October 23, 2012
360* Research Paper
The European Economic Crisis: A Global Crisis
Background of Issue and Paper’s Main Points
What Caused this Crisis?
One of the most important and pressing issues of our time is the economic problems gripping countries around the world, from Asia to Europe all the way back to our homes in the United States. With the world connected by technology the way it is today, crises in any corner of the globe can return to the doorsteps of American citizens who had no direct involvement with causing these crises. The economic crisis plaguing Europe right now is an interesting and alarming example of this. A large amount of Americans have no direct stake in the fate of European economies, yet the health of European economies affects economic movements in America because American financial institutions have large amounts of capital invested in countries and corporations in Europe. Between 2008, the year this crisis began, and its peak in October 2009, unemployment in the U.S. nearly doubled from about 5 percent to 10 percent (Bureau of Labor, 2012). What happened in Europe that caused this crisis? How has this and how will it affect America? Background of the Crisis
The crisis in Europe was caused by a sovereign debt crisis extending back to the introduction of the euro as currency in Europe in 1999. European economic woes cause paralyzing uncertainty amongst American financial institutions. The United States is not the only country to be affected negatively by this crisis; countries in Asia, the Middle East, and North Africa are affected too, especially the countries with less developed economies. Things bad for Europe are bad for the United States; things bad for Asia are bad for the Middle East, and are even worse for less advanced countries around the globe. In this way, the European crisis is not solely a European problem, it is a worldwide problem The European debt crisis was the epicenter of an economic earthquake that has, and continues to, send shockwaves of uncertainty across the globe. This paper aims to trace the causes and effects of this crisis on Europe and the rest of the world, with specific focus on the United States. What made this happen? What effects did it have on the world economy? What are some projections for remedying these maladies?
Cause of Crisis and Future Projections for Europe
The Introduction of the Euro and Interest Rates
The economic crisis in Europe, and its effects on the U.S. and other countries, can be traced to the introduction of the euro as a standard currency in Europe. 1999 is the year the Euro was introduced, with the hope that it would make it equally easy for all countries in the Eurozone to obtain loans from other countries at similar interest rates. For a while in the middle of the last decade this seemed to work. However, after the worldwide economic collapse in 2008, the stronger countries, which had been willing to lend to weaker countries suddenly began to raise interest rates in fear they would not get paid back. Strong countries like Germany and France raised their lending rates to weak countries like Ireland and Greece, thereby making it more difficult for these countries to raise the money necessary to pull themselves out of debt. As the graph illustrates, German and French rates stayed low, while Irish Greek and Portuguese rates rose sharply. This reversed the trend in Europe, from an equal chance for borrowing amongst countries, to one in which there is great disparity between weak and strong countries. A Leading Economist on the Causes of the Crisis
One of the leading commentators on the subject of the European Economic crisis is businessman George Soros, one of the leading figures in the field of world economics. Soros writes that the cause of the crisis is the increase in interest rates for weaker countries and the problems this caused for the...