Causes of the 2008 Sovereign Debt Crisis in Europe

Causes of the 2008 Sovereign Debt Crisis in Europe â€Å"Discuss the causes of the sovereign debt crisis in Europe since 2008 and critically analyse the proposed responses. It is important that you inform your arguments using academic literature.† Introduction The European sovereign debt crisis came to prominence in late 2009, when newly elected Greek Prime Minister George Papandreou announced that previous governments had been distorting the country’s deficit data (Nelson et al., 2012). A revision of the budget deficit forecast was revealed as 12.7% of GDP – a valuation that was almost double the previous figure of 6.0% (Gibson et al. 2012). The reaction to this was a fall in investor confidence, which caused sovereign bond yields to rise to an all-time high (see Appendix 1). This impacted not only Greece, but also other heavily indebted countries within the Eurozone – identified as peripheral nations (Greece, Ireland, Italy, Portugal and Spain). There is growing concern within the Eurozone that these periphery nations could ultimately default on their sovereign debt. European banks currently hold a large portion of the regions government bonds (see Appendix 2); if one nation was to default on its sovereign debt payments it would cause financial pressure throughout the Eurozone (Constà ¢ncio 2012). This is a known as financial contagion, a term described by Dornbusch (2000) as the spread of market shocks from one country to another. The fear of contagion has forced the European Central Bank (ECB) to bailout a number of the periphery nations; however, this is not viewed as a sustainable practice. The aim of this essay is to identify the causes of the sovereign debt crisis and analyse the proposed responses by the European Union (EU). Causes A complex phenomenon, such as the sovereign debt crisis, is built up of a variety of elements. Most analysts believe that the crisis was caused by structural weaknesses present both at the European and national levels, along with factors specific to (Dombret 2013). The structure of the Eurozone is a key factor contributing to the current crisis. A structural deficit exists within the Eurozone with the fact that there is a single monetary policy and decentralised fiscal policy. This creates an imbalance as the monetary policy is controlled by the ECB, whereas individual member states are trusted to set their own revenues and expenditures (Lapavitsas et al. 2010). Given this imbalance, it has led to ‘fiscal free-riding’ by the peripheral economies. These nations have had an increased incentive to borrow as the cost of debt is spread across the entire currency area. The Stability and Growth Pact was created to regulate fiscal expenditure, with one of its tenants being that annual government expenditure should not exceed 3% of GDP (see Appendix 3); however, due to a lack of automatic sanctions, these rules have been universally broken, thus setting the pathway to the current crisis (Anand et al. 2012). The mispricing of sovereign risk and subsequent misuse of capital is also a significant factor that has led to the sovereign debt crisis. As the periphery prepared to join the Euro, their sovereign bond yields began converging with those of the core nations (see Appendix 4). This allowed the periphery access to substantial amounts of low-cost credit, which traditionally, they had not experienced before. Voltz (2012) suggests that the sovereign risk of the periphery was mispriced by the capital markets, which has led to an â€Å"unsustainable accumulation of private and public debt†. In Greece, the inflow of capital financed excessive government spending, whilst in Ireland and Spain it led to creation of banking and real-estate bubbles. When capital markets tightened during the financial crisis of 2008, the unsustainability of these debts became apparent as the periphery struggled to finance its existing sovereign debt. Moreover, the governments were forced to assume private se ctor debt as national banks declined and speculative bubbles burst necessitating large bailout packages (Nelson et al. 2012). The Eurozone created an illusionary sense of prosperity. Lin (2012) explains that the sense of prosperity was illusionary as there was a progressive loss of competiveness of the periphery in relation to the core. This loss of competitiveness was partly a result of sharp wage rises in the non-core countries, leading to large current account deficits (Lapavitsas 2012). These deficits were funded by sovereign debt, with most of the debt being held by the core’s banks – a key factor in increasing contagion risk. Historically, nations running a current account deficit would devalue their currency in order to improve their position (Simkovic 2011); however, due to the monetary policy inflexibility within the Eurozone this is not possible. A culmination of the factors mentioned above has resulted in a huge fall in investor confidence, marked by a decrease in available credit (see Appendix 5). Due to the high levels of high risk sovereign debt, Standard Poor has downgraded the credit ratings of a number of Eurozone nations. To regain global confidence, the EU must provide a strategy that will tackle the underlying issues present within the Eurozone. Responses The immediate response from the EU has been to create financial firewalls. These have been in the form of rescue mechanisms, such as the EFSF (2010-2013) ESM (2012+), which have the ability to buy sovereign debt, recapitalise banks and provide bailout packages to the Eurozone nations (Thesing 2011). However, this is a short term solution to a long term problem. Regling (2012), CEO of EFSF, has stated that the mechanisms should only be used to â€Å"buy time† while the root causes are eliminated. This calls for responses aimed at reducing government debts and deficits, as well as structural reforms at European and national levels. A favoured approach by national governments to contain their finances has been an implementation of fiscal consolidation. AÄÅ ¸ca (2013) defines fiscal consolidation as policies that â€Å"cut budget deficits and reduce public debt levels†. The ECB and IMF have been aiding nations with the design, implementation and supervision of these policy reforms. Fiscal consolidation has, so far, proven to be a success, with Ireland’s sovereign bond yields falling from 11.8% to 3.5%. Undoubtedly, this route of austerity carries negative implications. As well as the social costs involved, fiscal consolidation is known to stagnate economic growth (Anand 2012). To regain investor confidence, the fiscal policies need to be coupled with national structural reforms aimed at increasing competitiveness (Dombret 2013). Ireland and Spain have both reduced their current account deficits through the use of these reforms (see Appendix 6), highlighting that the periphery must embrace this strategy. As we have discussed, the lack of fiscal control and regulation was a major factor in the birth of the sovereign debt crisis. To rectify this problem there has been major responses a European level. A new reform of the Stability Growth Pact, known as the fiscal compact, was created in 2011 with the aim of providing â€Å"enhanced coordination in fiscal and economic policy† within the Eurozone (Regling 2012). This reform ensures member states adhere to the 3% deficit and 60% debt-to-gdp rules of the Maastricht Treaty, through the creation of an automatic sanction procedure. A yearly review of Member States’ budgetary and structural policies, known as the European Semester, has also been put into effect (Bowler 2013). These structural reforms will help put government finances on track. However, it does not address the underlying issue that member states are trusted to set their own fiscal budgets. To address this issue, analysts have called for the creation of a European fiscal union. Weidmann (2012) believes that a fiscal union provides the â€Å"cornerstone of framework for the monetary union†. To achieve this, it would require deeper political integration within the Eurozone; this would necessitate legislative changes at both the European and national level. Accomplishing the required level of political integration, with the 18 member-states, would be a near-impossible task due to the conflicting agendas and ideals (Feust 2012). Hence, if they structural deficits within the Eurozone are to be fixed, these nations will need to work collectively. A current topic of debate has been to do with the potential introduction of so called â€Å"Eurobonds†, where bonds are issued on a European front and finances distributed accordingly. While the introduction of these bonds would send a statement of commitment to the Euro (Nelson et al. 2012), the incentive to increase debt would rise as the liability would be spread across the member-nations. This would result in a case of the core, again, paying for the actions of the periphery. Conclusion Nevertheless, the European sovereign debt crisis remains a growing problem for the global economy. I feel the elemental decision that needs to be made is whether the euro should be brought closer together, or whether it would be best for the future of the Eurozone to sever ties with the periphery. Although fracturing the euro is a radical response, it may be the only way to curb the threat financial contagion poses. Regardless of the decision made, the European sovereign debt crisis has exposed dangers of fiscal recklessness, and should serve as a lesson to future economists, governments and monetary unions (Sandoval et al. 2011). Reference List AÄÅ ¸ca, S. Deniz, I. (2013),Fiscal Consolidation and the Cost of Credit: Evidence from Syndicated Loans . IMF Working Paper[Online]. Available at:http://www.imf.org/external/pubs/ft/wp/2013/wp1336.pdf(Accessed: 2th February 2014). Anand, M. R., Gupta, G. L., Dash, R. (2012),The euro zone crisis Its dimensions and implications. Department of Economic Affairs (DEA), Minsitry of Finance, India.[Online]. Available at:http://mof.gov.in/WorkingPaper/euro_zone_crisis.pdf(Accessed: 10th February 2014). Constà ¢ncio, V. (2012), â€Å"Contagion and the European debt crisis†,Financial Stability Review,(No. 16), pp. 110. Dornbusch, R., Park, Y. C. Claessens, S. (2000), â€Å"Contagion: Understanding How It Spreads†,World Bank Res Obs,Vol. 15(No. 2), pp. 177-197. Dombret, A. (2011),Europes sovereign debt crisis causes and possible solutions,Available at:http://www.bis.org/review/r120111b.pdf(Accessed: 4th February 2014). Dombret, A. (2013),The European Sovereign Debt Crisis – Past, Present and Future,Available at:http://www.bundesbank.de/Redaktion/EN/Reden/2013/2013_08_26_dombret.html(Accessed: 7th February 2014). Fuest, C. Peichl, A. (2012),European Fiscal Union: What Is It? Does It Work? And Are There Really ‘No Alternatives’?. IZA Policy Paper No. 39[Online]. Available at:http://ftp.iza.org/pp39.pdf(Accessed: 3rd February 2014). Gibson, H. D., Hall, S.G. Tavlas, G. S. (2011),The Greek financial crisis: growing imbalances and sovereign spreads. Working Papers 124[Online]. Available at:http://www.bankofgreece.gr/BogEkdoseis/Paper2011124.pdf(Accessed: 1st February 2014). Lapavitsas, C., Kaltenbrunner, A., Lindo, D., Michell, J., Painceira, J. P., Pires, E., Powell, J., Stenfors, A. Teles, N. (2010), â€Å"Eurozone crisis: beggar thyself and thy neighbour†,Journal of Balkan and Near Eastern Studies,Volume 12(Issue 4), pp. 312-373 [Online]. Available at:http://researchonmoneyandfinance.org/media/reports/eurocrisis/fullreport.pdf(Accessed: 8th February 2014). Lin, J. Y. Treichel, V. (2012),The Crisis in the Eurozone,Available at:http://www.worldfinancialreview.com/?p=2303(Accessed: 6th February 2014). Lapavitsas, C. (2012),Crisis in the Eurozone, New York: Verso Books. Nelson, R. M., Belkin, P., Mix, D. E. Weiss, M. A. (2012),The Eurozone Crisis: Overview and Issues for Congress. US Congressional Research Service Reports[Online]. Available at:http://www.fas.org/sgp/crs/row/R42377.pdf(Accessed: 8th February 2014). Regling, K. (2012),Europe’s Response to the European Sovereign Debt Crisis. Anders Chydenius Free Trade Seminar[Online]. Available at:http://www.efsf.europa.eu/attachments/20120608_speech regling_anders_chydenius_seminar_kokkola_en.pdf(Accessed: 2nd February 2014). Sandoval, L., Beltran, E., Ulziikhutag, S. Zorigt, T. (2011),The European Sovereign Debt Crisis: Responses to the Financial Crisis. New Voices In Public Policy Vol. 5[Online]. Available at:www.journals.gmu.edu/index.php/newvoices/article/download/4/4(Accessed: 4th February 2014). Somkovic, M. (2011),Bankruptcy Immunities, Transparency, and Capital Structure,Available at:http://siteresources.worldbank.org/EXTGILD/Resources/Jan11-FC-Simkovic.pdf(Accessed: 6th February 2014). Thesing, G. (2011),European Rescue Fund May Buy Bonds, Recapitalize Banks, ECBs Stark Says,Available at:http://www.bloomberg.com/news/2011-01-22/ecb-s-stark-says-rescue-fund-may-buy-bonds-recapitalize-banks.html(Accessed: 9th February 2014). Voltz, U. (2012),Lessons of the European Crisis for Regional Monetary and Financial Integration in East Asia. ADBI Working Paper Series[Online]. Available at:http://www.adbi.org/files/2012.02.21.wp347.lessons.european.crisis.east.asia.pdf(Accessed: 3rd February 2014). Weidmann, J. (2012),Everything flows? The future role of monetary policy,Available at:http://www.bundesbank.de/Redaktion/EN/Reden/2012/2012_06_14_weidmann_everything_flows_the_future_role_of_monetary_policy.html(Accessed: 4th February 2014).

Essay example --

The most common definition of sustainability is living in a way that meets the social, economic, and other requirements of the current population as well as ensuring the same requirements will be able to be met for future generations. Living sustainably is something that affects every person on the planet. The way we live now affects our lives today, as well as the future population. Some people believe that sustainability and living green will not matter to them as the effects of their actions will not manifest in their lifetime, but this assumption is incorrect. Currently two-thirds of the services provided to us by nature are declining, 85% of all fish stocks in the ocean are overexploited, depleted, recovering or fully exploited. There was a 38% increase in annual global carbon dioxide and it will take 50+ years for the ozone layer to get back to pre 1980 levels. Global warming is one example of long-term change in the environment that has been caused by humans. Other examples ar e the introduction of nonnative and invasive species, land development, and changes in water quantity and quality. Statistics according to the article Resilient People Resilient Planet. There is no guarantee that if people continue to live the way they are living, things will continue to be sustainable. However sustainability is not just about the environment, social and economic aspects are equally as important to creating a sustainable world. (Figure 1). In this paper I will explain what it means to live sustainably, why it is a problem, challenges and how humans can live more sustainably. The way people live now has detrimental effects on humans and the planet. According to the World Health Organization (WHO), more than 800,000 people die prematu... ...t future generations can also live in. If humanity continues to disregard the planet and disappearing resources and live in an unsustainable way, people now and later will suffer. A conscious effort must be made by the entire world to make this important change. Developed nations, like America, and poor nations have especially difficult work to do. This is because consumption is a major driver of negative human impacts on the planet, these practices are especially motivated by extreme poverty and extreme wealth. People all over need to make a concentrated effort to change. Personal change will make an impact for the better, but government must be involved as well for a complete change to occur. If concentrated efforts are made to live more sustainably humankind will be able to make changes for the better to preserve the planet for themselves and future generations.

A Critical Review of Infant Artificial Language Learning Essay

They also give evidence which comes from experiments showing that newborns discriminate a passage read aloud by their mothers during the last six weeks of pregnancy from an unfamiliar one. Rebecca L. Gomez and Louann Gerken’s observation about this phenomenon is very helpful especially for those who are learning about the mystery of how children acquire their language and it is only how but also since when children especially infant acquire the language and it can be answered by Rebecca L. Gomez and Louann Gerken which stated that there’s a probability infants learn and acquire language since in the utero. Summary How children acquire language is one of the mysteries of human cognition. There is a view about thirty years ago states that children master language by means of a language-specific learning device but in earlier proposal states that children make use of domain-general, associative learning mechanisms. Language acquisition is one of the most complex learning tasks imaginable. The complexity of natural language makes it exceedingly difficult to isolate factors responsible for language learning. Infant language researchers have begun by examining four aspects of the language learner’s task. The first involves identification of word-like units in speech. The second involves encoding and remembering the order in which words occur in sentences. The third involves generalization of grammatical relations. The last involves learning at the more abstract level of syntactic categories (e. . determiner, adjective, noun and verb). This fourth sensitivity is at the root of our unique human ability to produce and comprehend novel utterances. First implication of the research on infant artificial language learning concerns artificial-language-learning studies discussed have examined infants’ sensitivity to linguistic form in the absence of semantic content. This is not to say that learners do not ultimately need to map the syntactic forms they encode durin g infancy onto meaning. Obviously they do. However, the fact is infants are able to acquire certain aspects of form prior to acquiring the meaning of these forms changes the nature of the language acquisition problem in a fundamental way. A second implication of the research on infant artificial language learning concerns the specificity of the constraints on the learner. On many accounts, these constraints have been construed as being language specific, such that for every aspect of language to be acquired, the child is born with a specific constraint. Data showing that infants can use transitional probabilities to segment grammatical tone sequences contrasts with this view. A third implication of both the infant artificial-language learning studies reviewed here and many studies of infant language perception preceding them concerns the relevance of children’s early utterances as evidence for theories of language acquisition. One of the key observations of linguistic natives involves errors that children do not make. Children never erroneously transform a statement like ‘The man who is tall is Sam’ into a question like ‘Is the man who tall is Sam? The lack of such errors, along with logical arguments concerning the poverty of the stimulus, have been taken as evidence that children never consider rules based solely on linear order in sentences. it is equally important to note that if the studies of infants’ early linguistic abilities tell us anything, it is that they have become sensitive to many asp ects of linguistic form a year or more before they ever begin to produce multiword speech. This is not to say that all of language is acquired by the age of 12 months. However, if infant language-perception studies have one theme, it is in demonstrating the extremely complex relationship between aspects of their native language infants. Thus, we must exercise caution in interpreting children’s early utterances as evidence for or against the linguistic representations they do and do not entertain. Critical Evaluation Infant Artificial Language Learning and Language Acquisition by Rebecca L. Gomez and Louann Gerken are based on the observation which they already held and also from the later observation from other experts. The main focus in this journal is about the artificial language of infant, here Rebecca L. Gomez and Louann Gerken made such a grammar for infant to determine whether infants could learn ‘grammatical’ word order, Gomez and Gerken exposed 12-month-olds to a subset of strings produced by one of two grammars. However, this journal focuses not only how children especially infant acquire language but also since when infant acquire the language itself. Rebecca L. Gomez and Louann Gerken also give evidences which make their observation stronger. The explanation given is also complete and simple. Conclusion Infant Artificial Language Learning and Language Acquisition by Rebecca L. Gomez and Louann Gerken is a journal that expose about infant artificial language. They explain how infant acquire language from their own observation and they also made a grammar special for infant in order to complete their observation but besides that, they also take some observation which also already been discovered. This journal is worthy to read especially for the linguists who try to reveal and find out one of the mysteries in human cognition which is how children acquire language.

Masque Of The Red Death By Edgar Allan Poe Analysis

Edgar Allen Poe is famous for his distinct style of writing. Authors use stylistic elements to create an effect on their writing that develops a voice. Factors such as Edgars past has influenced his writing and has contributed to his style. In his literary works, Poe uses figures of speech such as irony, similar point of views, and allegory to establish his voice as an author. Figures of speech such as irony are used by Poe to create his style. In Masque of the Red Death it states, No pestilence had ever been so fatal or so hideous. (†¦) The abbey was amply provisioned. With such precautions the courteirs might bid defiance to contagion. The external world could take care of itself. (†¦) There were buffoons, there were improvisatori,†¦show more content†¦By using the first person point of view, the audience not only knows what the narrator is doing but what they are thinking and feeling. The similar point of view found in his writing gives Poe his individual style. Allegory is commonly used in Poes literary works. The Raven is an allegory for the seven stages of grief. I tried to borrow From my books surcease of sorrow – sorrow for the lost Lenore (†¦) And the only word there spoken was the whispered word, Lenore (†¦) Clasp a rare and radiant maiden whom the angels name Lenore, Quoth the raven Nevermore (†¦) Take thy beak from out my heart, and take thy form from off my door, (Raven 2, 5, 16, 17). These stages of grief are shown throughout the story by the narrator. Due to Poes tragic past of losing the women in his life, he had to experience the stages of grief that came with death. The short story, The Masque of the Red Death was an allegory for the seven deadly sins. That at the eastern extremity was hung, for example, in blue –and vividly blue were its windows. The second chamber was purple in its ornaments and tapestries, and here the panes were purple. The third was green throughout, and so were the casements. The fourth was furnished and lighted with orange –the fifth with white –the sixth with violet. The seventh apartment was closely shrouded in black velvet tapestries that hung all over the ceiling and down theShow MoreRelatedLiterary Analysis Of Edgar Allan Poe s The Masque Of The Red Death1409 Words   |  6 PagesA Literary Analysis of Edgar Allan Poe’s â€Å"The Masque of the Red Death† Edgar Allan Poe is popularly known as a Gothic short story writer. He has produced many gruesome stories, including the short story â€Å"The Masque of the Red Death†. In this short tale, Prince Prospero decides to lock himself and his friends of the court into a magnificently decorated abbey to escape becoming ill of a disease which has caused half the people in his land to perish. 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