EUROZONE

A comprehensive analysis of the effect on international business of the problems in the Eurozone



A comprehensive analysis of the effect on international business of the problems in the Eurozone

Introduction

The eurozone crisis which started with Greece is now spreading to Italy and Spain. The debt crisis is being exacerbated by low economic growth in both countries and has coincided with the US debt crisis in July 2011. The debt crisis in the euro area, begins with the Greek crisis of 2010 and continues with the Irish crisis of autumn 2010. If in case she comes first Greek public deficit, in the Irish case the crisis of debt comes from the bank bailout and therefore private debt. This is a banking crisis become a management challenge for the debts of banks, a public debt crisis, with a stock market crisis from the summer of 2011, the most serious of the history of stock exchanges.

The pressure on some countries like Spain can not be explained by its public debt but the debt of private agents and the risks to banks and by weak growth prospects. This crisis leads to institutional innovation and debate particularly around issues such as who should take the risk (European mechanisms transferring risk to the U.S. private) and must make efforts to overcome the crisis. Finally, the debt crisis is related to the slow growth that affects all of the old industrialized countries since the economic crisis known as the Great Recession (2008 onwards) and too modest efforts to regulate the banking and financial sector since the subprime crisis.

Discussion and Analysis

The crisis of government debt comes from the fear of creditors of Greece on its ability to repay its debt and to pay interest on that debt. It reflects both the global economic crisis and country-specific factors: high debt (about 120% of GDP) budget deficit that exceeds 13% of GDP. This crisis was exacerbated by the lack of transparency shown by the country in the presentation of its debt and deficit, including raising funds off-balance sheet, through to financial instruments developed by Goldman Sachs. As noted by Socialist MEP Pervenche Berès in an article published in Le Monde, it's Mario Draghi, future president of the ECB, vice president of Goldman Sachs for Europe from 2002 to 2005 was responsibility of sovereign states. Pervenche Berès questioned concludes with Pascal Canfin : "Will he fight now that he has promoted yesterday and he never criticized? ".

For the economist Jean Pisani-Ferry "for ten years, the average difference between the actual budget deficit and the number notified to the European Commission was 2.2% Gross Domestic Product (GDP) ". This will bring the European Commission and European political leaders to seek an explanation from Greece, to question the role played by Goldman Sachs as a council of the Greek government and to consider regulate the market for CDS. This crisis led to a fall in the euro which promotes exports and the recovery. She also, and perhaps most importantly, caused a double debate ...