c) Comment on the latest measures that have been introduced to solve or contain the Euro crisis
As Peng (2011) pointed out EU has carried out many measures to solve the problems, one of which is the stimulus package. In 2010, EU and International Monetary Fund had given out about $163 billion to Greece. And then a second bailout was delivered to Greece in the mid of this year which was about $157 billion. Besides Greece, other worse influenced nations such as Ireland, Italy and Portugal also received these stimulus packages to help them to suffer from the debt crisis in 2010 and 2011.
Although the stimulus package was seemed to stabilize the financial market in Europe in a certain extent, there were regarded as short term measures, which can’t work as a true solution in the long term round. Furthermore, there was also a larger issue loomed that the EU may be able to help Greece due to its small size but it was so difficult for EU and related financial institutions to recue large countries such as Italy or Spain from the crisis. (Peng2011)
As Yu (2010) told as, to alleviate and remove the side effects of the debt crisis, all of the EU member nations have agreed on the proposal to carry out the European financial stability facility (EFSF), which was considered as a legal instrument to maintain the financial stability in this region via offering several financial assistances to these influenced EU members. For example, some assistant bonds or other measures related to the financial market were enforced by the support from the Debt Management Office of Germany so as to raise funds or offer lands to these influenced member countries. And nearly €440 billion loan capacity as the facility was issued companied by many financial guarantees to pursue the financial safety in this region. And in this year, this EFSF is further expanded to increased guarantees to 30% for these governments in the influenced countries and to set up investment instruments in order to re-boost the primary as well as the secondary bond markets.
The enforcement of EFSF has the following consequences. Yu (2010) pointed out that the EFSF has made the stocks market experience surge even in the global scope that the worry on the spreading of the Greek debt crisis has been eased to a certain degree and a shoot up of some stocks price. And the debt of some countries such as the Greece has decrease sharply from 10% to just over 5%, which is a good situation for all of the EU countries or the entire global market.
iii) Brussels summit
In this year, several leaders from the EU member countries has met in Brussels to sign the agreement to write off a large proportion of Greece’s debt by banks, increase the proportion of funds as well as make a rise of nearly 9% of the bank capitalization. (Peng2011; Yu 2010)
Although this summit was to assist these influenced countries to remove the pressure from the debt crisis, many critics pointed out these issues in the Brussels summit may make these worse influenced countries act more inflexible in the long time round and the banking system may become weaker when most of them are required to raise capital simultaneously, which may finally result in economy depression and longer recession as well. (Peng2011; Yu 2010)
iv) Measured from the European Central Bank (ECB)
A series of means have also implemented by ECB to reduce financial markets’ volatility and promote the liquidity. At first, it promotes the market operations to purchase debt from governments and private sectors worth about €200 billion till this year with absorbing the same sum of liquidity to avoid the rise of inflation. Secondly, the ECB has claimed initiated the long term refinancing operations for three months long and six months long respectively. (Zhan, Zhao & Xie 2011)
With these kinds of measures from ECB, the situation has been stabilized for a moment but the final consequences may be not as positive as it expected. Because just as many economist worrying about, there is a natural limit of the purchasing capacity of ECB to afford and the exceeding of the summit of this capacity may only result in the dysfunction of this institute. That is to say, if ECB expects a good return of its measures, it is important for it to estimate its own capacity for the debt and as well as the capacity of these financial institution towards the measured required to deal with the debt crisis. (Zhan, Zhao & Xie 2011)