European Union Crisis

The main aim of EU was to establish economic Integration but due to some reasons it had led Global Economic Crisis. Eurozone Debt crisis has resulted from a combination of complex factor.The reason for Euro zone crisis are discussed as follows:

1: Rising government debt levels

Government debt of Eurozone, Germany and crisis countries compared to Eurozone GDP Government deficit of Eurozone compared to USA and UK In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, a number of EU member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures.

2: Monetary policy inflexibility

Since membership of the eurozone establishesable to "print money" in order to pay creditors and ease their risk of default. (Such an option is not available to a state such as France.) By "printing money" a country's currency is devalued relative to its (euro zone) trading partners, making its exports cheaper, in principle leading to an improving balance of trade, increased GDP and higher tax revenues in nominal terms.

3: Trade imbalances

 During 1999-2007, the  countries (Portugal, Ireland, Italy and Spain) had far worse balance of payment positions. Whereas German trade surpluses increased as a percentage of GDP after 1999, the deficits of Italy, France and Spain all worsened. More recently, Greece's trading position has improved in the period November 2010 to October 2011 imports dropped 12% while exports grew 15% (40% to non-EU countries in comparison to October 2010).

4: Loss of confidence

Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the eurozone was safe. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. As the crisis developed it became obvious that Greek, and possibly other countries, bonds offered substantially more risk. 

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• Objective and Function of European Union

Objective and Function of European Union

    Objective of European Union

     1:Elimination of custom duties among member states.

    2:Elimination of obstacles to the free flow of import and export of goods and    

         services among member nations

     3:Free movement of capital and people within the block.

    4:Acceptance of common agricultural policies , transport policies,    

         health and safety regulations  and educational degrees.

     5:Common measures for consumer protection.

    6:Common laws to maintain competition throughout  the  community and       to fight monopolies or illegal cartels.

    7:Regional funds to encourage the economic development of      

  certain countries.

   8:Greater monetary and fiscal co-ordination among member states    and certain common monetary and fiscal policies. 

Function of European Union:

      

 1: Internal Market:     

 Two of the original core objectives of the European Economic Community were the development of a common market, subsequently renamed the single market, and a customs union between its member states. The single market involves the free circulation of goods, capital, people and services within the EU,^[ and the customs union involves the application of a common external tariff on all goods entering the market. Once goods have been admitted into the market they cannot be subjected to customs duties, discriminatory taxes or import quotas, as they travel internally.

     

 2: Competition:

The EU operates a competition policy intended to ensure undistorted competition within the single market. The Commission as the competition regulator for the single market is responsible for antitrust issues, approving mergers, breaking up cartels, working for economic liberalisation and preventing state aid.

   

 3:Monetary union:

The euro is designed to help build a single market by, for example: easing travel of citizens and goods, eliminating exchange rate problems, providing price transparency, creating a single financial market, price stability and low interest rates, and providing a currency used internationally and protected against shocks by the large amount of internal trade within the euro zone. Since its launch the euro has become the second reserve currency in the world with a quarter of foreign exchanges reserves being in euro. The euro, and the monetary policies of those who have adopted it in agreement with the EU, are under the control of the European Central Bank (ECB).

      

4:Financial supervision:

The European System of Financial Supervisors is an institutional architecture of the EU's framework of financial supervision composed by three authorities: the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. The aim of this financial control system is to ensure the economic stability of the EU.

     

5:Energy:

 The EU has had legislative power in the area of energy policy for most of its existence; this has its roots in the original European Coal and Steel Community. The EU has some key points in its energy policy: increase competition in the internal market, encourage investment and boost interconnections between electricity grids; diversify energy resources with better systems to respond to a crisis; use existing energy supplies more efficiently while increasing use of renewable energy; and finally increase funding for new energy technologies.

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• European Union Crisis