Discussion Questions for Eurozone convergence case

Discussion Questions for Eurozone convergence case -...

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Discussion Questions for Eurozone convergence case, reading, and video 1. What factors were behind the convergence of long-term interest rates in the eurozone that occurred from the late 1990s until the beginning of the global financial crisis? According to the Figure 1 Long-term bond yields (through mid-2007), long- term interest rates ranged from 8.5% in Germany to 12.5% in Italy. These high rates could create strong financial problems, because no one believed that a single currency with various long-term interest rates could be good for the EU. To fix the problem, government and banking systems contributed to the convergence process. The primary forces behind this convergence appear to have been anticipation of monetary union and the credibility of the ECB with respect to its objective of keeping inflation low and stable. 2. What factors were behind the divergence of long-term interest rates in the eurozone that began during the global financial crisis (and persist today)? The GFC in the September 2008 also affected the EU economic market, because of the financial globalization. From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in the EU. From the Figure 2 Long-term bond yields (through March 2, 2012), “long rates in Germany (the core of the euro zone) fell sharply, but periphery countries such as Greece, Spain, Italy, and Ireland saw their long rates surge.” The primary forces behind this divergence appear to have been the poor international market, social confidence loss and the lasting questionable structure of the EU, which took decades of years to form its member countries as a union, but issues still existed and caused the EU lack the ability of facing risks caused by exterior financial crisis. 3. What caused the crisis in the eurozone that began in 2010? The eurozone crisis resulted from a combination of complex factors, which include: The globalization of finance that a regional financial crisis could lead economic fall in another region, like the international financial crisis, the Great Recession and International trade imbalances; Easy credit conditions during the Year 2002 – 2008 period that encouraged high-risk lending and borrowing practices;
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In several member countries, private debts arising from a property (Real
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