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The anti-European parties, which cannot be expected to do anything constructive, failed to make the gains that they expected. Nor can they form the united front that they would need in order to become more influential. One of the institutions that needs to be changed is the Spitzenkandidat system. It is supposed to provide a form of indirect selection of the EU leadership.

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In fact, as Franklin Dehousse has explained in a brilliant but pessimistic article in the EU Observer , it is worse than no democratic selection at all. Each member state has real political parties, but their trans-European combination produces artificial constructs that serve no purpose other than to promote the personal ambitions of their leaders.

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We use cookies to improve your experience on our website. Please log in or register to continue. Registration is free and requires only your email address. Email required. Stark was "probably the most hawkish" member of the council when he resigned. On 22 December , the ECB [] started the biggest infusion of credit into the European banking system in the euro's year history. It also hoped that banks would use some of the money to buy government bonds, effectively easing the debt crisis.

ECB lending has largely replaced inter-bank lending.

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On 16 June the European Central Bank together with other European leaders hammered out plans for the ECB to become a bank regulator and to form a deposit insurance program to augment national programs. Other economic reforms promoting European growth and employment were also proposed. In regards of countries receiving a sovereign bailout Ireland, Portugal and Greece , they will on the other hand not qualify for OMT support before they have regained complete market access, which will normally only happen after having received the last scheduled bailout disbursement.

The European Stability Mechanism ESM is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism in July [] but it had to be postponed until after the Federal Constitutional Court of Germany had confirmed the legality of the measures on 12 September It became effective in Estonia on 4 October after the completion of their ratification process.

On 16 December the European Council agreed a two line amendment to the EU Lisbon Treaty to allow for a permanent bail-out mechanism to be established [] including stronger sanctions. In March , the European Parliament approved the treaty amendment after receiving assurances that the European Commission , rather than EU states, would play 'a central role' in running the ESM.

It is located in Luxembourg. Such a mechanism serves as a "financial firewall". Instead of a default by one country rippling through the entire interconnected financial system, the firewall mechanism can ensure that downstream nations and banking systems are protected by guaranteeing some or all of their obligations. Then the single default can be managed while limiting financial contagion. Originally EU leaders planned to change existing EU treaties but this was blocked by British prime minister David Cameron , who demanded that the City of London be excluded from future financial regulations, including the proposed EU financial transaction tax.


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On 28 June eurozone leaders agreed to permit loans by the European Stability Mechanism to be made directly to stressed banks rather than through eurozone states, to avoid adding to sovereign debt. The reform was linked to plans for banking regulation by the European Central Bank. The reform was immediately reflected by a reduction in yield of long-term bonds issued by member states such as Italy and Spain and a rise in value of the Euro.

There has been substantial criticism over the austerity measures implemented by most European nations to counter this debt crisis. US economist and Nobel laureate Paul Krugman argues that an abrupt return to "'non- Keynesian' financial policies " is not a viable solution.

The latter introduced drastic austerity measures but was unable not meet its EU budget deficit targets. On the other hand, Portugal's leftist coalition fought austerity it increased the minimum wage by 25 percent and took back cuts in the pension system and the public sector and at the same time reduced its budget deficit to below three percent in Gallen no austerity program has ever worked. Both led to disastrous consequences. According to Keynesian economists "growth-friendly austerity" relies on the false argument that public cuts would be compensated for by more spending from consumers and businesses, a theoretical claim that has not materialised.

This led to even lower demand for both products and labour, which further deepened the recession and made it ever more difficult to generate tax revenues and fight public indebtedness. But its impact is much less than one to one. A one percentage point reduction in the structural deficit delivers a 0. A task that is difficult to achieve without an exogenous eurozone-wide economic boom. Instead of public austerity, a "growth compact" centring on tax increases [] and deficit spending is proposed.

Furthermore, the two suggest financing additional public investments by growth-friendly taxes on "property, land, wealth, carbon emissions and the under-taxed financial sector". They also called on EU countries to renegotiate the EU savings tax directive and to sign an agreement to help each other crack down on tax evasion and avoidance.

Apart from arguments over whether or not austerity, rather than increased or frozen spending, is a macroeconomic solution, [] union leaders have also argued that the working population is being unjustly held responsible for the economic mismanagement errors of economists, investors, and bankers.

The Bank: The Birth of Europe's Central Bank and the Rebirth of Europe's Power

Over 23 million EU workers have become unemployed as a consequence of the global economic crisis of —, and this has led many to call for additional regulation of the banking sector across not only Europe, but the entire world. Germany has come under pressure due to not having a government budget deficit and funding it by borrowing more. As of late , the government federal and state has spent less than it receives in revenue, for the third year in a row, despite low economic growth.

Current projections are that by the debt will be less than required by the Stability and Growth Pact. It has been a long known belief that austerity measures will always reduce the GDP growth in the short term. Some economists believing in Keynesian policies criticised the timing and amount of austerity measures being called for in the bailout programmes, as they argued such extensive measures should not be implemented during the crisis years with an ongoing recession, but if possible delayed until the years after some positive real GDP growth had returned.

In October , a report published by International Monetary Fund IMF also found, that tax hikes and spending cuts during the most recent decade had indeed damaged the GDP growth more severely, compared to what had been expected and forecasted in advance based on the "GDP damage ratios" previously recorded in earlier decades and under different economic scenarios. In June , EU leaders agreed as a first step to moderately increase the funds of the European Investment Bank , in order to kick-start infrastructure projects and increase loans to the private sector.

A few months later 11 out of 17 eurozone countries also agreed to introduce a new EU financial transaction tax to be collected from 1 January In April , Olli Rehn , the European commissioner for economic and monetary affairs in Brussels, "enthusiastically announced to EU parliamentarians in mid-April that 'there was a breakthrough before Easter'. He said the European heads of state had given the green light to pilot projects worth billions, such as building highways in Greece.

It's hoped that this will get the economy moving in Greece and Portugal. In multiple steps during —, the ECB lowered its bank rate to historical lows, reaching 0. Soon after the rates were shaved to 0.

European Central Bank acts to boost struggling eurozone

The lowered borrowing rates caused the euro to fall in relation to other currencies, which it was hoped would boost exports from the eurozone. Crisis countries must significantly increase their international competitiveness to generate economic growth and improve their terms of trade. Indian-American journalist Fareed Zakaria notes in November that no debt restructuring will work without growth, even more so as European countries "face pressures from three fronts: demography an aging population , technology which has allowed companies to do much more with fewer people and globalisation which has allowed manufacturing and services to locate across the world ".

In case of economic shocks, policy makers typically try to improve competitiveness by depreciating the currency , as in the case of Iceland, which suffered the largest financial crisis in — in economic history but has since vastly improved its position.

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Eurozone countries cannot devalue their currency. As a workaround many policy makers try to restore competitiveness through internal devaluation , a painful economic adjustment process, where a country aims to reduce its unit labour costs. Purchasing power dropped even more to the level of Other economists argue that no matter how much Greece and Portugal drive down their wages, they could never compete with low-cost developing countries such as China or India. Instead weak European countries must shift their economies to higher quality products and services, though this is a long-term process and may not bring immediate relief.

Another option would be to implement fiscal devaluation , based on an idea originally developed by John Maynard Keynes in Germany has successfully pushed its economic competitiveness by increasing the value added tax VAT by three percentage points in , and using part of the additional revenues to lower employer's unemployment insurance contribution. Portugal has taken a similar stance [] and also France appears to follow this suit.

According to the report most critical eurozone member countries are in the process of rapid reforms. The authors note that "Many of those countries most in need to adjust [ Greece, Ireland and Spain are among the top five reformers and Portugal is ranked seventh among 17 countries included in the report see graph.