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THE EUROPEAN UNION
Transcript of THE EUROPEAN UNION
Will Greece default?
The European Union (EU) began with "a trade agreement signed in 1933 that now encompasses twenty-seven countries in Europe and a population of almost half a billion people. It has its own flag, anthem, and currency, and a common financial, security, and foreign policies."
It was created after World War II, with the idea to build a stronger economy and keep peace among the countries. It was assumed that, with being economically interdependent, the EU countries were less likely to create conflict among one another. By creating the EU, this created an ‘internal market’, meaning that goods, services, money and people were able to move more freely through the countries.
The EU, once called the European Economic Community (EEC)(1958), initially began with six countries:
Germany’s largest concern is that most of its neighboring countries are drowning in debt. Germany has actually had large economic growth with GDP having risen 3.6% in 2010 and their unemployment rate being lower than before the crisis in 2008. Their government plans to cut the budget deficit by 80 billion euros by the year of 2014. The main problem in this circumstance is that Europe’s largest and most successful economy is the biggest contributor for bail outs in the Eurozone. If Greece defaults, Germany will most likely have to bail out its own banks. Germany has already bailed out Greece twice in the past.
The banks of UK have a large exposure to Irish debt. The UK is still however seen as one of the safest investments in the world, with its low borrowing costs. The UK’s budget deficit however, was 10.3% last year.
The economy of Portugal is shrinking thus lowering its budget. Portugal was the third of three EU members to be bailed out (worth 78 billion euros).
“The Greek government has promised to slash its public deficit from nearly 13 percent of gross domestic product to nearly nine percent of Gross Domestic Product by the year's end. Greece's debt is currently estimated at more than $404 billion - or about 113 percent of its GDP.”
“Polls show that despite the social protests, the majority of Greeks support the government's austerity measures.”
With other countries such as Italy, Spain and Portugal needing bailouts of their own in the near future, this could cause a major problem for the EU. Though there is always the option of defaulting on debt, this would mean the downfall of the European Union.
Italy, Portugal, Greece, Ireland, and Spain begin 2012 with new political administrations which have to implement austerity measures in efforts to lower their debt and save the EU.
EUROPEAN UNION MEMBERS
• Austria (1995)
• Belgium (1952)
• Bulgaria (2007)
• Croatia (2013)
• Cyprus (2004)
• Czech Republic (2004)
• Denmark (1973)
• Estonia (2004)
• Finland (1995)
• France (1952)
• Germany (1952)
• Greece (1981)
• Hungary (2004)
• Ireland (1973)
• Italy (1952)
• Latvia (2004)
• Lithuania (2004)
• Luxembourg (1952)
• Malta (2004)
The sovereign debt crisis continues to spread across Europe. Three nations (Greece, Portugal, Ireland) out of the seventeen in the Eurozone that use the euro as currency, have been bailed out in attempts to solve or stall the crisis. Let’s look at the effects of debt on the Eurozone:
Greece has a debt of about 340 billion euros. Other nations among the EU are very sceptical about Greece’s ability to repay its huge rising debt. Talk persists on the idea of Greece defaulting and/or leaving the Eurozone. Due to how interdependent the European economy, if the Greek’s decide to default this could have an enormous negative effect on French and German banks. Greece is thought to have a very high probability of defaulting and is considered as ‘junk’ by the ratings agencies.
Italy has the largest total debt in the Eurozone. Rome intends to balance their budget by 2013 and has set 60 billion euros worth of austerity measures. There is still a large concern regarding its increasing debt in relation to GDP. Few believe that if Italy were to need a bailout, that the Eurozone (specifically Germany) would not be able to afford it. The advantage of the Italian debt, is that most of its debt is to its own people rather than foreign investors (unlike Greece).
The housing boom left the country’s banks with huge debt and the highest unemployment Rate in all of the Eurozone. Due to Spain’s recent borrowing costs, this has forced their government to adopt austerity measures. Spain is believed to be too expensive to bail out for the Eurozone. In efforts to help the developing financial crisis, the Eurozone has tried to lower borrowing costs as opposed to giving loans.
France’s economy is very interdependent with that of the Greek’s, meaning their banks have a heavy exposure to Greek debt. Though public finances have not been doubted or questioned, France’s banks have seen large falls in the stock market. France has announced their plans to cut spending over the next three years by 45 billion euros.
Everything that the European Union does is “founded on treaties, voluntarily and democratically agreed by all member countries. These binding agreements set out the EU's goals in its many areas of activity.” (http://europa.eu/index_en.htm)
Is there light at the end of the tunnel?
ISSUES THAT THE EUROPEAN UNION FACED IN 2010 - 2011
The European Union’s single currency, the euro, was supposed to interconnect the European countries into a strong monetary union, however, in recent years (from 2010) it has become clear that the Eurozone is in financial crisis, and the future is left unpredictable. Spending cuts, sovereign debt and social unrest became common for the members of the European Union. Greece is the first ‘weak link’ of the EU, with tremendous amounts of debt, and doubts from other members in the EU regarding the country’s ability to pay off the debt. European leaders gave more than $100 billion towards the Greek economy in efforts to regain stability in the EU. Six months later, Ireland was already facing its own financial crisis, luckily the money needed was available.
Stronger economies such as France, still face major debt. Strikes and massive protests began once cuts in public spending were implemented. Leaders struggled to balance Europe’s needs and their own. Even Germany, being economically strong, “hesitated before using taxpayer money to bail out other European economies.”
united politically and economically.
- The Euro is officially introduced.
— The Euro becomes the single currency among the majority of the EU The Euro replaced 12 out of 15 currencies
—The EU expands further as 10 new countries join new constitution signed
— France and the Netherlands reject the document.
— Romania and Bulgaria become the newest members to the EU, this thus increases the union to 27 members.
July 18th 2008
— All-time high currency value for the Euro at 1.5843 to the dollar. However the worldwide recession takes a toll on the currency later that year.
— “The world's three main credit ratings agencies downgrade Greece's debt, sending financial markets tumbling and raising concerns about other weak European economies like Portugal, Spain, Ireland and Italy.”
— With difficulty, the European Union tries to contain the debt crises, “Standard & Poor's in April downgrades Greece's sovereign debt to junk status, and cuts Portugal and Spain's credit ratings. Eurozone finance ministers meet in May to approve a 110-billion-euro loan package to Greece. In June, the euro reaches a four-year low, falling below $1.19.”
(AND YEARS OF ENTRY)
• Netherlands (1952)
• Poland (2004)
• Portugal (1986)
• Romania (2007)
• Slovakia (2004)
• Slovenia (2004)
• Spain (1986)
• Sweden (1995)
• United Kingdom (1973)
On the road to EU membership
• The former Yugoslav Republic of Macedonia
• Bosnia and Herzegovina
EURO CRISIS - THE EUROPEAN UNION WILL CRUMBLE UNDER THE PRESSURES OF DEBT
"Unfortunately, the necessary solidarity has been eroded by the financial crisis. The electorates of countries that have been asked to guarantee loans to the other member states are strongly resentful of that because they think why should we do that. We're rewarding them for their profligacy, or what have you. And that makes it much harder for governments to actually argue the case for the kind of integration necessary to put the whole thing on a more sustainable footing going forward."
Simon Tilford chief economist at the Center for European Reform
VALUE OF THE EURO FALLING
The euro is being seen as weak and temporary.
Value of Euro falling as the EU tries to deal with Greece's budget crisis
GERMAN LED BAIL OUT?
Debt is too
for Greece's economic capacity
People of Greece –
mobs, marches, strikes
– furious about spending cuts and higher taxes
measures– police officer says his salary cut 30%
Germany will only hand over the cash if Greece takes
new and severe
Budget deficit should be below
, Greece has
, Spain has
, and Portugal has
GREECE AUCTIONING OFF PROPERTY?!
6 greek islands 8 . 5 million euros
Exclusive rights to use the coliseum image 25million for 15 years
Italian island 2.9 million --> The people are getting angry saying that "they are selling our culture and history"
1.15 million to get a Malta passport and be apart of the EU
SUSTAINABLE RECOVERY, Europe needs to restructure and be more competitive
GREECE has already borrowed about
euros to avoid going bankrupt
GREEK GOVERNMENT agreed to cut
public sector jobs by end of year
GREEK TAXES are expected to increase by
3.4 Billion euros
economic, social and political destabilization --> unpredictable outcomes
, Greece already got money and they are forced to ask for a bailout again
Private sector banks have offered to write off
of greek debt
Greek leaders have agreed to far-reaching
New cuts threaten to raise
in recession-hit Greece
WHAT IS GOING ON IN GREECE?!
THE DOMINO EFFECT
If Greece can't solve it's debt issues it'll have a domino effect on all members of the EU
I personally believe that due to the fact that the nations of the Eurozone are so economically interdependent, they will have debt whether it is due to Greece defaulting, or Germany bailing Greece out. If Greece defaults, it has a domino effect on the Eurozone members, and if Germany bails them out it seems like it will only be a temporary solution. Greece having been bailed out twice already by Germany, what is supposed to make us believe that after the third bail out they will change the way the run their country? That they will implement harsh austerity measures to change their financial status? Regardless of the solution in this kind of situation, considering the interdependence and the amount of debt that has accumulated in the Eurozone, I'd say it isn't looking promising for Europe improving.