European Union

Beyond Bricks

A report on a new proposed business plan in the field of renewable energy 2013 Strategy Builders Consulting Inc. 2/5/2013 Introduction Sustainable development and renewable energy are among the most talked about topics at the moment. Renewable energy is the concept that the think tanks are throwing their weight behind, and the same is true for the European Union (EU, henceforth) The business model that we are going to propose, deals with promoting renewable energy resources, and has a lot of other elements to it, which are all in compliance with the vision that the EU has in place.

The existing real estate agency in question is functional in both the residential as well industrial sectors. As a result of your operations, you have a strong and commendable network in place, which can be utilised in furthering our recommended business model. According to the ‘Energy 20:20’ vision of the EU, every new building must comply with renewable energy standards, set by regulations. The existing and old buildings will also have to modify their installations to meet the new requirements.

Considering that improving energy efficiency is high on importance for the EU, and for the entire developed world, we anticipate that the authorities are going to be fairly stringent on the issue of compliance of the said regulations. In approximately 7-9 years from today, it is going to be mandatory for buildings to meet the new set of criteria. Since we are still some distance away from the 2020 milestone, there is a fair chance of exploiting the time and reaping benefits. The Concept We propose to set up a model, wherein we facilitate installation as well as replacement of efficient and renewable energy components.

We will have to tie up with providers of renewable energy sources and provide their services and products to our customers, who buy property from us. This service will also include our previous customers who would be looking to replace their current electricity system with renewable energy. In addition to promoting and facilitating use of renewable energy, we also propose to set up a carbon capture and storage unit and mechanism for our industrial installations. We will form alliances with small scale providers of these mechanisms and provide their services and goods to our customers.

In addition to the task of acting as an intermediary, we also propose to employ and train a team of technicians, who will provide maintenance and after sales services to the customers. For this maintenance team, we will hire young, unemployed people from lower sections of the economy, who will be trained by our energy providing partners, and this initiative will hence, help in improving their societal placement. We also propose to tie up with an energy efficiency certification agency, so that our customers can easily obtain certifications.

Rationale behind the concept The Commission says that EU must embrace renewable sources, not only to slow the climate changes but also because the EU’s reliance on imported gas that is set to increase from 57% currently to 84% by 2030, and on imported oil from 82% to 93%. Hence the EU sets the goal of 1. Increasing renewable energy’s share of the market to 20% by 2020, from around 8. 5% today. 2. Energy consumption is to be cut by 20% by 2020 through improved energy efficiency compared to 1990 levels.

Green house gas emissions are to be cut by 20% by 2020 compared with 1990 levels. The commission says states aid can legitimately be used to promote emissions cuts and increase take-up of renewables, so long as it does not breach EU competition rules. The commission has come up with new proposals for the EU to co-finance national and local schemes to promote energy-efficient housing. The EU will help member states install double glazing, wall insulation and solar panels in housing, especially targeting low-income households. The customers

The target group of customers for this business will be our own existing and new customers. Evidently, since renewable sources of energy are more expensive when compared to their non renewable counterparts, there might be an initial reluctance from the customers, to shell additional Euros. To educate them about the benefits of cleaner energy, their carbon footprint, as well as the impending EU regulations, we propose to have an “Energy Consultant”, who will lay out plans, a cost-benefit analysis and answer any questions that the customers might have.

The existing customers will actually be a more vital part of this proposed business model, because they will be the ones who will be replacing their existing electricity systems into renewable sources, and they will form a bigger proportion of the revenue pool, because their numbers will exceed the number of new buildings coming up. The new business concept will have to be communicated to the existing customers using our contact database, and then the consultant/s will be functional in bringing them onboard with the new ideas.

Scope of the Model

Target Market France’s real estate environment is in perpetual change from the classical renting to owner/occupant system and the trend is visible from the 1960’s to date whereby 45% of the people rented v/s 42 % owned to 38 % (renting) and 57% (ownership). The renting environment is currently made of 54 % of private sector housing and 46 % of social housing. Furthermore, out of the 9. 8 million private sector residences for rental purposes, 4. 5 million are HLM (habitation a loyer modere) or project housing.

With these housing projects housing most of the poor populations, the costs of energy by legacy providers such as EDF is high and hence the costs of electricity and heating is an additional burden. The available housing is also relatively old (40%) of private rental properties built before 1948 and the needs for upgrading these properties to comply with EU regulation is tremendous. 60% of the rental property is also located in metropolis of 100000+ inhabitants with most of the rural housing being privately owned.

The remote locations have lesser choices in terms of energy providers as the small scale providers are only present on part of the territory. The lack of competition drives prices high and slows the implementation of cleaner energy. As for the low income housing projects, most of them were built between 1950-1970 (50%) and due to high density and low maintenance, they require even more urgent upgrades to both comply with regulation and help the government in its housing policy making.

By pairing up with smaller scale energy providers across the board from wind power harvesters like Planete Oui to solar energy providers like Direct Energy, we are creating a partnership with smaller scale EU based energy producers (as opposed to EDF) and we are encouraging competition, hence lowering costs for customers. Besides, this partnership can lead to training of young unemployed people in the housing projects in electrical engineering/maintenance, hence contributing to fight unemployment. Besides, he youth know their neighborhood needs better and by outsourcing routine maintenance, the energy providers can save a lot in terms of travel costs for their maintenance teams. The Suppliers: Our role in this business model will be that of a facilitator, a middle-man of sorts. We will bring about the connection between renewable energy providers and willing buyers. We will focus on producers of wind power and solar power. We wish to focus on the smaller players in the market, because not only will in promote them, it will potentially increase competition in the energy market in France, where EDF is the largest supplier now.

It will also be easier logistically for us to tie up with smaller producers. Our alliance will be based on a commission based system, where we will receive a commission based on the business volume from the producers, as we will be functional in enhancing their reach, network and business. Minimum Compliance Requirements: The states are obliged to comply with the above methodology in order to achieve cost-optimal levels. The level of these requirements is reviewed every 5 years.

When setting requirements, Member States may differentiate between new and existing buildings and between different categories of buildings. New buildings shall comply with these requirements and undergo a feasibility study before construction starts, looking at the installation of renewable energy supply systems, heat pumps, district or block heating or cooling systems and cogeneration systems. When undergoing major renovation, existing buildings shall have their energy performance upgraded so that they also satisfy the minimum requirements.

When new, replaced or upgraded technical building systems such as heating systems, hot water systems, air-conditioning systems and large ventilation systems are installed, they shall also comply with the energy performance requirements. Building elements that form part of the building envelope and have a significant impact on the energy performance of that envelope (for example, window frames) shall also meet the minimum energy performance requirements when they are replaced or retrofitted, with a view to achieving cost-optimal levels. Calculating energy performance:

At the national or regional level, the buildings are evaluated by a methodology for calculating the energy performance which takes into account certain elements, specifically:

•  The thermal characteristics of a building (thermal capacity, insulation, etc. );
•  heating insulation and hot water supply;
• the air-conditioning installation;
•  the built-in lighting installation
• Indoor climatic conditions The Finance Our research and analysis shows us that the initial start-up investment in the business will be € 5 million. Out of this sum, we already have € 1 million at our disposal.

Out of the rest, we propose to send an application to the EU, with a request for funding under the EEPR or European Energy Programme for Recovery. We expect the EU to fund between 20% – 50% ( 1 mn – 2. 5 mn Euros ) of our project, and the rest will be sourced from angel investors and bank loans. The EEPR funds projects in three main areas of the energy sector:

• Gas and electricity infrastructures
• Off-shore wind energy
• Carbon capture and storage This Regulation also establishes a financial instrument the aim of which is to support initiatives related to energy efficiency and renewable energy.

The programme finances interconnection projects with a number of objectives, out of which, our business model complies with the following objectives:

• Diversification of sources of energy and supplies
• Optimisation of the capacity of the energy network and the integration of the internal energy marke
• Developmentof the network
• Connection of renewable energy sources In addition to these objectives, our model also includes carbon capture and storage, and this should facilitate the funding of our project, because it ticks a lot of check boxes on the EU list.

Our project is aligned with the 2020 vision of the EU, The new concept goes beyond the classical real estate agent business, as it promotes clean energy use, it promotes SMEs, and it also increases employment among unemployed youth also. Appendix: Objective: Nearly zero-energy buildings By 31 December 2020, all new buildings shall be nearly zero-energy consumption buildings. New buildings occupied and owned by public authorities shall comply with the same criteria by 31 December 2018.

The Commission encourages increasing the numbers of this type of building by putting in place national plans, which include:

• The Member State’s application in practice of the definition of nearly zero-energy buildings;
• The intermediate targets for improving the energy performance of new buildings by 2015;
• The information on the policies and financial measures adopted to encourage improving the energy performance of buildings. Financial incentives and market barriers Member States shall draw up a list of the existing and potential instruments used to promote improvements in the energy performance of buildings.

This list is to be updated every three years.

References

1. http://news. bbc. co. uk/2/hi/europe/7765094. stm
2. http://europa. eu/legislation_summaries/energy/energy_efficiency/en0021_en. htm
3. http://eur-lex. europa. eu/LexUriServ/LexUriServ. do? uri=OJ:L:2010:153:0013:0035:EN:PDF
4. http://europa. eu/legislation_summaries/environment/sustainable_development/l28075_en. htm
5. http://ec. europa. eu/clima/policies/g-gas/index_en. htm
6. http://en. wikipedia. org/wiki/%C3%89lectricit%C3%A9_de_France
7. http://europa. eu/legislation_summaries/energy/energy_efficiency/l27021_en. htm
8. http://www. territoires. gouv. fr/spip. php? article1173

Introduction

Producing high quality beef, which corresponds to the customers’ needs, has become extremely essential for the farmers. Red Meat in Scotlandnow faces competition from high quality imported products from countries such as USA, Braziland Argentina, even the meat producers from other parts of United Kingdom. Recent surveys indicate that the ‘tenderness of beef’ cuts at Retail Stores and Food Services shops have high variations (Morgan et al, 1991; Hamby, 1992). National Beef Quality Audit ranked ‘inadequate tenderness’ as the second most important Beef Quality Problem (Smith et al, 1995). Owing to the high competition from international producers, and increasing demands of customers, Scottish beef manufacturers are facing a tough time. Producing high quality beef at low prices has become one of the major concerns among the producers. In order to respond to the needs and to maintain the market share, producers will need to resort to methods such as cloning, nuclear transplantation and vitamin supplementation. However, there is always a doubt, if the consumers will accept the enhanced beef?

The purpose of this essay is to outline some of the most successful methods of improving beef-cattle productivity as well as understand what the likely response of customers may be. We also explore the various legislations on the use of beef cattle productivity enhancement methods.

Different Methods of Improving Productivity

One of the most common, yet advanced method of improving productivity of Beef-Cattle is ‘Embryo transfer’ also, referred as ‘ET’. First experimented in 1949, this method became commercialized only in 1970, when a European dual purposes breed of cattle gained recognition within a very short time period. Since then, ET technology has developed step by step and different techniques such as surgical recovery of Embryo, artificial insemination, rapid development of super-ovulation are being used. Since 1977, Embryo Transfer technique has been famous all over the world. (www.ezinearticles.com); Smith & Nicholas (1983).

Embryo Transfer is an advanced technique where ‘genetically superior’ and sexually mature female is injected with ‘exogenous’ hormones, so as to produce more ova which will then get successfully fertilized inside her, either naturally or artificially, are removed evaluated and transferred into the reproductive tract of surrogate mother, where it is developed into a mature calf. (www.ezinarticles.com).

Studies suggest that Vitamin D (VITD) supplementation in beef cattle is a successful method of increasing the longissimus calcium concentration by as much as 50% as compared to the muscle calcium levels from non-supplemented steers. This results in improving the overall meat tenderness. The researchers figured out that the VITD induced tenderization of meat, is a result of activation of calpain proteases, however, it would be inappropriate to rule out other possible mechanisms that may contribute to the overall tenderness of meat (Ray et al, 1999).

Another interesting finding, experimented on Japanese Black Cattle shows that Vitamin C dose of approximately 20mg to 60mg/kg of weight, can lead to better quality of meat. Vitamin C should be coated with digestible coating which can absorbed by the intestinal tract after it passes through the stomach. ‘Soyabean-hydrogenated oil and fat’ forms a desirable covering material. Results of such doses showed no significant difference between the Cattle supplemented with Vitamin C and the non-supplemented steer. However, the quality of meat showed significant differences in fat marbling (Shimofuri), luster, firmness and texture of the meat. (www.freepatentsonline.com) (Methods of improving beef quality).

Another method used for improving quality is ‘Hydrodyne Process’. This process uses a small amount of explosive, so as to generate a minor shock wave in water. This shock wave passes thorough the objects that form an acoustic match with water. It was found out, that four beef muscles, namely Longissimus, Semimembranosus, Biceps Femoris and Semitendinosus, when exposed to either 50, 75 or 100g of explosives got significant tenderization. A significant 72% reduction in shear force was observed for the longissimus muscle using 100g of explosives. In other three muscles, reduction in shear force with magnitudes of 30 to 59% improvements was observed. Results suggest that using the ‘Hydrodyne process’ for tenderizing beef is a novel opportunity for the meat industry to produce ‘Tender Meat’ (Solomon M.B et al, 1997).

Having said that, it is also well-known that intrinsic quality attributes of beef, especially the tenderness of beef, depends to a great extent on post-mortem factors, such as Temperature, pH, Proteolysis that result in degradation of beef during the post-mortem ageing. However, researchers have also proved that Quality characteristics, depend directly on the muscle biology of live animals which is further regulated by the genetic, nutritional and rearing factors (Geay et al, 2001); (Maltin et al, 2003).

A significant method of improving productivity is ‘Cloning’. In technical terms, Cloning is the production of multiple genetically identical animals (Robl & Spell, 2001). Genetically identical animals have been in production for over 30 years by using the technique of dividing embryos into two or more portions, so as to produce multiple embryos (Robl & Spell, 2001). The technique, also known as ‘Splitting’ did not manage to generate as much public interest or concern, as has the current technique of ‘Nuclear Transplantation’ which is most commonly referred as ‘Cloning’.

Nuclear Transplantation has the potential of producing genetically identical animals in unlimited numbers (Chan 1999; Cibelli et al, 1998; Wilmut et al, 1997).

Somatic Cell nuclear transplantation cloning has great promise, however, the limitations, such as low pregnancy rates and low calf survival rates restrict is current use. Somatic Cell cloning is still in the research phase and it is of utmost importance, that there is necessary research done, in order to improve survival rates and further evaluate variations in results before the commercialization of this technique could take place.

Small scale commercialization of this technology will be the second phase where they multiply animals of high value. When efficiency and quality of embryos improves, cryopreservation will become feasible and large number of embryos will be sold in straws, just as semen is today (Robl & Spell, 2001).

Another interesting and highly controversial topic is the ‘Antibiotic Debate’. For years now, farmers have been feeding their animals with small doses of antibiotics, as it helps the animals gain weight. The weight gain of animals is highly beneficial for the farmers, as it helps increase their profit margins (http://www.pbs.org).

Antibiotics like ‘tetracycline’ are fed to animals to help kill ‘flora’, a bacterium that is found in the intestine of animals. This results in better utilization of the eaten food and leads to increase in weight. Some other subtherapeutic antibiotics include tylosin, monensin, chlortetracycline given for growth promotion and prophylactic purposes (Dolliver A & Gupta S, 2008).

The constant controversy surrounding the use of subtherapeutic antibiotics for farm animals is whether its use causes the rise of drug-resistant bacteria; something that may lead to a widespread health problem (http://www.junkscience.com). Day by day, evidence linking use of sub-therapeutic antibiotics for food animals and human health risks is increasing. Researchers have found that, constant use of such antibiotics for food animals makes the bacteria in them resistant to drugs. If such animal’s meat is eaten by someone as an improperly cooked food, the person may fall ill and may not respond to the treatment possible through antibiotics otherwise (http://www.pbs.org).

Legislation on Use of Different Methods for Improving Beef Cattle Productivity

In 1985, the European Union imposed a ban on the use of growth-promoting hormones in beef production (Caduff & Bernauer, 2004). European Union’s regulatory activity first started its activity in this area in 1980 after a unilateral ban imposed by four EU member countries (Italy,Netherlands,Denmark, andGreece) in absence of EU wide legislation.

Regulatory heterogeneity within the European Union ended up creating conflict among different member states. Countries that possessed more permissive hormone regulation claimed that more strict regulations in other countries were helpful in creating non-tariff barriers to trade (Brand & Ellerton, 1989). At the same time, various scandals related to illegal hormone sale, use of hormones in Livestock breeding grew into a controversial public health issue (Caduff & Bernauer, 2004).

Following the consumer boycotts against hormone beef led to a considerable drop in the prices as well as the sales of beef in many European Union Countries. In response to the constituencies’ preference for hormone free beef, as well as constant media attention and lobbying done by the import-competing beef producers, EU member states that had stricter regulations, refused to relax their standards (Caduff & Bernauer, 2004).

The member states which indulged in producing hormone beef feared losing their European beef export markets due to the partial national autonomy of other countries for regulation of beef hormones coupled with the domestic political pressures. As a result, majority of EU countries agreed to the EU-wide hormone ban, exceptUnited Kingdom(Caduff & Bernauer, 2004).

However, the majority voting council of Agriculture Ministers, helped enable the regulators of EU to overcome the opposition ofUnited Kingdom. In order to avoid further market losses, food processors and retailers supported the Commission’s view and favored the stricter rules, instead of the Laxer and heterogeneous regulations (Caduff & Bernauer, 2004).

Consumer attitude towards enhanced BeeF

Research shows that consumers are willing to pay more for the beef that is known to have increased tenderness (Boleman et al, 1997).

Trained sensory panel evaluations reveal that enhancing beef steak with phosphate/salt-containing solution results in a more tender and juicy end product (Jensen et al, 2002). However, Robbins et al (2002)’s reports show, that enhancement done with phosphate/salt solution resulted in damaging effects on attributes such as color of the beef. For European customers color attribute is one of the most important factors while purchasing fresh meat (Glitsch, 2000). Carpenter et al (2001) also confirm that color red is preferred by European customers while making the purchasing decision.

For consumers, attributes such as color, visible fat, price and cut were the most important and influencing factors, they considered when making a purchase. Other attributes such as tenderness, flavor and juiciness, which were significantly increased by enhancement, were found to be of high importance with respect to the eating satisfaction of customers. Although there was some concern about the added ingredients, there is no doubt that enhancement leads to much tender and juicier beef.

Conclusion

During the course of this essay we have explored that increasing the beef quality without using antibiotics, growth hormones, cloning, vitamin supplementation seems to be a tough ask. Raising beef cattle without enhancement may not result in the quality of beef desired by the customers, and will also prove to be more expensive. On the other hand, it was also observed how important it is to work within the regulations. This is a dilemma which will need further research. Responding to customers’ needs may not be a wise option, as some researchers have found serious health risks; however, concrete evidence is yet to be discovered.

References

1. Bernauer T and Caduff L (2004) – European Food Safety: Multilevel Governance, ReNationalization, or Centralization?
2. Boleman S.J, Boleman S.L, Miller R.K, Taylor J.F, Cross H.R, Wheeler T.L, Koohmaraie M, Shackelford S.D, Miller M.F, West R.F, Johnson D.D and Savell J.W (1997) – Consumer evaluation of beef of known categories of tenderness; Journal of Animal Science
3. Carpenter C.E, Cornforth D.P and Whittier D (2001) – Consumer preferences for beef color and packaging did not affect eating satisfaction; Meat Science
4. Dolliver A.S Holly and Gupta C Satish (2008) – Journal of Environmental Quality
5. Glitsch K (2000) – Consumer perceptions of fresh meat quality: Cross-national comparison; British Food Journal
6. Hamby P (1992) – Palatability problems in restaurant beef
7. Jensen J, Robbins K, Ryan K.J, Homco-Ryan C, McKeith F.K and Brewer M.S (2002) – Consumer attitude towards beef and acceptability of enhanced beef; Dept. of Animal Science
8. Morgan J.B, Wheeler T.L, Koohmaraie M, Crouse J.D, Savell J.W (1993) – Effect of castration on myofibrillar protein turnover, endogenous proteinase activities, and muscle growth in bovine skeletal muscle; Journal of Animal Science
9. Nicholas F.W and Smith C (1983) – Increased rates of genetic change in dairy cattle by embryo transfer and splitting, Animal Science, Cambridge University Press
10. Ray F.K, Swanek S.S, Morgan J.B, Owens F.N, Gill D.R, Strasia C.A and Dolezal H.G (1999)– Vitamin D3 Supplementation of Beef Steers Increases Longissimus Tenderness; Journal of Animal Science
11. Robl J.M and Spell A.R (2001) – Somatic Cell Cloning in the Beef Industry
12. Smith G.C, Savell J.W, Dolezal H.G, Field T.G, Gill D.R,GriffinD.B, Hale D.S, Morgan J.B, Northcutt S.L and Tatum J.D (1995) – The Final Report of National Beef Quality Audit
13. Solomon M.B, Long J.B and Eastridge J.S (1997) – The Hydrodyne: a new process to improve beef tenderness; Journal of Animal Science
14. www.ezinearticles.com : Embryo Transfer – A new technique for improving the Cattle Production, accessed on 20.11.2010
15. www.freepatentsonline.com : Methods of improving Beef Quality, accessed on 21.11.2010
16. http://www.pbs.org : Is your Meat SafeAntibiotic Debate, accessed on 25/11/2010
17. http://www.junkscience.com : Milloy, S (2001) – Where’s the beef on farm antibiotics?, accessed on 25/11/2010

Introduction

Financial crisis management in the single financial market of the European Union is a subject which is required attention. As one of the key objectives of the political, economic, monetary and legal integration of the EU’s 25 member states, the single financial market is becoming a reality with the increased integration of national financial systems. While EU market liquidity and efficiency are no doubt improving, financial disturbances are now more likely to affect more than one member state. Furthermore, while European national financial systems are becoming systemically integrated, the EU’s financial-stability structure is still based primarily on the exercise of national responsibilities. The most important question we can set at this time is: Are these national responsibilities capable to solve cross-border financial disturbances?

The recent crises thus have brought the role of a European lender of last resort, which raises some important questions. Do we need a European lender of last resortCould domestic central banks instead perform this role, as is the traditional view Then how should the European Lender of Last Resort operateWhat are the principles that should follow the European lender of last resort if it is to be effective Who should be the European lender of last resortShould the ECB do it and if so, does it need to be reformed to perform this role effectively. Alternatively, should another organization take the role of one European lender of last resort?

The importance of Lender of last resort and its principles.

Firstly as a crucial benchmark we will discuss the alternative views of a lender of last resort.

Under the classical view of Thornton and Bagehot the monetary authority in the face of a panic should lend freely but at penalty rate to illiquid but only solvent banks, denying aid to insolvent banks no matter how large or important. The banking panic occurs when the public want to convert deposits into currency. When a bank does not have adequate liquidity there is a bank run which in turn become contagious, under asymmetry information, threatening other solvent and sound banks. Bagehot stated four principles for the bank to observe as a lender of last resort to the monetary system: First, lend at a penalty rate, make clear Bank’s readiness to lend freely, the latter principle shows the importance to prevent financial crises at the beginning of a disturbance, and lastly accommodate anyone with good collateral at a pre-panic prices and prevent illiquid but solvent banks from failing but as Meltzer argues not to take greater risks.

Goodfriend and King argue that the lender of last resort should function under an open market operation. Goodfriend regards governments provided deposit insurance as a substitute for the portfolio diversification of a nationwide branch banking system. By itself, deposit insurance without a lender of last resort commitment to provided high powered money in times of distress is insufficient to protect the banking system.

Charles Goodhart advocates temporary central bank assistance to insolvent banks. He argues that the distinction between illiquidity and insolvency is a myth since banks requiring lender of last resort support because of illiquidity will in most cases already be under suspicion about solvency. As Solow also argues, any bank failure, especially a large one, reduces confidence in the whole system. To prevent the latter the central bank should provide assistance to insolvent banks as well. However such a policy creates a moral hazard problem as banks take greater risk and public do not have an incentive to monitor them.

Last view of lender of last resort is the free banking. Its proponents denied the need of any government authority. The reason of banking panics is legal restrictions on the banking system. The most important restrictions are the prohibition of nationwide branch banking and the prohibition of free currency issue by the commercial banking system.

As referred above, an adequate liquidity in one bank can cause bank run. If the interbank market not be able to shield banks from such an occurrence, a single bank run can spread to other banks and the contagious effect would take place, and may cause a systemic banking crisis. The provision of emergency liquidity by the central bank, as a lender of last resort may protect banks against these incidents. While the central banks of most countries act as a lender of last resort, the European Union treaty has left the identity of Lender of last resort open in the EMU.

Asymmetric information plays a crucial role in the financial banking system. In financial crises leads to disastrous consequences for the economy as it makes the situation worse. At this point central banks should intervened preventing systemic risk.

In most developed countries, domestic central banks have the ability to act as a lender of last resort and lend freely during a financial crisis. The key features are that the institutional structure of financial systems has debt contracts that there are almost solely denominated in domestic currency. Conversely the central banks of developing countries do not have this capability and if they have is limited. Many developing countries have much of their debt denominated in foreign currency. Thus, there is a strong argument that a lender of last resort may play a crucial role in most developing countries at times of financial crises. Although there is a need of one European lender of last resort, it does create a serious moral hazard problem that may worsen financial crises.

Thus a recovery from a financial crisis in a developing country is required foreign assistance which would help to stabilize the value of the domestic currency which strengthens domestic balance sheets. Furthermore there is a case that one developing country contagious financial crisis to another developing country. However a European lender of last resort has the ability to stop contagion by providing reserves to these markets and help them keep their currencies unaffected. Recent problem of such kind of example is the case of Greece where IMF provides reserves to help avoid failure and reduce the possibility to contagious other countries in Europe.

The existence of a European lender of last resort creates a moral hazard problem because depositors and other creditors do not have an incentive to monitor banks that is, they know if a crisis occurs their deposits would be secured by deposit insurance system. As a result these banks without monitoring and withdrawals from depositors encouraged to take excessive risks which make financial crises more likely.

Thus to limit the moral hazard problem by a European lender of last resort and help it cope with financial crises more effectively, we introduce some ways for the European lender of last resort to operates better.

First and the most important, is restore confidence to the financial system. Without confidence depositors would withdraw their funds if they suppose that their bank is illiquid even though it is not. Some rumors transfer the bank run from one illiquid bank to the whole system and distress financial economy. Restoring confidence is essential to keeping the financial system operating efficiently. That is the key to preventing financial crisis.

Provide liquidity to restart the financial system. Injecting liquidity is effective if we provide liquidity as fast as possible. The faster the lending, the lower is the amount that has to be lent. The need for quick provision of liquidity to keep the amount of funds manageable suggests that credit facilities at a European lender of last resort must be designed to provide funds quickly. Also the resolution and recovery from a financial crisis requires a restoration of the balance sheets of both financial and non-financial firms. The latter requires a well functioning bankruptcy law that enables balance sheets to be clean up so they can regain access to credit markets. Those insolvent institutions should close down and other healthy firms buy the assets of insolvent firms. Furthermore, owners of insolvent institutions should be punished because in any developing countries, they are provided with funds which enable the operation of their institution or to pocket substantial wealth. If they know that will be punished they do not keep their institution operating if it is insolvent. Thus will reduce the excessive risk and even further in reducing moral hazard.

Moreover encourage adequate prudential supervision. The moral hazard problem created by the existence of a safety net for financial institutions also can be limited by the usual elements of a well-functioning prudential regulatory/supervisory system: adequate disclosure requirements, adequate capital standards, prompt corrective action, careful monitoring of risk the institution’s risk management procedures and monitoring of financial institutions to enforce compliance with the regulations.

Another way for better operation is that we can engage operations only for countries that are truly willing to implement the necessary reforms. If a country reforms in accordance with the principles of the lender of last resort, that will make the effort from lender of last resort easier in times of financial crisis in such a country. Lastly, it is better for moral hazard problem, that lender of last resort operates only when it is absolutely necessary and for shorter periods of time.

The European lender of last resort?

Given that there is a need for a European lender of last resort, what institution would be the best to perform this roleTraditionally, central banks have acted as lenders of last resort because they have the advantage of being able to create the necessary liquidity. In addition, they have had experience with successfully performing this role. These facts would argue for the creation of a European central bank to act as a European lender of last resort. However, because it is highly unlikely that the major countries of theEuropewould be willing to give up control of monetary policy to a European organization to the future, creation of a European central bank is unrealistic.

The matter of the lender of last resort is a major concern in the construction of European Union. In spite of the existence of appropriate mechanisms to rescue distressed financial institutions in each country, the existing institutions do not allow for coordinate responses from different countries or a fast and efficient coordination between the European Central Bank (ECB) and the different national central banks.

The financial integration inEuropeis still low. In the recent past, however, multinational banking group have emerged (subsidiaries, mergers, acquisitions, branches) in Europe which provide wholesale services in more than one member state. These Pan-European banking groups play an active role on European money markets and provide liquidity to smaller banks in the interbank market. Also funds can shifted from one branch to another, so a liquidity shock in one money market will withdraw liquidity there and transfer funds for one market that is liquid. As a consequence, this leads to systemic implications as there is pressure in the latter market since local national central bank act as a lender of last resort. From the above anyone can choose any money market to withdraw funds, so here the question raised is which central bank act as a lender of last resort and on what terms. Without a European lender of last resort, the national central banks where these multinational banking parents groups are established and operated meets the liquidity needs of the whole group. This would bear the full credit risk. To handle a possible failure of such a pan-European banking group they established (Nordic countries) a structure for crisis management and agreed that in a crisis emergency liquid assistance will only be provided if the bank is not judged to be insolvent. Of course this kind of management, we cannot be sure that would be viable in the European Monetary Union. There is a need for a European lender of last resort function in case of failures of multinational banks. It may prevent too excessive interventionism by national central banks. The need of one European lender of last resort is necessary to control financial services of commercial banks, so the latter do not take higher risks and affect other commercial banks.

The ECB does not specify who is responsible for emergency liquid assistance in a financial crisis, it has delegated this to the national central banks but can intervene if is necessary. Of course this may cause delays in decision making, and this is one of the main principles of the role of lender of last resort, which is to act as soon as possible in financial crisis.

While the ECB can act as a European lender of last resort at any time, why it does not have a centralized lender of last resort or centralizes regulations yetOne possible answer is that the centralization of bank regulation and lender of last resort involves costs for national central banks as they lose flexibility in policy design. So the only reason that national central banks resign from these tasks the benefits should be higher than the costs. It is very difficult to achieve this goal because it has to be voted by the two thirds in the Governing council of ECB.

The only international organization that currently has the staff to acquire the necessary information to be the model for a similar creation of one European lender of last resort is the International Monetary Fund (IMF). However some reforms to function better as a lender of last resort is required. This is why, it has ended up engaging in this role during the recent crisis episodes. One objection to the IMF’s performing a lender of last resort role is that it cannot create unlimited liquidity as can a central bank. But it is not absolutely necessary that an international lender of last resort have unlimited resources to create liquidity, just that it has enough to do the job. Indeed, Fischer points out that under the gold standard, central banks in reality did not have an unlimited capability to create liquidity and yet were able to perform the lender of last resort role, and so the situation is not all that different.

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Gewaltig (2008) demonstrates the scope of the Euro’s rise against the US Dollar, showing that in February 2008 the Euro had increased by 12% year on year against the dollar. This was on the back of 9.1% increase in 2007 and an 8.2% increase in 2006. The most significant change in the value of the Euro versus other countries’ currencies is that it can make exports less competitive in foreign markets, and hence reduce the level of demand for them. Indeed, with many of the world markets trading in dollars, such as the commodity markets, this could have serious impacts on the competitiveness of the Eurozone economies, particularly due to their focus on trade.

Gewaltig (2008) also examined a report from the European Union which indicated that, due to the unique nature and specific characteristics of some of the exports from the EU, such as French wine and German automobiles, the export demand was likely to be relatively insensitive to any such changes in the exchange rates (Gewaltig, 2008). However, the Economist (2008) reported that the several years of steady growth maintained by the EU was likely to result in a downturn in the near future, because of the growing strength of the Euro and the lack of competitiveness of many exports.

Indeed, Scott (2007) reported that EADS, the European airspace corporation which own Airbus and many other businesses, specifically targeted the strength of the Euro versus the dollar as a potential business threat. The companies figures showed that for a ten percent rise in the value of the Euro against the dollar, the company would lose one billion Euros in operating profit as a result of the increased competitiveness of Boeing; its main competitor which trades in dollars. As such, it is clear that the growing strength of the Euro is harming the strength of exports from the Eurozone and, according to Wolf (2008), the overall economic growth of the Eurozone versus the UK.

However, another significant impact of the strength of the Euro comes from one of the main causes behind said strength. This is the fact that the European Central Bank has made very strong statements about its commitment to fighting inflation, whilst the US Federal Reserve and the Bank of England have both cut their key lending rates in a bid to boost their economies in the face of the global slowdown (Cohen, 2007). Whilst this has led the Euro to strengthen against other currencies, it has also helped to control some of the internal sources of inflation in the Eurozone economies.

This has meant that, whilst trade unions in Britain and the United States have begun demanding higher rates of pay in order to cope with current and likely future inflation due to the interest rate cuts, the Eurozone has maintained somewhat lower inflation expectations. Whilst this has not significantly affected the inflation in the Eurozone economies at the moment, with the majority of the inflation being driven by global commodities, it may help keep the Eurozone inflation rates lower in the future (Economist, 2008).

A further impact of the strength of the Euro is that, whilst exports will become more expensive, imports will become more affordable for precisely the same reason. This is particularly important for commodities such as oil and gas, which are traded on the global markets in dollars. Whilst it can be argued that a significant proportion of the current rise in the price of these commodities is due to the weakness of the dollar, and hence their prices in absolute values will not have changed due to this, there is also increased uncertainty around the supply of these commodities, coupled with rising demand and increased speculation (Wallace, 2008). Whilst this rise in commodity prices has hurt consumers in the Eurozone, they have been less affected than consumers in the UK and US, as the stronger Euro has helped to absorb some of these price rises. In addition, goods imported from the UK and the US into the Eurozone will now be cheaper thanks to the strength of the Euro versus the pound and the dollar.

However, the National Institute Economic Review (2005) argues that this combination of decreasing export strength and increasing import strength is arguably the worst possible for the fiscal balance in the Eurozone. This is because economic growth in the Eurozone is weakening due to a need to attend to the many structural reforms and integration requirements discussed in the previous section.

This is compounded by the fact that the Eurozone is a net importer of commodities such as gas, oil and metals; and a net exporter of manufactured goods. The strength of the Euro thus means that the Eurozone economies are less able to export their finished manufactured goods to key markets, at the same time as the raw materials they use to create these manufactured goods are rising. In addition, the fact that the Euro has performed best against the pound and dollar means that UK and US exports to the Eurozone are growing in competitiveness versus domestic goods. With the National Institute Economic Review arguing that Eurozone domestic demand is likely to continue to grow slowly, and consumption may decline, the Eurozone is arguably entering a very difficult period. This will be exacerbated by the fact that governments are unable to adjust their own interest rates, and their public sector expenditure is constrained due to the Stability and Growth Pact which is part of Euro membership.

However, it is important to note that, paradoxically, some of the Eurozone nations have benefitted from this, particularly the weaker nations. OCED Observer (2004a) presents predictions for the Italian economic, which argue that the growth in the level of exports and investment activity will tend to rise due to the strength of the Euro. This is because Italy has been forced to make several competition reforms to key sectors of its economy, which has helped to make Italy more competitive and innovative relative to its Eurozone partners. This additional competitiveness is now coming to the fore, whilst other nations struggle.

In contrast, in another article, OECD Observer (2004b) points out that Ireland’s strong growth in previous years has led to excess demand, which has begun pushing up inflation rates. As such, the Irish economy is more vulnerable to the strength of the Euro, as it has not focused on driving efficiency and competitiveness during its rapid growth. Indeed, the strong Euro combined with the lack of flexibility in the Irish economy is arguably one of the reasons why Ireland has gone from being the ‘Celtic Tiger’, to arguably being included in Smith’s (2008) underperforming ‘PIGS’.

In conclusion, the unique nature of the Euro, as a single currency operating across different national economies with different national legislation, means that the impact of a strong exchange rate is somewhat different than the impact on other countries. Whilst the Eurozone is experiencing the usual loss of competitiveness of its exports, and increasing competitiveness of imports, the diverse nature of the national economies is helping to mitigate this in some areas. In addition, the strength of the Euro has assisted structural reforms in countries such as Italy, whilst exposing structural weakness in nations such as Ireland, thus having a dynamic impact on the distribution of wealth and competitiveness inside the Eurozone.

References

1. Askari, H. and Chatterjee, J. (2005) The Euro and Financial Market Integration. Journal of Common Market Studies; Vol. 43, Issue 1, p. 1-11.

2. Barrell, R. and Weale, M. (2003) Fiscal Demand Management. National Institute Economic Review; Issue 185, p. 5.

3. Cohen, A. (2007) Euro’s Rise Is Set to Spark Some European Fireworks. Wall Street Journal – Eastern Edition; Vol. 250, Issue 82, p. A2.

4. Economist, The (1998) The merits of one money. The Economist; Vol. 349, Issue 8091, p. 85-86.

5. Economist, The (2008) Too good to last. The Economist; Vol. 387, Issue 8580, p. 63-64.

6. Gewaltig, N. (2008) The Euro’s Rise: Don’t Expect a Rate Cut. Business Week Online; 14th March 2008, p. 25.

The graph above shows how the GDP growth rates also varied not by country but by continent we can see that most of Asia is in the top part prospering from great economic growth where as we see in parts of Africa we have negative growth. In the 1990s saw the best quarters that most countries had seen for a while, all major economics such as US, china, Japan, UK Germany ect. Were all at their peak, due to the discovery or different oil and gas sources prices of oil were low due to the high supply and reduced demand for it, the 1990s marked an end to the cold war and with that came change in the way people worked and lived.

Change for the better majority of countries were more developed and had a much higher standard of living. The US saw many of its citizens double their incomes compared to that of the 1980’s recession poverty was dramatically cut down and the wall street was seen as the central of economic trading. Europe however was at the centre of the economy and trading, due the introduction of the EU and free trading, further more the introduction of the single currency cut down import and export taxes and conversion fees for majority of European traders that traded with its European neighbors.

The euro began circulation in 1999 with originally only having 12 member states but more and more was joining as the years went on as they saw the benefits of a single trading block. The UK however wasn’t one of them the labor government chose to keep the pound as many thought it would lose sovereignty to Europe, and it was un-British as then Britain would lose its heritage, however Britain was still prospering as an economy despite having negative figures on its balance of payments in the current account.

Unemployment on the other hand was low and people were starting to get optimistic and started spending again. Despite the economic growth and signs of a better standard of life the real peak in majority of economies came after the millennium, Britain so positive growth for many quarters before the recession in 2007 were we started to see it all go downhill. Till the present time.

The graph above illustrates to us the 5 major economies in the past 40 years. The representations show that although during the tough times their economies were hit the worst specially the US and the UK we see that they still remain at the top in the world economies. China was able to hold this status due to its huge population but since the introduction of the one child policy it may see its labor force cut down and the reason its prospering so much could also be the reason it goes back to where it is but it is very doubtful due to the dependency the world has on its cheap labor and quick productivity.

That’s the same reason that Japan has also been able to stay at the top although it started very badly it is the second largest economy after the US and is very surprising due to its size in comparison. It has the smallest government compared to the rest of the developed countries and holds the second largest stock exchange it’s mainly thanks to its technological advancement in the motor industry and consumer electronics as well as telecommunications.

Germany has been a quite economy since World War 2 it has struggled to keep its economy up but due to its strict law and regulations has been able to keep an eye on its economy better and has been able to rectify and mistakes before they create consequences. Lastly the United Kingdom has gone through a lot from the 1960’s to what it is today the government has had a major role to play with its economy from the decisions of Margret Thatcher of leaving the free market as it is and developing the French ideology of Laissez-faire.

To the changes made by the memorable Tony Blair such as nationalizing many institutions and selling other things such as utilities to private companies to make sure that the consumer is always getting the best price until recently the economies have been doing pretty well but even after the recent recession it still looks like its stabilizing to have lower unemployment, steady inflation and steady economic growth over the years to come.