University of Incheon
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Incheon, Korea 406-840
“The Leadership of the European Union and its policies to manage the financial crisis”
The World Economic and financial Crisis 2
The progress and the consequences of the global economic crisis 5
Some Important Events of 2008 7
First reaction andStimulus plan 8
The Leadership of the European Union and its policies to manage the crisis 10
March 2009 Summit in Brussels 10
European Economic Recovery Plan 11
Cohesion Policy in the Recovery Plan 11
The World Economic and financial Crisis
An economic crisis is a rough degradation of the economic situation and the economic perspectives. An economyfacing an economic crisis will most likely experience a falling GDP, a drying up of liquidity and rising/falling prices due to inflation/deflation. An economic crisis can take the form of a recession or a depression, Also called real economic crisis.
A financial crisis is a crisis which gets stock markets, and markets of the credits of a country or a group of countries. It can concern onlysome countries, or, introduced in a country, can extend by contagion. The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crisis were associated with banking panics, and many recessions coincided with these panics. Other situations that areoften called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.
We can notice that one of the main causes is the rising of the prices of raw materials: Raw materials prices have experienced very strong growth between 2006 and 2007, resulting in increased production costs. Then we also have thereducing of the activity in the property sector: The bursting of the housing bubble in many countries (USA, Spain, United Kingdom, and France) has reduced activity in the construction sector, leading to a negative effect on GDP. In all this causes take us to a financial crisis which started in 2007: The financial crisis was an aggravating factor and spread of economic crisis, through the liquiditycrisis, the tightening of credit and the wealth effect (when the stock market and real estate go down, the holders feel less wealthy and thus tend to invest less). The economy of every country is affected through a reduction of the economic growth and the increasing of unemployment.
The financial crisis started in the United States. The crisis began in summer 2007 because of "subprime", mortgagesmade to the American middle class. Under normal circumstances, an individual who wants to buy an apartment can borrow based on his salary and his ability to repay. Drawback of the system: the loan is in proportion to earnings. If you do not earn much, you cannot borrow a lot, so you cannot buy. So The Americans have created subprime: You take what you want (even if the salary is not very high)but the house is collateral. Clearly, if you cannot repay, the bank gets the house and sells it. Unfortunately, borrowers were unable to repay. Banks have so recovered the property for sale. This drove down property prices and recoveries were lower than loans. But when property prices fall, banks will panic! as property prices fell, the bank loses money on the sale. This is the subprime crisis; somebanks which had been too much reliance on this type of loan were found in a critical financial situation, they were found in cash and some have gone bankrupt. And more than 2 million people are ruined in the United States because they could not repay the loans.
From there, the banks will be wary of each other and no longer want to lend money among them. This crisis of confidence in...