Troika and its Impact on European Economies

Table of Contents
Preface
Introduction
Central problem
Aim of the report
Sub questions
Ireland
Troika (Ireland)
Greece
Troika (Greece)
Spain
Troika (Spain)
Housing scheme of Netherlands
Conclusion

Lessons learnt
Literature
Introduction
The financial crisis that took place in 2008 in the United States of America was one of the effects
of the global economic crisis, which influenced many countries, including Greece, which is still
expected to default on its debts. (Joseph N. Lekakis & Maria Kousis,2013) The financial crisis
with the economic recession will have a big impact on countries within the European Union as
well as countries within the Euro zone. There have been many economic disruptions to various
European countries after the crisis happened. It is known that there are many countries that have
been affected by this crisis significantly such as Greece, Spain and Netherlands and the
International Monetary fund in conjunction with the European Central Bank (ECB) will organize
a mechanism aimed at providing financial aid as well as guidance to recover from this crisis. The
rising prices of living are a real crisis faced by countries like Greece, Ireland and Spain.
Therefore, they had to enroll in a program that would provide them financial support. Therefore,
the largely influenced countries will receive mutual assistance from the International Monetary
Fund and the European Central Bank to recover from this crisis (Katsanidou & Otjes, 2016). In
general, Euro zone countries are no longer able to borrow money as they were previously and
can no longer repay their borrowed debt. Hence, the European Union was not able to reduce this
large problem in the economy except with the help of the International Monetary Fund.
European banks have not been able to deal with this problem in addition to facing liquidity
problems. (Richard & Baldwin,2015) The following paper will be utilizing the literature for
analyzing the financial crisis in Europe and the combined efforts will be making a difference
within the stabilization of the circumstance return to normal.
Central Problem
Troika is a body of the European Commission, the European Central Bank (ECB) and the
International Monetary Fund (IMF). This body will generally control the circumstances that have
taken place because of the huge financial crisis that happened throughout Europe and its huge
impact within European economies. This specific joint body had been made for saving the
adversely influenced countries such as Netherlands, Spain and Greece by offering them with
financial support to the governments and the different institutions which were at the brisk.
Therefore, the Troika loans have been profiting Greece and Spain on the huge scale. A few of the

countries were moreover expected for modifying their whole economies in an effort which
would also help in rebuilding their wage among the other changes.
Aim of the report
The objective of the report is to create an understanding the different forces of the demand and
supply that will be determining the market structure, the worldwide misery at that time and will
be influenced on the global economy. The research will be tending to the interventions executed
by the different global organizations for dealing with the economic crisis with the different steps
of the Eurozone in primary countries specifically Ireland, Spain, Greece and Netherlands. The
central research question is:
What were the various economic impacts in the situations which led to the continued need or the
financial support for Spain, Greece and Ireland?
The sub questions
1. What was the effect of the increased VAT of Ireland on the economy of the country in
terms of production?
2. What are the effects of the Greek government cancellation of the transport license?
3. What happened when there was pay cut in Spain on the employees of the economy of the
country?
4. What happened when the liberalization of the housing market took place in Netherlands
and how will it affect the economy of the country?
5. Was the Netherland’s rule for the donation scheme fair according to the economic
principle?
Ireland
The Irish government was spending heavily in addition to the Irish banks that were known to
fund during the middle of the property bubble, which led to an increase the debt of Ireland
significantly. Therefore, the Irish bank lost more than hundred billion euros. Most of the loans
were given to the property developers and the homeowners which were show within the property
bubble, the burst took place in the year 2007 and the economy collapsed at 2008 and the
unemployment rate rises from four percent in the year 2008 to fourteen percent by the year 2010.

(Joe Brennan, 2018) This resulted within the rise of shortfall of more than thirty percent of the
gross domestic product (GDP) in the year 2010. After the year 2011, the European leaders will
be concurring to cut the interest rate which Ireland had been paying on the European Union
bailout loan from more than six percent and after that the loan doubled. Because of all these
reasons, the government concurred for reducing the budget deficit to below three percent by the
year 2015. The economic crisis within the Eurozone saw several economies within the region to
plunge into complete financial crisis with the bank and governments being the most victims of
the whole crisis. When the bubble burst in 2008, many companies could not pay off their debts
and many companies ended up bankrupt. (Mark Broad, 2013)
Intervention by Troika
Since the economic conditions within the Eurozone begun falling apart, the formation of Troika
took various steps for advising the influenced countries on the different steps.
A. Ireland
The 26 percent increase in value added tax (VAT) by the Irish government is a major change,
which will have positive and negative effects. For the positive effect, the positive effects of the
increase in value added tax can be seen as leading the efforts to create a huge amount of income
and hence the increase in value added tax will help in the total income of the state (Raudon &
Shore, 2018). The negative effects lie in, when there will be rise in VAT it can lead to inflation
which results due to rise in prices and decrease within the real amount of the products and
services. Increase in VAT can be seen as regressive tax where huge proportion of the income
than the high one. As a result of the income impact the spending pattern will be changing and so
there will be a tendency for increasing the saving rather than spending which can lead to low
demand. There will be presence of deadweight losses in the community due to taxation, increase
in supply and rising commodity prices (P2) with the lower quantity required (Q2) as explained in
graph. For this reason, goods in Ireland will become expensive after VAT is implemented.
Overall, the troika has contributed in improving the Irish economy than it used to be, where more
jobs were created and gross domestic product increase.