Explore the Main Implications of the European Union

Question: Describe about the Explore the main implications of the European Union, extending its membership to include the former communist countries of central and eastern Europe? Answer: In response to the major financial crisis that took place in European Union region, both the banking system and the supervisory structure of the region took stern measures to put in corrective checks. However it can be debated whether the measures were adequate and what more or different could have been done in the prevailing situation. The debt crisis exposed structural weakness in some of the countries of the region, primary being the unsustainable levels of both public and private debt. The financial crisis was also able to expose the systematic shortcomings in the detailed architecture of the monetary and economic union in the region. National Governments of the region along with institutions took slew of measures to safeguard the financial stability and also to strengthen the architecture of the institutions (Arezki, 2011). The complexity of financial integration in the Euro zone and the significance of the same cannot be decoded without understanding the complex structure on which the Euro zone is standing. The establishment of the single currency in the region followed by the Governance structure leads to formation of contagion on the whole region even if the small part of the whole region is making trouble (Ruffert, 2011). The structure of The European Union and its banking structure is based on the framework that each member country will support the existence of the other in times of crisis. However in the current situation countries like Germany which have healthy GDP to debt ratio are financing the needs of country like Greece and Spain which are struggling in the region. This has led to rise of the question whether the structure is good enough to survive the down time. The cost of debt has come down sharply in most of the countries, however the risk appetite of the investor has not risen as the d emand remains to be subdued in the region. Although ECB has been following an ultra loose monetary policy and has also enforced negative interest rate in the economy, the demand has been very sluggish and this is the prime reason why respite is still not felt in the region. Coupled with the already leveraged problem there are high chances that the region will move into deflation mode, as even in the ultra loose monetary policy inflation is not picking up and is way below the desired state (Lane, 2012). In response to the recent debt crisis in the European region there have been slew of austerity measures, debt write downs, ultra loose monetary policy, creation of huge bailout fund. These measures have been intended to provide the whole region some kind of financial stability. In reaction to this we have seen fallen interest rate in the economy, huge rally in stock market but the real market indicators are showing no signs of improvement. The debt crisis exposed structural weakness in some of the countries of the region, primary being the unsustainable levels of both public and private debt. The financial crisis was also able to expose the systematic shortcomings in the detailed architecture of the monetary and economic union in the region. National Governments of the region along with institutions took slew of measures to safeguard the financial stability and also to strengthen the architecture of the institutions. The cost of debt has come down sharply in most of the countries, however the risk appetite of the investor has not risen as the demand remains to be subdued in the region. Although ECB has been following an ultra loose monetary policy and has also enforced negative interest rate in the economy, the demand has been very sluggish and this is the prime reason why respite is still not felt in the region. Coupled with the already leveraged problem there are high chances that the region will move into deflation mode, as even in the ultra loose monetary policy inflation is not picking up and is way below the desired state. The banking system in the region has led to Government follow steep austerity measure in the region, however the same has provided no major relief to state finances and public debt. The increased level of taxes followed by huge cuts in Government spending has led to sharp contraction in the economy. The direction of the Government and ECB are not in synchronization. The debt crisis exposed structural weakness in some of the countries of the region, primary being the unsustainable levels of both public and private debt. The financial crisis was also able to expose the systematic shortcomings in the detailed architecture of the monetary and economic union in the region. National Governments of the region along with institutions took slew of measures to safeguard the financial stability and also to strengthen the architecture of the institutions. The establishment of the single currency in the region followed by the Governance structure leads to formation of contagion on the whole regio n even if the small part of the whole region is making trouble. The structure of The European Union and its banking structure is based on the framework that each member country will support the existence of the other in times of crisis. However in the current situation countries like Germany which have healthy GDP to debt ratio are financing the needs of country like Greece and Spain which are struggling in the region. This has led to rise of the question whether the structure is good enough to survive the down time. The cost of debt has come down sharply in most of the countries, however the risk appetite of the investor has not risen as the demand remains to be subdued in the region (Prez-Caldentey, 2012). The complexity of financial integration in the Euro zone and the significance of the same cannot be decoded without understanding the complex structure on which the Euro zone is standing. The establishment of the single currency in the region followed by the Governance structure leads to formation of contagion on the whole region even if the small part of the whole region is making trouble (Ruffert, 2011). The structure of The European Union and its banking structure is based on the framework that each member country will support the existence of the other in times of crisis. However in the current situation countries like Germany which have healthy GDP to debt ratio are financing the needs of country like Greece and Spain which are struggling in the region. This has led to rise of the question whether the structure is good enough to survive the down time. The cost of debt has come down sharply in most of the countries, however the risk appetite of the investor has not risen as the demand remains to be subdued in the region. Although ECB has been following an ultra loose monetary policy and has also enforced negative interest rate in the economy, the demand has been very sluggish and this is the prime reason why respite is still not felt in the region. The international investors are not putting money in the region and that is easily visible by means of buying trends seen in Italian and Spanish bond. Majority of the bond auctions are seen to be closed only by the domestic buyers. The cost of debt has come down sharply in most of the countries, however the risk appetite of the investor has not risen as the demand remains to be subdued in the region. Although ECB has been following an ultra loose monetary policy and has also enforced negative interest rate in the economy, the demand has been very sluggish and this is the prime reason why respite is still not felt in the region. Coupled with the already leveraged problem there are high chances that the region will move into deflation mode, as even in the ultra loose monetary policy inflation is not picking up and is way below the desired state. However it can be debated whether the measures were adequate and what more or different could have been done in the prevailing situation. The debt crisis exposed structural weakness in some of the countries of the region, primary being the unsustainable levels of both public and private debt. The financial crisis was also able to expose the systematic shortcomings in the detailed architecture of the monetary and economic union in the region. National Governments of the region along with institutions took slew of measures to safeguard the financial stability and also to strengthen the architecture of the institutions (Arezki, 2011). The complexity of financial integration in the Euro zone and the significance of the same cannot be decoded without understanding the complex structure on which the Euro zone is standing. The establishment of the single currency in the region followed by the Governance structure leads to formation of contagion on the whole region even if the small part of the whole region is making trouble (Ruffert, 2011). References: Arezki, R., Candelon, B., Sy, A. (2011). Sovereign rating news and financial markets spillovers: Evidence from the european debt crisis.IMF working papers, 1-27 Ruffert, M. (2011). The European debt crisis and European Union law.Common Market Law Review,48(6), 1777-1805 Lane, P. R. (2012). The European sovereign debt crisis.The Journal of Economic Perspectives,26(3), 49-67 Prez-Caldentey, E., Vernengo, M. (2012).The euro imbalances and financial deregulation: a Post-Keynesian interpretation of the European debt crisis(No. 702). Working Paper, Levy Economics Institute Featherstone, K. (2011). The JCMS Annual Lecture: The Greek Sovereign Debt Crisis and EMU: A Failing State in a Skewed Regime*.JCMS: Journal of Common Market Studies,49(2), 193-217 Gianviti, F., Krueger, A. O., Pisani-Ferry, J., Sapir, A., von Hagen, J. (2010).A European mechanism for sovereign debt crisis resolution: a proposal(Vol. 9). Brussels: Bruegel Beirne, J., Fratzscher, M. (2013). The pricing of sovereign risk and contagion during the European sovereign debt crisis.Journal of International Money and Finance,34, 60-82