Tag Archive: ECB


Eurozone Economic Crisis and Jobless Rate

European leaders are attempting to resolve the debt crisis and economic slump that they now face. This crisis has caused a leap in unemployment rates in Eurozone countries because governments and companies are trimming their payrolls in order to address their high debts and to compensate for weak consumer spending. European leaders plan to put an end to the joblessness, and through it the economic crisis, by boosting the confidence of their citizens in government finances; through this, they hope to stabilize the economies of those countries who use the euro as their single form of currency.

The idea of a single euro currency began in 1991, where the Maastricht Treaty was created by the European Union, and the Maastricht Treaty laid the foundation for the creation of a monetary union by 1999. The goal of the Economic and Monetary Union (EMU) is stability; another goal of the EMU is to make the euro less sensitive to those fluctuations in currency exchange.

In July, Eurostat, the European Union’s statistical agency, said that 88,000 more people were without jobs, and in the Eurozone the current rate of unemployment reached a record high of 11.3 percent in July. The cause of the unemployment is tied to several factors, one of which is the cuts to public sector payrolls, benefits and tax hikes. Because of these cuts citizens are hesitant to invest their money and make large purchases, while companies are not willing to take the risk of hiring new employees.

In early August of this year, the statistics gathered by Eurostat were addressed in a meeting with the European Central Bank’s (ECB) governors. There were opposing views as to how the ECB would potentially solve the economic crisis. News agencies believed that the ECB would use the European Financial Stability Facility (EFSF) rescue fund to bring back stability to those countries in trouble, but Germany argues that it is illegal for the ECB to use the EFSF rescue fund to “bankroll government borrowing.”

On the other hand, it was speculated by financial analysts Holger Schmieding and Christian Schulz that the ECB would do nothing more than provide “strong verbal intervention.” Regardless, the head of the ECB, Mario Draghi, said that he would do “whatever it takes” to preserve the euro. It wasn’t until this week that his plan was unveiled. Draghi proposes to buy unlimited government bonds in order to boost the confidence of those countries that are in economic crisis. While this sounds like a good plan there are still many groups that have to agree to it, namely politicians and bankers.

Hopefully, if everyone agrees, this will be the solution to resolving the economic crisis in the Eurozone, and through it lower the rate of joblessness.

 

 

Proposed Expansion of European Central Bank Power

The European Commission has called for a mass overhaul of the current banking system in the Eurozone. It involves the European Central Bank being allowed to monitor banks in each of the 17 countries that use the euro. This in an attempt to deal with the monetary crisis in the Eurozone.

The European Central Bank (ECB) was created in 1998 prior to the adoption of the euro as common currency for Europe.The ECB’s current role is setting interest rates and printing money, but this proposition would expand its power to allowing the institution to monitor banks more closely in their everyday business practices.  There are staunch supporters as well as those who oppose this proposal for many different reasons.

The opposition includes some non-Eurozone countries that are concerned with the effect that this banking union would have on their banks. For instance Sweden and Denmark are concerned with having to bail out weak Eurozone banks or having to relinquish some of their power to run their own banks. These non-eurozone countries do not want to weaken “national supervision”, and this banking union proposal has caused some countries to re-consider adopting the euro as currency. Moreover some EU officials are apprehensive about the ECB being able to dictate the direction of banking policy and legislation surrounding those policies, and whether or not expanding the powers will actually help.   Some member states want to “keep them {ECB} at arms length as it’s none of their business”.

In contrast some support the expansion of the ECB’s power because of the institutions budgetary reforms and steadfastness during the fiscal crisis.  For instance,  Jörg Asmussen believes that ECB’s approach was necessary but that there must be controls subject to parliamentary and judicial review, and that it’s difficult to have a common currency without common fiscal policies. In addition France’s Financial Minister, Pierre Moscovici, does not think issues surrounding the banking union will prevent the legislation from being passed before the end of this year.

Either way the heads of European Parliament and Council have to approve this legislation before any major changes can take effect, and it seems that this will be a hard fought battle whatever the outcome may be in the end.




Provide Website Feedback / Accessibility Statement / Privacy Statement