The EU Debt Crisis
As opposed to the perceptions of the European economy standing on strong fundamentals of rapid export growth and sound financial positions of households and businesses, the year 2008 brought down major EU and US financial institutions. The rescue of Fannie Mae and Freddy Mac, the bankruptcy of Lehman Brothers and concerns over the insurance giant AIG’S downturn, panicked the stock markets. The market valuations of financial institutions evaporated and investors rushed out for leftover safe investment havens. This all happened amid a genuine threat of a complete financial meltdown of the European Union.
The immediate control measures came from the central banks, governments and supranational authorities in Europe, who acted forcefully to sharply cut policy interest rates and introduced or raised guarantees for savings deposits. Substantial fiscal stimulus was injected by the governments. However, now economists speculate about the possibility of exit as a policy stimulus in the years ahead. This is in addition to the challenge of establishing new EU and global frameworks to resolve financial crises and manage the immunity through systemic risk.
Though experts hold the US to be the proximate cause of the financial crisis, Russian Prime Minister Viladimir Putin disregards the proposition. He says: “The US is not a parasite for the world economy, but the monopoly of the US dollar is the parasite.” This argument is supported by economists who have closely reviewed the bursting of the US property bubble and conclude that problems in small corners of US financial markets are capable of infecting the entire global banking system and setting off a downward spiral of falling asset prices and bank losses.
However, in his reference to the recovery of the EU debt crisis, Putin is positive on the recovery potential. According to him, “Greece is the nation in the worst situation in the Eurozone, but its economic volume accounts for only 2 percent of Europe’s GDP.” On this basis, he further says: “Some experts believe the scale of financial assistance in the European debt crisis is likely to reach 1 to 1.5 trillion euros. It is not a small figure, but I believe the EU can afford it.”
As Russia and, in particular Asia, are growing to be strong allies of the EU in strengthening the economy, regional leaders are mapping out viable economic strategies from the debt crisis. The formation of EU Coordination has developed clear action phases towards a sustainable future of the EU. A coordinated approach is necessary to ensure an orderly exit of crisis control policies, as described here,