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Transcript
BERMUN2 2017
Addendum ECOSOC
Tackling the Eurozone Crisis
Please note that we will discuss this topic as the United Nations Economic and Social Council
(ECOSOC) and not as the United Nations Economic Commission for Europe (UNECE) as it says
in the original Research Report. The UNECE is one of five regional commissions established by
the UN ECOSOC, but the ECOSOC is their governing body and has the mandate to fulfill the
tasks that the UNECE was originally established for.
INTRODUCTION
Since 1999, 19 of the 28 nations in the European Union (EU) have adopted the Euro as
their currency and thereby formed the Eurozone, a monetary union with the goal of furthering
European integration and securing economic prosperity and stability. While maintaining
sovereignty by upholding national fiscal policies, national monetary policies were discontinued
along with the national currencies. The European Central Bank (ECB) in Frankfurt, formed at the
same time as the Euro was first introduced, was given the task of shaping the monetary policy of
the Eurozone with little intervention from the member states.
Striving to create a large single market within the EU, the introduction of a common
currency initially streamlined the development of the politico-economic union. Initially, the Euro
presented a great success by maintaining financial stability and a low inflation rate, as well as
stable public finances across the countries to which it was introduced. As currency fluctuations
between Eurozone member states were eliminated and international trade was simplified through
the removal of customs and tariffs, the EU was able to secure a powerful role in the Global
Market as the second-largest economy worldwide, while the common currency acted as a driving
force in the process of building common EU identification.
However, the Eurozone started facing serious problems at the end of 2007 that still
remain imminent today. According to numerous critics, the Eurozone’s crucial flaw was the
disregard of the differences between individual nations’ economic systems. Due to a single
interest-rate policy, without appropriate adjustments for economically weaker nations, some
countries were driven near to economic ruin. They were able to borrow more money, with much
lower interest rates than before, because of their strong currency. This cheap credit led them to
vastly increase deficit spending, meaning they spent far more than tax revenues; paying back
their debts with only additionally borrowed money. Because the fiscal policies had remained a
national matter, their economies became extremely unbalanced. The credit, in some nations, was
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invested into the housing market, creating a housing bubble. In late 2007, after the stock market
crash in the US extremely pressured the global economy, credit stopped being easily available,
the system of repaying debts with more loans crumbled. This impacted the economies of several
Euro-nations deeply. Most notably, Spain, Portugal, Greece, and Italy suffered a financial
collapse due to their accumulated debt, while Ireland did so due to their banking and housing
bubble. Many of these nations are still recovering from their financial collapse and its effects,
while others such as Greece are still in a state of economic ruin. This threatened the Eurozone as
a whole, due to the unified monetary policy. The Euro area was stuck in the Eurozone debt crisis.
This economic downturn included a loss of GDP and a soaring unemployment rate parallel to the
debts, creating a situation for these nations in which it was nearly impossible to accumulate the
necessary money to pay off their debts.
Economically strong nations like Germany, who also have been greatly benefitting from
the low interest rates, alongside the International Monetary Fund (IMF) and the ECB, had to
‘bail out’ these troubled nations’ debts to prevent default. They did so with strict austerity
measures. However, cutting government spending leads to lower earnings of civil servants,
leading to lower tax incomes. This was seen most prominently in Greece. The bailout packages
of about 220 billion Euros, led to an enraged society and an unbalanced budget without the
possibility of debt repayment. The austerity measures additionally could not stop tax evasion.
Years later, Greece is still very unstable. The default of Greece would lead to a series of defaults
within the highly intertwined financial system of the Euro area. This had global impact. Greece’s
debt, for example, mutated from a national government crisis to an international banking crisis.
Furthermore, economically stronger nations in the European Union have had to pay to bail out
nations like Greece have had negative receptions. The Leave campaign in the United Kingdom,
for example, which successfully pushed for an European Union exit in 2016, cited the bailouts
they paid to Greece and Ireland as money better invested elsewhere and as one important reason
to exit the European Union.
And even though bailouts provide a crucial temporary fix, long-term fiscal plans are
necessary to avert similar catastrophic results and perhaps needed to keep the European Union
from falling apart.
The ECOSOC will consider the Eurozone crisis, without focusing on its global impact,
which is the case in the research report, but instead focusing on its impact on the economic
stability of the European Union member states involved in the crisis.
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ADDITIONAL LINKS
1
“Treaty on stability, coordination and governance in the economic and monetary Union”, ratified by
the member states of the Eurozone in 2012
http://www.consilium.Europa.eu/European-council/pdf/Treaty-on-Stability-Coordination-and-Govern
ance-TSCG/
This treaty sets guidelines for the nations in the Eurozone: examining to what degree the indebted
countries following it is crucial to understanding the causes of the Eurozone crisis.
2
“Bailouts of Greece are Pretense for Massive Payout for German and French Banks”, interview with
Yanis Varoufakis
https://www.democracynow.org/2016/4/28/yanis_varoufakis_bailouts_of_greece_are
In this transcript of an interview with Greece’s former Minister of Finance on why Greece’s bailout
failed, Varoufakis demonstrates why the Greek are turning against the European Union, while
Germany and France profit from Greece’s debt crisis. It is vital to acknowledge both the givingand the receiving-nations point of view before drawing conclusions on how to counteract the crisis.
3
“Action for Stability, Growth and Jobs” by the European Commission
http://ec.Europa.eu/Europe2020/pdf/nd/eccomm2012_en.pdf
This report from the EU Commission to the European Parliament, the European Council, the ECB,
the European Economic and Social Committee, the Committee of the Regions and the European
Investment Bank, gives multiple examples of areas where the European Union must address the
challenges of the debt crisis. It addresses the main goals for the near future and discusses how to
achieve them.
4
“The Economic Adjustment Programme for Ireland” by the European Commission
Directorate-General for Economic and Financial Affairs
​http://ec.Europa.eu/economy_finance/publications/occasional_paper/2011/pdf/ocp76_en.pdf
The ‘Programme design and objectives’ section of the report (section V) describes the fiscal needsand banking support program, which led to success in Ireland. With the help of the International
Monetary Fund (IFM), and economically stronger European nations Ireland managed to return to
positive economic growth only a few years after their crisis. This therefore is a good example of a
well-planned and implemented program to counteract a national debt crisis.
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