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The European Balance of Payments Crisis - PDF

   

Added on  2021-05-31

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EUROPEAN AND ASIAN COUNTRY BALANCE OF PAYMENT CRISISGLOBAL DIMENSIONS OF BUSINESSINSTITUTIONAL AFFILIATION(S)STUDENT NAME[Pick the date]
The European Balance of Payments Crisis - PDF_1
P a g e | 2ANSWER:The Euro countries debt crisis started in the year 2010 with Greece and rapidly spreadin other adjoining countries like Spain, Italy and Portugal. Many observers believe that Greece crisis was due to indefensible fiscal situation and mismanagement of the countries. While few others believe that the crisis was due to extreme reliance on foreign investment. Much before 2010, the periphery countries started borrowing funds from abroad for supporting their housing boom and domestic expenditure. Borrowing countries had to face extreme alteration pressures when the foreign countries resisted extending further credits. Theconsequence of such pressure made them withdraw private capital to invest in their domestic spending and government to keep in alignment with domestic incomes[ CITATION Han12 \l 1033 ]. Although, the tightening in credit situation of borrowing countries’ economies established considerably less than expected which is the reason these countries had sustained so far. Many Euro central banks extended their credit limit as a component of Euro system’s method to manage payment imbalances between member countries. These balances of payments funding was divided under several policies to deliver liquidity to borrowing countries commercial banks to counterbalance the loophole of foreign funding. If these Euro system’s methods would have not been present, the countries could have faced even steeper recessions due to withdrawal of foreign funds. Although the borrowing countries followed a standard pattern, and were supported by Euro banks still its sheer consequences were visible in these countries’. Sharp fell in currency made exports cheaper in foreign legal tenders. Imports became expensive for domestic buyers. Typically, the balance of payment crisis made Euro countries suffer painful retrenchment in domestic spending in both private and public sectors as they had to struggle to end up their foreign borrowings. In addition to it, the financial system of the countries faced a massive collapse as all the investors started pulling out their money[ CITATION Mat141 \l 1033 ].
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