Before research paper, everything started in the U.S
May 5, 2019
Before writing about European Central bank in overcoming the latest economic recession and its role in general regarding recession, it is important to state some basic information about European Central Bank as an institution.
Every country has a central bank which task mainly is to take care about the currency, managing monetary policy and basically making sure that the banking system is well organized and that is functioning smoothly. With thr creation of the euro, European leaders tought about the importance of the curreny and decided that euro, as a newly created currency, needed its very own central bank. European Central Bank was created in 1998 to represent the interest of countries that belong to Eurozone, and as I have already mentioned to protect the new currency, euro. European Central Bank , headquartered in Frankfurt, it has a president, currently Mario Draghi who is also a part of an executve board which oversee day-to-day business. Members of an executive board are appointed by the European Council, which also selects high-level banking executives. So, the European Central Bank is an official European institiution, overseeing the monetary affairs of the nineteen countries of the Eurozone. It is also supernational institiution, its independent of memeber state control but it is accountable to the public. Its main role is to maintain proce stability on the Eurozone. It also has to keep the rate of inflation close, or below 2%. It is also, exclusively in charge of issuing euros and setting the monetary policy for the Eurozone.
As the financial crisis broke in 2008, the European Central bank had to navigate a few tough years, as well as the rest of the world, bailing out Eurozone countries in economic downturn. This financial crisis i further writing will be on focus as the topic of the essay.
When it comes to recession that happened in 2008 and befell the entire global economy, as I have already discussed in latest research paper, everything started in the U.S economy when most of the banks faced bankrupt as a result of a bad decissions regarding landing in the mortage market. Crisis spreaded to the rest of the World. A vicious cyrcle developed, banks stopped lending to each other and credit dried up. To prevent a complete collapse of the banking system European goverment had a an important role, they came to the rescue of their banks with urgent support on an unprescedented scale. EU also, created a europe-wide recovery programme to safeguard jobs and social protection levels and to support economic investment. In this way, bank runs were avoided and European savings were protected, what was a very important thing in situations like these. The euro widely, sustained its value and with huge success shielded eurozone countries from the worst effects of the economic crisis by providing European companies with a stabile playing field for international trade and investment. However, making such a big effort soon showed first signs of loss, especially since most of the money had to be borrowed in order to realise these protection programmes. Furthermore, the most exposed eurozone countries began facing many problems because they could not finance their debts. This situation led to another, new development in the crisis known as sovereign debt crisis which was reflected in increasing deficits and spiraling debt the markets lost confidence in certain government’s abillity to pay back what they owed. Interest rates, for their government bonds soon became unsustainable and since many of these bonds were held by other European countries and their banks, this turned into a problam for all population. This was the biggest problem for those countries that shares euro, as their currency. All this led banks to reduce their lending to businesses and private households. In 2009, the European economy was affected and suffered as well its worst recession since its creation. After a recovery that was very brief, it went into a mild recession again in early 2012. After that, basically as a result unemployment in many parts of Europe was at so low level that is immemorial , that never happened before. This also resulted creating hardship and increasinf poverty level. It is importan to clarify that euro did not made the crisis worse, because it was tought that it did. Not all eurozone countries built up excessive debts and not all countries outside the eurozone kept their debt under control. Here, the huge effect had the fact how actually was to be in the eurozone. Being in the eurozone meant that its members were connected in a way they always could count on solidarity about the members. Also, their econommies depend on each other, so whatever happens with one will happen with the other one too. For example if one country progress, it will pull the other countries with itself, but the same thing will happen if one country start to lose strength or monumentum, the other countries will suffer. The key lesson of the crisis was the fact that Europe needed to build closer Economic Union to complete its existing monetary union and to ensure that public finances are sustainable. First, the new fiscal treaty was signed limiting yearly structural deficit. Second, European Financial Supervision is being stepped up to ensure that banks are better capitalized, behave responsibly and are able to lend money to households and businesses. Third, firewalls to protect the single currency. Fourth, the European Union will pursue the objectives of the Europe 2020 strategy. In general, what is the most important thing in overcoming recession is to have solidarity mechanisms for crisis situations and also a stronger supervision of the financial markets and deeper economic union. Even though E.U had ups and downs when it comes to recession, they as a Union managed to overcome the recession fighting and never giving up,trying to find the best possible solutions in every situation, what is a generally positive thing, especially in this case.