The Global Financial Crisis Has Caused A Massive Deterioration Of Public Finances

In response to the 2007-2008 financial crisis, the United States government was charged with reforming many financial systems. One area of concern was credit cards. Namely, many Americans faced financial troubles with credit debt and other credit card related issues. In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The goal of the Credit CARD Act was to protect consumers from dubious credit card issuers. The legislation enacted intends to make the credit card system more transparent and supervised in addition to certain consumer protections. The Credit CARD Act was a major shift in the way credit card issuers were allowed to operate, and most—if not all—credit card issuing

Thesis: Broadly speaking, the debt crisis facing the US and the international community is an issue that has far reaching implications not only for financial institutions but also to many working people and many economists are giving top priority in solving this issue.

The weekend of May 5-6 opened a new chapter in the Eurozone debt crisis as voters in France and Greece voiced their disproval over current leadership. With news of France's Sarkozy losing the presidency, and "a dismal election result for Greece's pro-bailout parties" (Reuters.com. May 7, 2012. PP. 1); the future of the Eurozone continues to be shrouded in uncertainty. Debt yields for Greece, Ireland, and Portugal spiked as bond investors ruminated over fiscal and monetary policies. Likewise in Spain, the ten year bond pushed closer to the "psychologically important 6 percent" (Reuters.com. May 7, 2012. PP. 1) threshold. These events highlight the troubling issues of austerity, growth, and debt service which are weighing down the European economy, and as a result imperil the global economic growth story.

These countries are now facing great recessions and austerity as a result of these debts. Because Italy, Belgium and Greece are experiencing fiscal correction, the battle is far from over. Many other members of the EU will need to build up their fiscal surplus to counterbalance the vast debt that has been accumulated. The EU is really no different that the U.S. in that it needs to place full attention on its crisis and correct the situation immediately. Europe has crumbled more than the U.S. has as a result of the crisis. Europe is more segregated than the U.S. and doesn’t offer the same stability for foreign investment than the U.S.

By the end of 2008, the European Union began experiencing rippling effects of the United States financial crisis. Several member countries, most notably on the southern end of the continent, faced high levels of debt and unemployment. Portugal, Iceland, Ireland, Greece, and Spain, derogatively referred to as “PIIGS,” required extensive economic support from the EU in order to repay government debts and bail-out private banks. Disbursal of aid in 2010 proved successful in promoting economic recovery in some countries; however, the vast majority observed only slight economic improvement which led to doubts regarding the effectiveness of the harsh austerity measures implemented. Ireland has most clearly benefited from the financial support of the European Union as the country’s unemployment rate has dropped below ten percent and is expected to witness 4.5% GDP growth in 2016. Portugal, on the other hand, shows little fiscal improvement as evident in an unemployment rate of 13% and an expected GDP growth of only 1.6% in 2016. Although both countries faced tough financial crises in 2010, Ireland has notably outperformed Portugal in resolving the situation. The weak economy in Portugal, as well as continued fiscal hardship in the remaining “PIGS” countries, threaten the preservation of the European Union as financial inequality between the members persists.

The global economic recession of 2008 shook economies all around the world. Some of the largest countries saw a massive reduction in their GDP, and Italy saw its economy shrink 3%. Italy still hasn’t recovered from the hit it took in 2008, and it is still causing problems for the country. Italy’s debt actually isn’t their problem, but it is the root problem. Italy has carried debt to GDP ratios well above 100% for over 20 years, but only now are they having serious economic issues.

The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the centre of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.

Blyth defines austerity as “the ‘common sense’ on how to pay for the massive increase in public debt caused by the financial crisis”, which comes primarily through the elimination of government services. People knowingly take on debt with the intention to then pay it off-- before the financial crisis of 2008 people took on debt to pay bills and banks took on debt to make money by leveraging. When the crisis hit, the government felt the banks were “too big to fail” (because a crucial part of economic activity in the US is tied up in liquidity of the largest banks) and bailed them out. When a person’s debt becomes too high they pay it down with income rather than continuing to spend and pump money into the economy, or “deleveraging”. In

In 1999, ten European nations joined together to create an economic and monetary union known as the Eurozone. Countries, such as Germany, have thrived with the euro but nations, like Greece, have deteriorated since its adoption of the euro in 2001. The Eurozone was created in 1999 and currently consists of eighteen European nations united under the European Central Bank and all use the euro. The Eurozone has a one point six percent inflation rate and an eleven point six percent unemployment rate in 2014. Greece joined the Eurozone in 2001 and was the poorest European Union member at the time with a two point six percent inflation rate3 (James, 2000). Greece had a long economic history before joining the Eurozone. The economy flourished from 1960 to 1970 with low inflation and modernization and industrialization occurring. The market crash in the late 1970’s led Greece into a state of recession that the nation is still struggling with. Military failures, the PASOK party and the introduction of the euro have further tarnished Greece’s economic stability. The nation struggles with lack of competitiveness, high deficit, and inflation. Greece has many options like bailouts, rescue packages, and PPP to help dig it out of this recession. The best option is to abandon the Eurozone and go back to the drachma. Greece’s inflation and deficit are increasing more and more and loans and bailouts have not worked in the past. Leaving the Eurozone will allow Greece to restructure and rebuild

The economic crisis of 2008 in New York had ripple effects around the world, causing deep structural problems within the European Union to crumble the economies of several countries. These countries, known as the PIGS, are made up of Portugal, Ireland, Greece, and Spain, and collectively hold most of the sovereign debt problems of the European Union. After fast growth early in the decade, these countries were spending too much money and not securing their own banking sectors with enough capital. Soon, the debt the PIGS owed caused massive problems throughout the EU, and Germany and France had to come to the rescue of these poorly managed countries. (Greek Crisis Timeline, 1) Now, in 2012, the issue has yet to be fully resolved. Greece is still sinking, and a massive bailout for Greece's banks is required. The debate is whether Germany should continue bailing out Greece and collecting interest on its loans, or whether Greece should try to separate itself from the broader European Union, in an attempt to manage its own finances and declare bankruptcy in order to save itself from crippling interest payments. Each path offers an escape from the present situation that Greece finds itself in, but only the path of bailout results in a harmonious European Union. If Greece fragments off from the EU, then the entire union is weakened as a result. I believe that Greece should accept the terms of the bailout that Germany has provided, and should undergo several years

The economic crisis within the Eurozone has grown rapidly for the past five years, and members of the European Union struggle to enact any effective measures to halt or reverse its effects. Perceived booms in the housing markets were really only bubbles which popped and sent entire national economies spiraling downward into recession. Nations of the Eurozone have accumulated massive public debts, far larger than the 60% of GDP maximum specified in the Stability and Growth Pact. In 2011, Greece’s debt reached an unbelievable 170.3% of its GDP. Economic punishments are the specified consequences for violating this regulation, but the pact has not been adequately or consistently enforced. So many states have fallen past the debt limit that

The European sovereign debt crisis, which made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.

The economic crisis in Greece began through government policies that promoted overspending, while relying extensively on external loans to finance it. This issue was increased when Greece entered the European Monetary Union, therefore making the cost of borrowing very favorable. For the past decade, Greece could borrow money with interest rates close to those afforded by much more advanced economies. As a result, the national debt grew exponentially until Greece could not borrow any more money. The Greek government asked the European Union for assistance in 2009, and soon afterward the European partners, along with the IMF, agreed to a series of loans and debt reductions for more sustainable debt levels for Greece. As a condition for this aid, they requested the

What is the European Debt Crisis? The European Debt Crisis is the failure of the Euro, a currency that ties seventeen European countries together. In this paper, I will be describing the cause and effect of the debt crisis along with what would happen if the European Union stayed with the economy they have. Then what I believe is the best solution to fixing the debt crisis.

This paper is mainly focusing on the historical background and causes of debt crisis in late 1970s and 1980s.