Download Essay questions for Chapter 3

Essay questions for Chapter 3
1.
If all proposed programs designed to help the financially distressed EA countries are
blocked by Germany and its Northern allies, is there any hope for recovery from the
European sovereign debt crisis? If a solution exists besides the breakup of the EMU, please
discuss this possible solution.
2.
The first signal that the financial crisis had entered Europe was rising long-term interest
rates. Explain why interest rates began rising. Did the long-term interest rates of all EMU
countries increase or only those of a small group of EMU member countries? If interest
rates of only a few countries increased, provide a list of these countries. State also the
reasons that contributed to the increase in these countries’ interest rates.
3.
High interest rates in some EA countries affected most aspects of the economy as credit
became scarce and the cost of borrowing became very expensive. The most serious problem
was the inability of the countries to borrow in the market. Explain how the exclusion of this
group of countries from the international financial capital markets came to be the center of
the European sovereign debt crisis. How did the EU officials and the EU country leaders
address these problems? Do you agree or disagree with the joint EU and IMF approach to
resolving the crisis? Explain why.
4.
A few countries that were severely affected by the financial crisis in Europe received
massive and unprecedented joint bailouts from the EU and the IMF. The rescue programs,
© 2016 George K. Zestos
however, were not successful in quickly ending the crisis. Explain the reasons why the
bailout programs have failed. Do you think the inability or unwillingness of the bailout
recipient countries to follow the bailout conditions is a major reason why the crisis is not
resolved yet? Explain.
5.
Once the EU and IMF agreed to bail out financially distressed countries, it was believed
that the high debt to GDP ratio of the bailout recipient countries would decline as the real
GDP was expected to increase. Greece, however, is in its sixth year of recession, and its
public debt to GDP ratio has drastically increased particularly after Greece received its first
bailout in 2010 (see Figure 5). Why did the bailout program for Greece fail to end the crisis
and thus reduce the debt to GDP ratio?
6.
Very low international competitiveness was suggested as a possible cause of the
recession in the EA periphery countries. Explain any direct or indirect indicators that suggest
countries were affected by their poor international competitiveness. What can countries do
to increase their international competitiveness?
Suggested class debates
1.
(Note to the professor: Please divide the class into two groups; one representing the
Northern EA countries and the other into the Southern EA periphery countries.) Students
representing the periphery countries should support the position that the crisis is
unresolved because the Northern EA countries lack solidarity and commitment to support
the EMU. Students representing the Northern EA country leaders should support the
© 2016 George K. Zestos
position that the crisis is caused by a lack of fiscal discipline in the periphery countries. The
professor should encourage the two student groups to debate various proposed programs
until they find possible common positions for a solution to the European sovereign debt
crisis.
2.
Students should debate whether the austerity measures imposed on the bailout
recipient countries have prolonged the recession in the EU or whether other factors are
responsible for prolonging the recession.
3.
Students are asked to debate the benefits and costs that arise from the mutualization of
newly issued EA public debt (Eurobonds). The class should be divided into two groups; one
that supports the issuance of Eurobonds and the other that does not. Each group will
present arguments explaining the benefits and costs of public debt mutualization in the
EMU; each should attempt to convince the other group of their views.
© 2016 George K. Zestos