Crisis

How does Economic Crisis Affect European Union and how Does EU Reacts Introduction to the European Union and the Economic Crisis It is a fact world wide that we are facing an economic crisis. There are many Countries inside European Union that can hardly respond to the values of the crisis. The whole commission has to Decide and act properly for all those countries that can hardly respond to the crisis. The depth and breath of the current global financial crisis is unprecedented in post-war economic history.

It has several features in common with similar financial-stress driven crisis episodes. It was preceded by relatively long period of rapid credit growth, low risk premiums, abundant availability of liquidity, strong leveraging, soaring asset prices and the development of bubbles in the real estate sector. Stretched leveraged positions and maturity mismatches rendered financial institutions very vulnerable to corrections in asset markets, deteriorating loan performance and disturbances in the wholesale funding markets.

Such episodes have happened before and the examples are abundant (e. g. Japan and the Nordic countries in the early 1990s, the Asian crisis in the late-1990s). But the key difference between these earlier episodes and the current crisis is its global dimension. ( http://ec. europa. eu/economy_finance/publications/publication15887 ) THE CRISIS FROM A HISTORICAL PERSPECTIVE A perfect storm. This is one metaphor used to describe the present global crisis. No other economic downturn after World War II has been as severe as today’s recession.

Although a large number of crises have occurred in recent decades around the globe, almost all of them have remained national or regional events – without a global impact. So this time is different – the crisis of today has no recent match. To find a downturn of similar depth and extent, the record of the 1930s has to be evoked. Actually, a new interest in the depression of the 1930s, commonly classified as the Great Depression, has emerged as a result of today’s crisis. By now, it is commonly used as a benchmark for assessing the current global downturn. The purpose of this hapter is to give a historical perspective to the present crisis. In the first section, the similarities and differences between the 1930s depression and the present crisis concerning the geographical origins, causes, duration and impact of the two crises are outlined. As both depressions were global, the transmission mechanism and the channels propagating the crisis across countries are analyzed. Next, the similarities and differences in the policy responses then and now are mapped. Finally, a set of policy lessons for today are extracted from the past.

A word a warning should be issued before making comparisons across time. Although the statistical data from previous epochs are far from complete, historical national accounts research and the statistics compiled by the League of Nations offer comprehensive evidence for this chapter. Of course, any historical comparisons should be treated with caution. There are fundamental differences with earlier epochs concerning the structure of the economy, degree of globalization, nature of financial innovation, state of technology, institutions, economic thinking and policies.

Paying due attention to them is important when drawing lessons. (http://ec. europa. eu/economy_finance/publications/publication15887 ) Responses to Crisis In a single market and a huge trading bloc like the EU, coordination of national economic policies is important. Through such coordination, the EU can act with speed and consistency when faced with economic challenges, as the current economic and financial crisis. Sixteen countries have even one step further by adopting the euro currency.

The framework for cooperation in economic policy is Economic and Monetary Union (EMU), whose members are all EU countries is a framework within which countries agree common guidelines on important issues of the economy. The final result of the cooperation is more growth, more jobs and higher level of social protection for all. Moreover, this cooperation allows the EU to respond to global economic and financial challenges in a coordinated way. The EU as a major trading power, is more resilient to external shocks and, thus, can effectively address the various economic and financial problems.

The EU has faced in a coordinated way the current financial and economic crisis, from the first moment occurred in October 2008. National governments, the European Central Bank (ECB) and the Commission work together to protect their savings to maintain the flow of credit at affordable terms for businesses and households, and to establish a better system of global management of the financial sector. The aim is not simply the restoration of stability but to ensure that the conditions to re-launch growth and job creation.

So far, EU governments have placed more than 2 trillion for the rescue effort of their economies. European leaders have coordinated their interventions, providing support and allowing banks to grant loan guarantees. The EU also increased state guarantees for private savings accounts to 50,000 euros. The use of the euro as common currency in many European countries worked very positively during the crisis. Helped the EU to react to the global credit crisis in a coordinated manner and provide greater stability than would happen without it.

For example, as the ECB could cut interest rates throughout the euro area (instead of each country sets its own exchange rate), banks across the EU can now borrow or lend to each other under the same conditions . The euro is used daily by more than 60% of EU citizens Having a single currency was a win-win for abolished the cost of converting currencies at leisure or business trips within the eurozone, abolished or significantly decreased in almost all Where the cost of cross-border payments; consumers and businesses can easily compare prices, thus fostering competition.

Participation in the euro zone is a guarantee of price stability. The ECB sets the key interest rates at levels designed to keep medium-term inflation in the euro area below 2%. It also manages the foreign reserves of the EU to intervene in currency markets to influence the euro exchange rate. (http://europa. eu/pol/financ/index_el. htm ) Europe, mistakes and the economic crisis The crisis was born on August 9, 2007, when the European Central Bank (ECB) introduced 95 billion liquidity to markets, while the BNP Raribas freeze three investment funds because of subprime had value.

The injections are slightly stimulated the patient and the ECB has gained credibility. Apart from the monetary policy should, however, warned governments to take steps to eradicate the evil and to prevent the liquidity crisis be turned into a solvency crisis. Then the ECB was slow to cut interest rates. When in March the European Parliament held a debate devoted to these issues in preparation for the European Council in April, the former Irish Finance Minister Charlie Mc.

Creevy had preferred to keep racing … Also the perception of Manuel Barroso’s role is questionable. Rather than enshrine it in the spirit of community spirit, arrested him as a dead leaf which is led and borne by the wishes of the Council: the Commission should propose only what Member States want. The organization of the Commission creates a blind spot in understanding this crisis. The macroeconomic and related issues with the markets depend on two different committees.

In the European Parliament in October 2006 calling on the Commission “to pay more attention to the effects of market behavior on the macroeconomic situation in the euro area. Because there had to break the morale of the household, mobile motorized development, and because it was easier not to go ahead, the governments leave the ECB to intervene alone. Adopt them journey to the lessons of the crisis are not dealt with the pollution of subprime, the address of which is limited to calls for transparency from banks.

But this is contrary to the rules of the market because it requires “players” to risk their reputation. Transparency could be only by on-site inspections, for which nobody had the means. In the spring the International Monetary Fund released figures decline in growth in Europe while car sales fell in Germany. In the holy alliance of the European executive and the ECB decided that the data were under American influence and too pessimistic. By optimizing the expectations we had in denial of reality.

After a serious error assessment of the Bush administration ran away evil and rotten egg of subprime cut the mayonnaise in the world economy have serious economic and social consequences. The decision to leave at the Lehman collapse Vrothers on September 15 caused a systemic crisis marking the death certificate of the Reagan-Thatcher era. In Europe-in this new phase of the crisis-the first reflex was to rescue the Irish, which has decided to guarantee all deposits of banks. Angela Merkel initially denied any plan to support the European banking sector.

After Nicolas Sarkozy left alone against the German refusal, Gordon Brown presented his own plan and moved to the Eurogroup. As a former Finance Minister of the main economic spot of Europe, he knew very well what he was talking and was able to combine the political imperative for action control mechanisms. Nicolas Sarkozy, who has made Jean-Claude Trichet in the class of head of state or government, seemed to be trying to play a kind of changing the State Monopoly French capitalism, industry and the media depending on the mood.

This was perhaps another reason why the banks refused the first version of the plan and forced the state to offer loans without taking any involvement. We thus present a massive plan to support banks without exchange intervention to long-term strategy. There is also a risk that the pressure for reforms to evaporate with a new relative stabilization of markets and argued that any significant change endangers the fragile economies. Finally, the European response to banking crisis will be in parallel with national plans.

An ambitious Commission will undertake to lead the implementation of these projects to be used in a European strategy. Europe can provide the best, the ability of the default rules, is the soft power of the modern era that is so necessary by globalization. For this reason the Commission should rediscover the nature and take-back initiatives is one of the great challenges of the next European schedule. (http://www. tovima. gr/default. asp? pid=2&ct=6&artid=23784&dt=18/11/2008 ) Economic crisis leading to “relaxation” of EU rules on deficits

The ‘relaxation’ of the rules on deficits under the Stability Pact (up to 3% of GDP) in fact go the European governments, as the financial crisis requires more government spending to avoid recession. Although the head of the Eurogroup Jean-Claude Juncker said at the meeting of four European leaders in Paris on Saturday that “the Stability Pact should be respected” in its entirety, is a common belief within the EU that will be tolerated a-temporary-breaching the 3% of GDP as the primary objective in this very difficult international situation is the stability of the system.

Officially, most EU leaders insist on fiscal discipline is, but everyone knows that without government intervention the situation will deteriorate and European economies will slip into recession. The ‘culture’ that prevails in Europe, captured the French president Nicolas Sarkozy, saying that “the implementation of the Pact should reflect the exceptional circumstances where we are. ” The “exceptional circumstances”, according to international organizations, the most serious economic crisis of the Great Depression of the 1930s.

This issue will be addressed by the European finance ministers Monday (Eurogroup) and Tuesday (Ecofin) in Luxembourg. The ministers will discuss the crisis and will refer to measures taken in their countries to reduce the impact of the credit “suffocation”. The EU prefers assistance “in case” and, for the moment at least, does not discuss the possibility of a common reserve fund (suggested and took back then N. Sarkozy) to rescue the banking and general corporate financial industry tested by the crisis.

Discussed in this essay will be key factors that played in the development of the financial crisis of 2007, an overview of the causes and instruments used to the build up and possible preventions, followed by the influences from the government, if any that had an underlining effect toward the outcome. The Involvement Of New Bank Innovations Bank capital has a massive influence on the banking system effecting loan defaults, profits and lending, although the amount of outstanding lending has not decreased appropriately in early 2007, not being due to new lending but the previous loan commitments, lines of credit and securitisation. . New innovations have allowed banks reliant on funding market sources, with the rise in the covered bond market and the increase in securitisation made banks dependant on capital markets and less dependant on expanding their loan base allowing banks to easily switch deposits to other forms of financing, acquiring funds from affiliates for example.

2 Growth in securitisation activity created a lack of incentive for banks to grant credit and comply with monetary policy changes, an unregulated approach to the screening of borrowers, checks would assume securities passed through the market allowing borrowers in the past declined credit being able to qualify and later on would lead to greater default rates on loans.

Thinking that by selling the pool of mortgages banks are also passing on the risk, they exposed themselfs , their underwriting issuances, when the market collapsed banks suffered great losses with their related products, by the start of 2008 CDO related write downs and credit losses had reached $181 billion the massive decline lead to more cautious investors, greater liquidity demand and declining stock, this resulted in massive losses to the bank and securities firms, an example would be the collapse of Bear Stearns and Lehman Brothers using these examples shows how complex the system was and lead to the decline of CDO value this had a direct relation to the US housing market which began early 2007. Derivatives And Insurance The market for subprime mortgages and their securities grew and increased the market for default insurance, taking the form of credit default swaps a derivative security such as the insurance industry this involves gambling, and is estimated $16 trillion greater then the gross domestic product.

Government sponsored companies like Fannie Mae refused to lend to buyers wanting to purchase homes in poor areas, agreeing to these terms they would have to show proof, distributing quotas of mortgages to ethnic minorities wishing to buy, when lenders were unable to meet these quotas Fannie Mae and Freddie Mac persuaded lenders to buy subprime mortgages. A poor investment which was made worse by the fact that charges to subprime borrower were at a higher interest rate increasing the risk of default, for lenders it didn’t matter the worth of the investment just as long as they could sell to the secondary mortgage market. Fannie Mae and Freddie Mac packaged mortgages to sell the securities solely based on mortgage payments from the mortgages accumulated, creating securities based on the initial first/last claims of mortgage payments.

These companies showed a small profit margin using securitisation but were soon to lose after paying over the odds on subprime mortgages and not enough on the default insurance they provided. 4. The resell of a mortgage to a secondary market is commonly known as a mortgage backed security which is often bought by a hedge fund, which then takes out parts of the MBS from the 2nd or 3rd years of the interest only loans, this creates a greater risk but provides a high interest payment, using CDOs with other MBS to then resell to other hedge funds this is known as tranche, profitable until housing prices decline or interest rates restart, making mortgages default.

Mortgages provide substantial value for derivatives, if the substantial value is classed as corporate debt, credit card debt or auto loans the derivative known as CDO, a payment that is due within a year, for instance insurance it can then be known as a CDS, a complicated market to value, unregulated by the SEC means that a lack of rules and oversights were unable to encourage trust and when bankruptcy occurs results in fear amongst the hedge funds and the banking system. Credit Rating Agencies Credit rating agencies share a fair amount of blame for the financial crisis, very little regulations regarding rating methods and lack corporate governance. The past 2 years changes in the rating system of structured redit has grown evermore unstable and has created a lack of confidence toward the future stability of credit ratings. CRAs lowered credit risk by applying AAA ratings to tranches like that of CDOs, giving the same ratings to government and corporate bonds creating lower returns, poor rating assessments underestimated credit default risks of subprime mortgages, providing unreliable data relating to the subprime market and underestimated relations in the defaults that would occur in a downturn, and with more securitisation meant greater portions of credit assets were held by investors assured by credit ratings, increasing the effects of forced selling by corporations using standard investment rules based on ratings.

5. Hedge Funds. The hedge fund industry has grown over the past 2 years, fueled by the demand of higher returns from stock market declines and mounting pension fund liabilities, these inflows have had a positive effect on hedge fund returns and risks in recent years, this has been evident in the changes in reduced performance, increased illiquidity, hedge funds were designed by wealthy investors to work anonymously. At times of financial uncertainty rates on low credit illiquid investments, demand for high credit liquid investments, accompanied by the increase in credit spreads lead to greater margin calls and the relaxing of illiquid positions which generate further losses concluding the hedge fund collapse, these funds relied heavily on leverage and used to buy mortgages, as soon as loans were to default, 9investors left and were faced with abrupt liquidation.

Credit spread is the strongest to affect hedge funds and during the crisis they were left with contact to emerging markets and convertible bond arbitrage. Hedge funds have been effected by the instability of the current financial market, bans on short selling, downturn on asset values in markets, the decline to take risks through banks and investors, The banking system is also affected through hedge fund risk from proprietary trading activities, credit arrangements, structured products and prime brokerage services. 6. The government played a part in the crisis in a number of ways, Interest rates were kept below guidelines globally prior to 2007 the unregulated structure of how mortgages were packaged and low risk assessment lead to the ise of house prices and the involvement towards the persuasion to buy MBS with Fannie Mae and similar companies which lead to their bankruptcy. 7 Due to the unpredictable downturn of the situation in late 2007 with complex financial products, a lack of equilibrium in credit ratings, bans and the premature sell out of investors in hedge funds, has created a domino effect in the financial market and resulted in the governments failure to identify the real issues in the collapse, polices associated with liquidity were put forward to only create matters worse, and finally realising the failure of the subprime mortgage market the Troubled Asset Relief Program was brought forward to no effect.

The unregulated banking system created instability and was inevitable for the bailouts of banks and failing companies. The government had very little influence toward the preventions of the crisis and that in turn made them heavily responsible for each factor described above, the lack of regulation and constraints to which resulted in massive cash bailouts with no conditions, this worked as an incentive for the banks to continue as they were, this is evident in the continuation of bonuses despite substantial losses with banks the governments generosity with bailouts allowed companies like Goldman Sachs to put $2. 6 billion aside for bonuses from a $13 billion bailout.

The Impact of Mid Life Crisis on the Family By most definitions a “Midlife Crisis” is defined as an emotional state of doubt, self-reflection and anxiety that is normally associated with age and affects both men and women between the ages of 35 and 55. In his 1965 article “Death and the Midlife Crisis” for the International Journal of Psychoanalysis, psychologist Elliot Jaques coined the term “midlife crisis,” referring to a time when adults realize their own mortality and how much time they may have left in their lives.

Researchers such as Levinson, Erikson, and many others shortly followed suit finding that there were significant changes for people to go through in midlife. Some of these changes, in addition to time perspective, include reevaluating life values and goals, thinking about one’s own death, and planning the second half of life.

Not all researchers believe that people in midlife experience a crisis they believe that midlife is a normal period of transition in a person’s life cycle Mid life is considered to be a major life transition that provides individuals a time to reevaluate expectations and make age-appropriate adjustments to roles and resources. For many, this transition is very productive and leads to needed decisions and changes, and to a focus on the value of interpersonal and intimate relationships. It can also be an opportunity to move beyond previously accepted boundaries and societal constraints.

Middle age is also a time in which adults take on new job responsibilities and therefore often feel a need to reassess where they are and make changes while they feel they still have time. This period of life can have positive and negative effects both on the individual and the family unit. If a person understands the process of midlife and can accept the biological and emotional changes; most will be able to navigate successfully through the transition with added confidence and a feeling of comfort with their self concept and life choices.

Whether positive or negative, a life transition causes a person to leave behind the familiar and forces them to adjust to new ways of living, at least temporarily. They can leave people feeling completely unprepared and they may be thrown into a personal crisis, feeling shocked, angry, sad, and withdrawn. It is when events during mid life present a crisis state that the family unit may be adversely affected. Change is inevitable in life. Both positive life transitions and negative ones can create stress for an individual or family.

For many people change can feel overwhelming and can lead to symptoms or depression, anxiety, an identity crisis and heartache. Some of the negative feelings that may be felt involve dissatisfaction and may include searching for a new dream or goal, desiring new sexual relationships, needing to feel and stay young, feeling remorse for goals not achieved, placing special focus on physical appearance and resenting obligations to family or aging parents, and “empty nest syndrome. ” The term empty nest syndrome refers to a time of adjustment for parents when their children leave home, especially when the last child leaves home.

Understanding the emotional and intellectual stages that people pass through from childhood to retirement years as a member of a family is called the family life cycle. In each stage a person faces challenges in their family life that cause the development and gaining of new skills. The development of these skills helps an individual cope with the changes that every family goes through. The “launching stage” is the phase of the family life cycle that involves midlife. This is the newest and longest phase in the family life cycle, and for these reasons it is in many ways the most problematic of all phases.

In the past, most families were occupied with raising their children for most of their active adult lives. Now, because of the low birth rate and the long life expectancy of adults, most parents launch their children almost 20 years before retirement and must then find other life activities. The difficulties of this transition can lead families to hold onto their children or can lead to parental feelings of emptiness and depression, although, especially for women, this has become increasingly a transition they welcome for the opportunity to explore new pursuits (Walsh, 391).

It is also coincides, many times, with the adolescent phase adding extra stress not only on parents but teens as well. Parenting teenagers can be a rough time for the family and test relationship skills. It’s also a time for positive growth and creative exploration for the entire family. The launching phase is a particularly stressful time. It is marked by several aspects; the most significant is the entries and exits of family members. It is also a time when grandparents become ill and die and parents are left with the chore of finding meaningful, new activities.

It is also a time when parents see their role change from that of parent to grandparent and also caregiver to their own parents who may have become dependent. The rapid rate of growth of older people (65 years and older, and especially of the oldest old, 85 or older) has created many challenges for family members. Many adult children face the dilemma of providing care for their older relatives, while at the same time, caring for their children. Family members are affected socially, emotionally and financially as they struggle with difficult decisions.

While people generally think about changing relationships as losses, centered on separation, divorce or death, relationships can also be viewed as gains, such as new commitment and/or marriage, becoming a grandparent or even a great grandparent. Changing relationships can be high impact transitions, resulting in a change of routines, roles, responsibilities and assumptions Role change within the family can create new or increased interpersonal conflict.

When one family member changes roles, other people are forced to make shifts in their own role expectations or behaviors. On the positive side it may be a period of financial freedom giving individuals and couples the opportunity to explore new areas of interest. The launching phase when seen as a normative transition may seem to bring one stage of life to an end and welcome a new stage with new opportunities and roles. On the other hand it may lead to disruption, a sense of emptiness, loss, depression, and general disintegration.

Another reason why the launching phase of the family life cycle is especially stressful for parents may be that launching may be postponed for financial reasons or adult children may return home after a divorce. During this time the marital relationship may also need to be restructured when parenting responsibilities are no longer required (Walsh, 391). Men and women approach this time of life differently but the impact on the family is the same. Strains in midlife marriages are common as children become adolescents and struggle to assert their separate identities.

Concerns about offspring can easily crowd out time to attend to the needs of a spouse. Neglecting this relationship affects not only the parents, but children as well. Sometimes this neglect coupled with a divergence of interests and a shift in roles leads to divorce. Divorce breaks down the family structure, and has far reaching effects not only on the divorcing couple and their children but on the extended family, friends, and society as a whole. There is a grieving process that takes place when we are experiencing divorce. It is not unlike the grief we experience when someone dies.

The grief includes but is not limited to the loss of a set of expectations; the definition of family; the state of marriage; extended family ties; the ex-spouse; rituals and traditions; the status of being married; financial security; a two parent household; are among the many losses we might endure. There is the feeling of being uprooted and displaced during the divorce process. During this period many of us confront our legal system which can and often does become quite adversarial. The tension of bickering over money, property, kids, custody etc. can escalate and lead to anger, more instability, and a sense of not being understood.

Whether a midlife crisis or a midlife transition, men and women entering into this phase of the family life cycle face many obstacles and challenges that may be viewed positively or negatively and the impact on the family may be felt that way as well. If individual identities in earlier stages of life have been developed the more secure the individual will be about the changes that are not only going on with them but with other members of the family as well. Works Cited Walsh, Froma (2003). Normal Family Processes. New York, NY: The Guilford Press. Bibliography

Carter B, McGoldrick M (2005). The Expanded Life Cycle, 3rd ed. Boston, MA: Allyn and Bacon. Curro McCarthy N (1994). Health Promotion and the family. In CL Edelman, CL Mandle, eds. , Health Promotion Throughout the Lifep, 3rd ed. , pp. 179-201. Philadelphia, PA: Mosby. Goldenberg H, Goldenberg I (2008). Family Therapy: An Overview. Belmont, CA: Thomson Brooks/Cole. Newman BM, Newman PR (1998). Development Through Life, 7th ed. New York, NY: Brooks/Cole and Wadsworth. Walsh, Froma (2003). Normal Family Processes. New York, NY: The Guilford Press.

Former Vice President Al Gore was the featured “My Turn” opinion writer for the December 18, 2006 issue of Newsweek Magazine. This opinion article was a part of Gore’s environmental awareness campaign which began with the publication of his book An Inconvenient Truth.

 Gore presents a very well written argument advocating the necessity for massive change in the use of energy. According to Gore, “we are now faced with an urgent crisis—a crisis that is altering the very nature of the earth’s climate.”

Gore makes his compelling argument without preaching, scolding, or frightening. This is extremely rare, and valuable, given the highly volatile nature of any debate involving energy sources and environmental concern. The article is interesting for what is said as well as for what is omitted.

The piece is devoid of the usual “doomsday” statistics and anecdotes projecting a critical problem without a solution. Instead, Gore portrays the world at a crossroads, the beginning of “a new age” where “crisis” should be defined as the Chinese write it: “danger” and “opportunity”. He does not need to elaborate on the well-known and documented dangers facing the world regarding climate change. Instead, he illustrates several of the opportunities he visualizes in the future.

His first example is the development of an “electranet” distribution network for electrical power. Instead of massive coal, oil, or nuclear fuel power plants, smaller suppliers, including wind and solar power generators, will be widespread.

Additionally, anyone on the “electranet” who can generate electricity, from small home solar units to larger industrial generators, will be able to sell their surplus power to the grid. Other changes envisioned include “smart” buildings “constructed with breakthrough solar and nanotechnologies” and super-high mileage vehicles.

Gore is optimistic because “market forces that are now in motion— driven by visionaries at companies as diverse as Wal-Mart, British Petroleum and General Electric”  are having an effect. But, more must be done: governments must “exert real leadership” in agreement to the Kyoto treaty and then beyond in order to meet the crisis. With optimism Gore closes by stating it is “a rare opportunity for our generation to unite behind a historic mission.”

I share Gore’s attitude and opinions regarding energy and the environment; however, I believe I am not alone in feeling very apprehensive. A day does not pass without more evidence documenting incredible damage and change in the global environment.

It is easy to fear that the world of our children and grandchildren will be terribly damaged. It is difficult to focus on what one individual can do when there is a fear of it being “too little too late.” As Gore believes market forces will cause the beneficial change, I believe we must examine how “we the people” can be a significant part of that force.

To paraphrase Gore, the immediate future will be incredibly challenging. I believe he frames the issue perfectly as “a historic mission” in which we must all play a significant role. In unity there will be success; the environment does not have the luxury of time for divisiveness or finger-pointing.

Although it is very likely we will be able to see the reward of collective action, if not, it is certain future generations will see the result of our action or inaction.