EU Financial and Political Crisis

EU Financial and Political Crisis

Introduction

The European Union (EU) was founded in 1992 in Maastricht, the Netherlands. It began functioning as a political organization in November 1993 and has gradually become one of the key actors in international affairs. In Europe, the EU has clearly become a political unit toward which the minor, small, and great powers tend to look before anything else and toward which regional, political, and economic activities increasingly tend to be geared. The EU currently includes 27 European states and is structured around three key institutions: the European Parliament (with 736 members), the European Commission (with 27 commissioners), and the European Council. It is through these political bodies that EU legislation—the driver of integration—is debated, passed, and implemented.

Financial Crisis

Financial crises are characterized by large-scale defaults by both financial and non-financial enterprises, usually accompanied by falling incomes and prices in the economy as a whole. In principle, the implications of such crises can be confined to a single country. In fact, both financial and other forms of economic interdependence mean that they are transmitted internationally: the phenomenon of 'contagion '. The term 'financial crisis' has also been extended to cover a second class of events: balance of payments and foreign exchange crises that are triggered by the withdrawal of foreign financing. These crises may or may not be accompanied by widespread distress in the financial and corporate sectors, although the Scandinavian banking crises of the early 1990s and the EU financial crisis of 2005 onwards demonstrated how the two can compound one another. Finally, the term has been extended to a third phenomenon: fiscal crises or crises associated specifically with the market for government debt. These can also have wide-ranging international implications when government debt is held by foreign creditors.

Although there have been major financial crises affecting the performance of the global economy from the time of the collapse of the speculative South Sea Bubble in 1720 (see bubbles ), the phenomenon of and potential for global economic crises has been most marked during the twentieth century. This potential has derived in large part from the increasing integration of financial markets and the fact that modern information and communications technology permit panic and mania to be transmitted almost instantaneously from one market to another through a variety of routes: examples include short-term movements in capital or interest rates , fluctuations in commodity markets, or simple psychological infection. A distinctive feature of the two major global financial crashes of the twentieth century, the Great Crash of 1929 and the Black Monday stock market crash of October 1987, has been that all major stock markets have crashed simultaneously, even though a relatively small number of securities were truly international - that is, being traded on several markets.

Discussion and Analysis

The most severe peacetime global economic crisis of the twentieth century arose following the Great Crash of stock markets in 1929, itself the product of a prolonged period of speculative trading in financial ...