is to supply appropriate and accurate information that offers direction for suitable actions, strategies, and interventions. The outcome of strategies, policies, and actions is largely dependent to the reflection provides by the accounting picture supplied by the accounting system. Inappropriate information resulting from questionable accounting practices will inevitably lead to problems that can grow into crises if not checked through appropriate intervention measures. With particular reference to Greece, past accounting systems had shielded the business community and the Eurozone membership from the actual extent of the problems that the country was going through (Pryce, 2012). Lack of controls and regulations of the accounting system had painted a faulty picture of the country’s economy in ways that misrepresented the actual enormity of the sovereign debt. After revisions were done on the accounting policies, it was found out that the country had overshot the caps placed on the sovereign debt by a significantly wide margin. The sovereign debt stood at 113% of the GDP (Pryce, 2012). The revelation was a gross indictment of the country’s accounting systems, which had concealed the anomaly that has now placed the country under threat of total economic collapse. The situation was worsened by the fact that investors responded by demanding higher bonds, which further burdened the failing economy. In principle, lack of accountable regulatory frameworks is largely to blame for the eventuality. Like other countries in the Eurozone, Greece lacked proper internal fiscal checks that could forestall the rapid increase of the sovereign debt (Bastasin, 2012). The demand for controls often encounter the challenges of free trade, pressure from influential monopolies, and lack of consensus from both the public and private sector on ways of regulating the economic processes in the country. It might be necessary to consider the fact that some of the efforts that were undertaken by Greece to reverse the trends of the sovereign debt were met with competing perspectives from a host of investors, who sought to change the system through structural and institutional manipulation of the regulatory mechanism. Enforcing austerity measures remains one of the much debated approach of enforcing some sense of control on the threatened European Union member states (Hayward, & Wurzel, 2012). Austerity measures would involve a range of checks and balances to determine the manner in which the affected countries and the regions regulate their internal processes in ways that do not spill over to the general population. Without appropriate controls, the member countries will continue pursuing their own respective accounting methods that heighten the challenge defined by the Euro crisis. Among some of the explanations that have been adduced to explain the EU crisis is the fact that the audit industry has failed to identify some pertinent banking crises and limitations. In the wake of these challenges, there have been calls for changes in the structural basis of the audit industry in order to reorient it towards the task of stabilizing the accounting system of the region. The loosely regulated private sphere contributes to the crisis through the relaying of conflicting reports and adoption of competing accounting practices, which offer different perspectives on the same matter (Pasiouras, 2012). The movement of many transactions from the public entities to the private sphere further complicates the situation. Such challenges are also compounded by irregularities and low levels of accountability in the handling of private equity of many companies and the hedge funds, which have become a phenomenon of high consequence within the industry. Some multinationals operating within the European Union have demonstrated lesser concern in aligning their accounting practices with international standards (Pasiouras, 2012). Such practices involve rules governing the movement of profits from one region to another. The neglect of ethics and standards usually make put some of the regions at a disadvantage because of the weaknesses involved in the transaction. The management of the supply chain has to be conducted in an ethical manner that involves the adherence to certain procedures and regulations in order to protect other parties that are subject to or affected by the same transactions. It is particularly important to consider the fact that some of the issues relating to finances are governed by certain international practices that protect the markets against unfavorable discretionary powers by powerful companies and businesses. The imposition of controls would be necessary to protect the EU from some companies that practice unfair trading practices for short-term financial interests (Artis, Weber, & Hennessy, 2000). The pursuit of quick profits, which fuels the corporate greed within the EU, has often been regarded as a major contributory factor to some of the challenges that culminated into the crisis. Such tendencies promote liquidity problems that continue to afflict governments and the banking sector to levels that pose significant operational challenges within the region. In some sense, some of the issues that attend to the liquidity problems have to be understood from the perspective of the combined effects of the regional fiscal policies on the region. Challenges facing the establishment of a regional policy on some of the aspects of the economy have always been regarded in terms of the structural weaknesses of the EU regulations. These weaknesses allow for the thriving of negative competition, which negate the concept of representation as understood within the framework of regional trade (Lapavitsas, 2012, p. 54). It is important to consider the fact that some of the issues related to change have to be established within the broader framework in order to make it possible for the combined economies to work as a harmonious entity. Such an arrangement would allow the EU member states to benefit from the synergies of development as understood within the framework of regional economic development. The EU crisis testifies to the need for the development of a robust system that would promote a uniform interpretation of policies, interests, and objectives for the member states in order to harness the combined strengths and advantages of the different regions towards the objectives of stability and progress. Lack of accountability leads some influential companies to make decisions that ignore the interests of the consumers and other important business considerations. Such firms wield immense influence on regulators in ways that give them powers to determine the direction of policy because of the manner in which they relate to some fundamental factors of commerce and industry. To such an extent, it becomes necessary to consider the effects of the trade in terms of some of the consequences of the regional financial powers on the processes of control and regulation. The difference in opinions between the more stable economies such as Germany and the lesser stable ones have often been considered in terms of the various accounting policies that underpin their respective economies. In essence, proposals favored by Germany regarding austerity measures are meant to secure the regional economies in the long term. The intention is to allow the governments some levels of control on their economies in ways that shield them against the excesses of corporate greed. For instance, the banking sector would receive caps on its operations in ways that promote ethical practices that are responsive to the general stability of EU economy. The aspect of control must involve the acknowledgement of shared values within the different organizations (Issing, 2001). It is important to consider the fact that some of the issues of control as determined in the framework of operation require the contribution of the combined effects of the member states in order to be effective. Often, the challenge lies in the fact that the corporate culture of the different countries may be significantly different in ways that pose logistical and structural challenges in the processes of harmonization. Challenges encountered in the efforts of harmonizing of some of the provisions within the EU regulations are symptomatic of the cultural challenges at the center of the operations. There are concerns regarding the inadequacy of management accounting in dealing with some of the problems that continue to afflict the modern society. Accounting systems that fail to adjust to the challenges facing the European Union member states contribute to the growing deficits and the liquidity problems, which comprise the core concerns of the region. The challenge lies in the fact that there are no harmonized accounting systems within the region. Consequently, the region encounters difficulties of regulating the accounting principles and practices in ways that are representative of the interests of all member countries. Details of the weak accounting systems are illustrated in the misleading disclosures that had misrepresented information regarding the real extent of the deficit suffered by some member countries like Greece and Poland. The opinions of economists on the genesis and resolutions of the EU crisis address a range of problems with the EU economy in light of the simmering economic crisis that has threatened the collapse of some countries such as Greece. The substance of the different positions addresses itself to the different perspectives taken by three categories of economists in their challenge against the merits of proposals suggested by countries such as Germany and Britain with regard to the crisis. Some economists begin from the point that many governments within the EU are opposed to the details of the deal, which according to proponents was supposed to shield the EU tax payers from the negative consequences of recession. The three categories of economists identified in a range of studies are the Keynesians, the uncertainty groups, and the deficit groups. The respective positions taken by these three groups together comprise the different kind of challenges that afflict the EU economy ranging from unfavorable tax regime, low levels of employment, the social security system, investment, and the gap between the wealthy and the poor. The three different kinds of economists have their unique diagnosis of the type of challenges that afflict the economy and each one of them seeks certain solutions that could be enlisted in addressing these challenges. Certain common economic interests define the Eurozone. Although various differences arise in terms of harmonizing the operations in the region, the broad economic goals of the region are structured in ways that underpin the objective of creating a dominant economic power defined by the objectives of a stable market and currency (Manolopoulos, 2011). Some of the synergies of the region involve the converging the global economic processes within the region for purposes of competing favorably with other regions of the world. However, the downside of the region is that any negative impacts in any member state will have spillover effects on the entire region. For instance, the economic challenges facing Greece have threatened to destabilize the region with various economists failing to suggest any express approach of resolving the challenge. The Euro crisis is a consequence of the impact of some negative trends on the economic linkages within the member countries. The processes of control are particularly important because they help to determine the safety of processes within any economic system. Control entails the regulation of tasks and monitoring of processes with the objective of establishing any defects within the economic systems. With regard to the Euro crisis, there were poor controls, which made it difficult for the economies to make early detection of the anomalies in the banking sectors and other systems of the economy. Audit reports endorsed statements that were essentially flawed. Such processes of internal control are derived from a combination of factors that work towards the establishment of a stable and reliable financial system. Differences in the systems and methods of control in the respective member states contributed to poor visibility of the internal challenges that featured within the understanding of the Euro crisis. Analysts cite conflicts within the processes of accountability, representation, and control within the member countries as the root cause of many aspects of the Euro crisis. In essence, it might be necessary for the EU member states to revise the structural basis of the economic systems and policies in order to align them towards the determination of the most appropriate solutions to the crisis. Some of the aspects of the crisis are structural in nature, while others arise from the willful irregularities performed by individual economies for the sake of preserving certain interests and attaining certain goals within the union. Reversing the negative trend of the crisis would require a reexamination into some of the fundamentals that undergird the union’s blueprint versus the differences in the structures of the respective countries. Such processes would involve the ratification of the common interests of the union within the legal and operational frameworks of all member states. 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