Analysis of the European economic crisis and its impact to the New Zealand based Marino wool Export Industry.
This analytical report analyzes the background of European financial crisis and causes impact to the ongoing economic crisis. According to the analysis this terrible situation arises due to amalgamation of numerous complex factors. Reasons caused for this continuing financial crisis varied by country to country in the euro zone. In numerous countries, private debts arising from a property bubble caused to government to transfer sovereign debt to the banking system to avoid the bailouts of banking system. In a summery, crushing level of government debt in some countries, problems in the banking sector and the slow growth in Europe are the three separate but interconnected reasons for the European sovereign debt crisis. Further in this report discussed some of the measures had taken by European Union authorities to manage the economic crises. Mainly Greece, Portugal, Italy and Spain European member countries effected from the financial crisis. PESTEL analysis used to analyze the current business and economical environment of the European union and it has covered the major political, economical, social, technological, environmental, legal factors within the euro zone and identified the main risk factors which have higher impact on New Zealand based Marino wool exporting industry. Based on the detailed analysis of condition of the economic and financial environment in European region observed the potential risk factors which are impact to the New Zealand based Merino wool exporters and gave the best possible suggestions to overcome the identified potential risk.
01.Background of the Crisis in European Union.
The economic crisis in European Union cause dramatic problems to the European Union countries and due to this financial crisis most of the countries in European Union could not able to repay their government debt without the assistance of any other country or a third party. This terrible situation arises due to amalgamation of numerous complex factors. This sovereign debt crisis rose among investors as a consequence of the increasing private and government debt levels around the world together with a sign of decreasing of government debt in some European states. Reasons caused for this continuing financial crisis varied by country to country in the euro zone. In numerous countries, private debts arising from a property bubble caused to government to transfer sovereign debt to the banking system to avoid the bailouts of banking system. (the guardian, 2012) Apart from the above globalization of finance, easy credit conditions during the period of 2002 to 2008 that encouraged high-risk lending and borrowing practices, global financial crisis during the period of 2007 to 2012, international trade imbalance, global recession during the period of 2008 to 2012 and fiscal policy choices related to government revenues and expenses mainly affected to the economic crisis in Europe Zone countries. (Wikipedia, 2012) 02.Major Causes for the crisis in Euro Zone
Increasing household and government debt levels
According to the Maastricht Treaty (convergence criteria) government between the European Union agreed to fiscal requirement which is government debt should not exceed 60 percent of the country’s Gross Domestic Product and the budgeted amount to no more than 3 percent of GDP. This agreement had broken almost immediately by the member countries including France and Germany. In 2007 the average fiscal deficit in the euro area was only 0.6% and it reached to 7% during the financial crisis. In the same time the average government debt had increased from 66% to 84% of GDP. (Wikipedia, 2012) Extraordinary increment of household debt levels were another major cause to the financial crisis. According to the statistics of IMF during the five years preceding 2007 the ratio of...