During the US financial crisis, many economists and countries across the globe reacted negatively to the revival of United States economy. Beginning of 2007, saw the ascent of a crisis that was one of the longest and biggest in the history of economic failures. The ripple effect of the crisis could not be measured since economists back in US were still trying to figure out why early actions had not been made and how central bank failed to predict something so big. Many articles flooded the internet mostly focussing on ‘ Sub-prime Mortgage’, ‘Securitization’ and failures of the US central banking system.
Analysts found a new topic for debate and those who had been waiting to point fingers on Wall Street and the biggies in US, finally got a chance to do so! People compared these to previous bubbles that had been burst and research students found a new PHD topic with various hypotheses!
In 2008, countries like France, Germany and a few European countries were relieved about the fact that they had not faced the music of the US meltdown and it was reaping what it had been sowing. Little did they know that such crises take a while to gain momentum and the slow poison can be damaging for their own economies. In 2008, German Finance Minister Peer Steinbrück declared the US to be the source of the crisis. In a speech to the German parliament Steinbrück declared, “The world will never be the same … the US will lose its status as the superpower of the global financial system.”
In view of the expected effects of a serious recession, the governments of Germany and France saw value in putting some distance between themselves and Wall Street. “America is experiencing a decline in its power, and the financial crisis is only one indication of this. Europe must take on more responsibility,” began a column by Joschka Fischer, the former German foreign minister in 2008. On the US financial crisis on 27th August, 2008 President Sarkozy in his UN speech mentioned that even though the main epicenters of previous financial crises were the emerging countries, the very heart of world capitalism is being hit. He focussed that everything needed to be done at the EU level to promote the growth of the European economy. He spoke of reestablishing confidence by consolidating the European financial sector by strengthening the transparency, responsibility and oversight. The aim was that the EU will make the most effective contribution to the effort that must be pursued more broadly with its partners to correct the shortcomings and deficiencies of the international financial system. This was one of the reactions by Europe after US financial system fell apart in 2008.
In 2013 , Euro had a different tale to tell. Failure of big banks, austerity packages, bailouts, crashing of stock markets and even talks of Euro zone falling apart were witnessed. Large labour unions could have saved Eurozone but unemployment rate is on the rise and making matters worse than before.The unemployment rate in Euro zone has risen from to 12.2% for April, according to Eurostat, the statistics office of the EU. At 24.4%, youth unemployment was double the wider jobless rate and up from 24.3% in March.Protesters who picketed the European Central Bank on Friday , 31st May 2013, are planning a second day of action across European cities as anger grows over austerity measures that many blame for taking eurozone unemployment to an all-time high.¹
Combination of recession, social unrest and political necessity is a reminder of the situations faced in United States and Germany in the early stages of Great Depression.The mistakes made in Europe has been a failure to loosen monetary policy aggressively enough and a tightening of fiscal policy during recession. The Eurozone is doing all it takes to save the single currency and in doing so this one objective can drown the various economies of the Eurozone’s member countries.The case needs to be made, and explained to the public – as economist Paul Krugman recently did for Cyprus – that years of mass unemployment are too high a price to pay for keeping the euro.
© 2013 Deena Zaidi. All rights reserved.
¹ http://www.guardian.co.uk/business/2013/may/31/eurozone-unemployment-new-high-quarter-under-25s