- Comment on the latest measures that have been introduced to solve or contain the Euro crisis.
As Schoenmaker (2010) proposed, EU member countries had set up a legal instrument – the European Financial Stability Facility (EFSF) to offer some kinds of assistance in financial areas so as to help preserve the stability of the finance in Europe. EFSF has been endowed with many rights such as issuing bonds or other kinds of instruments related to debt in the EU market such as recapitalizing banks or purchasing the sovereign debts to assist the funds rising for solving the debt problems for many EU member countries.
There are a variety of the evidences to prove the measures and effects of these activities carried out by EFSF according to Schoenmaker (2010). there is a large amount of capital or loans raised by the efforts of EFSF including €440 billion lending capacity guaranteed by EU member countries, EU budget up to €60 billion as loans provided, funds up to €250 billion offered by the International Monetary Fund (IMF) to protect the safety of the financial practices in the European region and so on. In addition to the money assistance, some immediate policies have also been carried out by EU to strengthen and expand the right of EFSF to deal with the debt crisis such as up to 30% new measures are guaranteed to assist the establishment of some investment instruments to control the healthy life cycle of the bond markets in European countries.
And then let have a close look at the actual usage of the funds from the EFSF on the basis of the survey from Horvath and Huizinga (2011), there was about €17.7 billion out of the rescue package offered to for Ireland, about 1/3d of the €78 billion package for Portugal and about €80 billion rescue package may be offered to Greece later.
Obviously, these emergency facilities are to reduce the bad influence of euro crisis on financial capacity and economy development potential, from which Schoenmaker (2010) gives us some reflection of the financial market. After the establishment of the EFSF, the stock market had enjoyed a comparatively good rebound, in which some stocks had a rise to even the highest level in that year contributing to a great gain for EU. The good performances of the stock market also drove the rising of euro and attract several trades back in this currency. And the yields of the bond in Greece had dropped from 10% to 5%.
Besides the establishment of EFSF, an emergency funding program- the European Financial Stabilization Mechanism (EFSM) was then created by EU aiming to protect the financial stability of the European region to provide some financial assistance to help these EU members in trouble (Grauwe 2011).
Under the assistance of this mechanism, EU had issued several bonds in the capital market as the financial support to many EU members who need financial help.
To further assist these EU member countries in the crisis, the Brussels agreement was carried out in 2011, which included a 50% write-off on the debt of Greece from banks, four times rise of bailout funds, a large amount of credit enhancement for some suffered banks and other necessary measures in financial aspects (Arezki et al. 2011).
With these measures in this agreement, the financial situation in EU member countries is improved to some degree, too.
Interventions from ECB and some central banks
To increase the stability of the financial marker and the liquidity, the ECB has taken a series of actions to the EU member countries claimed by Peirce et al. (2011) and Arezki et al. (2011).
At first, some market operations were manipulated by ECB to buy both the debt from government and private and absorb a large amount of liquidity to both reach the debt security and remove the risk of inflation rising. These measures had stabilized the situation to be more stable in a certain period.
Next, some long term refinancing operation measure were also carried out to help EU to increase its capital raising to meet the debt crisis, which can also be useful in the present time to mollify the debt pressure.
And then, to remove the risk of the credit crunch choking the growth of economy for many EU members, about €489 billion loans were given many banks with a low interest rate so as to help these banks to continue their normal function in the financial aspect. With the assistance from the ECB, many banks in the European region were able to cut the interest rate from 4.5%/5% to 3.5% to assist EU faced with this crisis.
Reform and recovery efforts
Furthermore, several EU members also positively make some reform to restore the balance of the finance and improve their competitiveness externally such as the countries like Greece, Ireland and Spain and so on. All of these efforts in these countries are necessary and important for their recovery (Peirce et al. 2011).