Back in the early days, europe has always been at war. The leaders of each country conceived by greed and power wanted to conquer europe. When countries are at war the trade system got frozen and went into a deadlock. Back then each country has their own currency, in order to trade with one another they must change their currency into the seller's currency, there a small fee is needed. Furthermore because of the deadlock, a further tariff fee is needed. This stiffen economic growth. During the World War II each country's economy has gotten so bad, all leaders came together with an agreement to take away the tariff fee and rebuild the europe economy. Until the recently demolition of Berlin wall in 9 November 1989 all 27 countries signed the Maastricht Treaty demolishing all tariffs in europe, lowering the cost of trading and boosting the economy. But there is still a problem, each countries are using different currency. In 1993 the european union is formed and in 1999 13 countries agrees to use the euro as their currency and formed a European Central Bank commonly known as ECB.
ECB controls the entire europe country's monetary policy but not the fiscal policy and that is the main problem for the crisis. The monetary policy governs the interest rate of borrowing and lending, The fiscal policy monitor the collection of tax from the citizen and spending of the government. Countries like Greece has an interest rate as high as 18% can now borrow at a 3% interest rate. The borrowing in countries like Greece and other countries skyrocketed. Politicians started borrowing money to fund their huge fiscal deficit spending policy and involve in job creation, better pension plans, etc. Countries like Ireland started huge housing plans. Debt increases and are being repaid by more borrowing. Everyone is doing well under this fragile system until the housing crisis in 2008 created shockwaves across europe. Lenders stop lending money, debtors demands their return and the crisis started.
All countries are unable to repay their debt including Greece, Spain, France, etc only Germany has a stable economy to help europe get out of the crisis but with strict conditions. Germany introduces strict austerity measures. This limits the countries spending and increasing their repayment. However this creates lots of problems. The ambitious fiscal policy has to be demolished, this created a chain of reactions, for example, the restriction on spending may cut the payment of salary for the government servant, people lost their jobs and they get angry, riots happened. Furthermore, the austerity measure doesn't helped improve the countries economy. You see, the spending of the government has been restricted, people earn less, spend less and pay less tax. Another problem is the cultural differences.
Germany has always been very financially responsible. This is because of the hyper inflation during the world war I. So now, the people retirement age is very late, they has less pension fund and pay tax on time. However the culture in Greece is very relaxing. People retire early, has large pension funds and seldom pay tax at all. It has always been this way and joining the european union just amplifies it. It will be vital for all the countries to adapt to the austerity measure as they are all interconnected. The money borrowed from the Germany to help boost the economy again is just a temporary measures. The european union must be able to step in and control the fiscal policy of each country. They must be able to cut deficit, increase taxes and make laws. This could mean all the countries must surrender their authority to the european union and become a united european country. Of course, nobody love other people coming in digging around your own lawn.
It would be important for all the european country to corporate to maintain the euro or else broken back into their own currencies.
Let me know what you think about the european crisis. How has it affect you and what can they do about it to overcome this problem.
till then keep smiling people, its not the end of the day
