European Crisis and its effect in the International Market
After the Second World War, the world was in search of a new alternative to stop with the horrific wars between nations. In 1950, France, Italy, Germany, Luxemburg, Belgium and Netherlands joined in order to obtain peace, protectionism and economic advantage. It was the foundation of the current European Union. This significant moment in history was followed by a remarkable transformation around the world: the globalisation of the market.
Globalization was described by Joseph Stiglitz (2002) as “the removal of barriers to free trade and the closer integration of national economies”. This new reality, from local to a global ...view middle of the document...
In search to a solution to the crisis and reduction in deficit, countries are introducing financial measurements.
Spain, for example, has announced austerity measures as a possible solution to reduce deficit. The measures announced by the Spain’s Prime Minister Mariano Rajoy includes the increase of taxes (Increase in the VAT from 18 to 21 per cent), diminution of costs (cut of 3.5 billion Euros in public administration), reduction of unemployment benefits from 70 to 50 per cent and cut in bonuses and incentives. The austerity measure has the target to bring 6.5 billion Euros to Spain and to reduce the public deficit with Europe Union.
In the same context, the French Prime Minister Jean-Marc Ayrault also announced an increase in taxes of 7.2 billion Euros. The French’s government measure also attempts to reduce its debts. The principal measures will affect directly big companies and wealthiest households. The procedures announced involve an increase in levy for Households with net wealth of more than 1.3 million Euros, a tax of 75 per cent will be introduced on income higher than 1 million Euros, financial business will have an increase in tax to 0.2 per cent and a 3 per cent tax will be paid on shareholders distributions.
The European crisis is causing insecurity and instability at a global level. The crisis’s effect did not exclude even strong economies such Germany. On 7 August 2012, the newspaper The Telegraph (2012) had published that exports in Germany had fell 1.7 per cent, from 17.4 billion Euros to 14.4 billion Euros. The decrease in Germany’s exportation is a direct result of the fall in trade and international demand of products. With the escalation of the European crisis, power economies such Germany, also have a large fell in the trade stability and dropping in industrial production.
As a result of this instability in the Europe economy, the International Monetary Fund (IMF) had called the Central Bank to insert money into Europe. The primary reason of the IMF interference is that some countries in Europe are at risk of suffering deflation. The IMF’s report had stated that there was a risk of reduction in price of 25 per cent. The reality of a deflation in the euro zone countries would increase the difficulty in European countries to reduce its debts, regarding that reduction in prices would also slows tax revenues.
The objective of IMF has been for decades to maintain economic stability and encourage global growth. The IMF was founded in July 1944 when 45 countries established a structure for financial cooperation and it has currently 188 member countries. The IMF offers advice and financial support to its members in times of economic crisis and difficulties.
As a call from help from its countries members and the International Monetary Fund, the European Central Bank has taken a few procedures since the beginning of the European crisis. One important action it was to reduce interest rates by a quarter of percentage...