Title: During the 2009 euro crisis, a number of countries had private banks that had become too big to ...
Post by: Lmac200 on Feb 24, 2018
During the 2009 euro crisis, a number of countries had private banks that had become too big to save. Explain.
What will be an ideal response?
Question 2 - What behavior by central and private banks in euro zone countries created the conditions for the 2009 euro crisis?
What will be an ideal response?
Question 3 - Which one of the following unexpected events ignited the 2009 euro crisis?
A) Accelerating hyperinflation and political upheaval.
B) The prospect of a sovereign default by one or more euro zone countries.
C) Rising oil prices.
D) Revolutions in Switzerland and Belgium.
E) A Chinese boycott of European products.
Question 4 - Which one of the following countries was the spark that ignited the 2009 euro crisis?
A) China
B) Greece
C) England
D) Spain
E) Germany
Question 5 - Discuss the problems that the EMU will continue to experience in the coming years.
What will be an ideal response?
Title: During the 2009 euro crisis, a number of countries had private banks that had become too big to ...
Post by: Espresso on Feb 24, 2018
[ 1 ] A private bank is too big to save if the resources available to the home government through the central bank are insufficient to prevent bank failure. Essentially, saving the private bank would lead to a sovereign default by a countries government and so was not feasible.
[ 2 ] Assets were accumulated by the banks through the purchase of US financial products and through lending to other euro zone countries. Easy credit led to a European housing boom. Following the global financial crisis and the consequent recession, some European countries such as Greece Ireland Portugal Italy and Spain were found to have unsustainable levels of debt relative to national GDP. This raised the specter of a sovereign default by one or more euro zone countries and the crisis was on.
[ 3 ] B
[ 4 ] B
[ 5 ] (1 ) Europe is not an optimum currency area; therefore asymmetric economic developments within different countries of the euro zone that call for different interest rates cannot be implements. (2 ) The political part of the unification is much weaker and may limit the political legitimacy of the economic unification. (3 ) On the one hand, labor markets remain highly unionized and subject to high government unemployment taxes and other regulations impeding labor mobility. On the other hand, capital has high incentive to migrate to the EMU countries with the lowest wages. (4 ) Constraints on national fiscal policy are likely to be painful due to the absence of substantial fiscal federalism (fiscal transfer of resources from the rich to the less rich countries within the European Union) within the EU. (5 ) The EU is considering a large-scale expansion of its membership into Eastern Europe and the Mediterranean. This will cause many coordination costs and also the issue of representation of small and big countries.
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