Europe has been affected massively by the economic crisis. Some nations in Europe have suffered massively and are dragging the entire European economic block behind. Such nations include Spain, Greece and Portugal. While some countries such as Germany and United Kingdom seem to have recovered fully from this crisis others haven’t.
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One of the key causes of this crisis was fiscal and corporate malpractice by governments and banks respectively. The article indicates that governments should institute proper policies that will ensure the debt-GDP ratio is appropriate. There two sides to borrowing in an economy. First, it encourages expansion of the economy since it increases expenditure.
However, borrowing increases expenditure beyond what a nation can sustain on the long run. Furthermore, it also increases recurrent expenditure which does not contribute to the development or expansion of the economy. A government should attempt to establish an optimum level for the debt component in the budget. This will limit the negative implications of the debt component on the economy.
The European Union has embraced tougher measures to ensure economic reforms in the nations that are most affected by the debt. Consequently, the union has instituted austerity measures in the nations that are still reeling from the economic crisis. Austerity measures seek to bring sanity to the economy by reducing the gap between expenditure and income in member states.
These measures will ensure that a country can sustain itself on the long run. In the current economic state, austerity measures are prudent since they will reduce the dependency on debt.
Greece’s slow recovery has resulted in attempts to force it’s exist form the economic block. It’s exist would result in tougher economic prospects for the nation. Nonetheless, the impacts of Greece’s exist would depend on the economic policies adopted in that nation.
The European Union faces countless problems according to the article. Some of these problems are a key threat to the prosperity of this union. Nations have varying economic policies that depend on the challenges they are encountering and their economic ambitions. Policies adopted by the union seem not to contradict the internal policies of some nations. This has made harmonization of economic policies harder.
One of the key challenges that has been hampering monetary integration in the European Union is the adoption of a single currency. Such a move would make it easier to trade in the union. However, some nations have been unwilling to adopt the proposed currency. Owing to this, the article asserts that the union is dead with regard to its monetary policies.
The article provides factual evidence of the monetary challenges the union will encounter. A single currency will necessitate a single interest rate. Nonetheless, it is difficult to have a single rate since nations are facing different economic hurdles. Furthermore, they have different economic ambitions based on which they set their interests. In light of the above, it will be extremely difficult to harmonize the monetary system.
The European Union’s proposed central banking system will face countless challenges. However, the union can undertake some monetary harmonization which will set the stage for further economic synchronization. The monetary aspect of European Union seem to be the hardest to integrate. This is attributable to the sensitive nature of currencies and other macroeconomic factors such as inflation and money supply.
Individual nations should maintain control on such vital aspect of the economy. Ultimately, the success of European Union will depend on political negotiations, compromises and undertaking decisive action. Decisive action include adopting tough measures against nations that are unwilling to comply, yet they want to remain as member states of the union.