European-Debt-Crisis.docx - EUROPEAN DEBT CRISIS Group 6 Le...

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LECTURER: TANG MY SANG 0 EUROPEAN DEBT CRISIS Lecturer: Tang My Sang Subject: International Financial Management Group 6: Le Thi Tuyet Trinh Ho Thi Thu Huyen Nguyen Hoang Hai Khanh Phan Nguyen Mai Nhi Le My Thuy Trang Le Hoang Anh Thu Huynh Nguyen Dieu Thao
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TABLE OF CONTENT THE EUROPEAN DEBT CRISIS What is the European debt crisis? .................................................................................................................. 2 I. Uniting Europe ........................................................................................................... 2 II. Monetary policy versus fiscal policy ............................................................................ 2 III. Germany’s credit card ............................................................................................. 3 IV. Austerity Measures ................................................................................................. 9 V. Cultural Differences .................................................................................................... 9 VI. Solution ................................................................................................................ 10 VII. Consequences ....................................................................................................... 12 VIII. Lesson ................................................................................................................... 13 GROUP 6 1
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The European Debt Crisis What is the European debt crisis? It is the failure of the Euro. The currency that ties together 17 European countries in an intimate but flawed manner. Over the past 7 years, Greece, Portugal, Ireland, Italy, and Spain have all teetered on the brink of financial collapse. This threatens to bring down the entire continent (Europe) and the rest of the world. How did it happen? I. Uniting Europe. For most of Europe’s history, it has been at war with itself. And countries at war with each other, tend to do less business together. Europe was always a continent of trade barriers, tariffs and different currencies . Doing business across borders was difficult. You needed to pay a fee to exchange currencies . And you needed to pay a tariff fee to buy and sell to companies in other countries. That tended to stifle economic growth. Then came World War II which devastated Europe. Because the situation was so dire, the fastest way to rebuild Europe was to begin to remove these barriers. Steel and coal tariffs came down so that a steel mill in one country could sell to a builder in another. This gave the survivors an idea: a unified Europe. A union across the continent that would end all future wars. Countries begin to band together toward this goal, bringing down trade barriers, lowering the cost of doing business. One of the last barriers to fall was the Berlin Wall. With a united Germany, Europe was ready. 27 countries signed the Maastricht Treaty and created the European Union. This made doing business across borders easier. But there was still one major obstacle: The different currencies. A decade later, they had one. The Euro (€), launched on January 1st, 1999. Countries adopting the Euro, called the “Euro Area,” discontinued their own currencies. They also discontinued their own monetary policies giving control to the newly formed European Central Bank. Commonly referred to as the ECB (The European Central Bank). The Euro Area now had one unified monetary policy but it still had many different fiscal policies. A key reason for the current debt crisis. II. Monetary policy versus fiscal policy. It’s important to understand the difference between monetary policy and fiscal policy.
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