Module 5: CASE DIGEST (50 POINTS)
Module 5: CASE DIGEST (50 POINTS)
Module 5: CASE DIGEST (50 POINTS)
My reason is that I thought my professor of this subject is Sir Mar because I was
added in his gc, then I was able to know that I have lack subject and requirements to
you ma’am. I’m so sorry.
CASE STUDY:
MAKING SENSE OF THE ECONOMIC CHAOS IN THE EUROPEAN UNION
In this article, the facts and issues that I found are, In April 2010, following a series
of tax increases and budget cuts, the Greek prime minister officially announced that
his country needed an international bailout from the EU and International Monetary
Fund (IMF) to deal with its debt crisis. The crisis began in 2009 when the country
faced its first negative economic growth rate since 1993. There was a fast-growing
crisis, and the country couldn’t make its debt payments. Its debt costs were rising
because investors and bankers became wary of lending more money to the country
and demanded higher rates. Economic historians have accused the country of
covering up just how bad the deficits were with a massive deficit revision of the 2009
budget.
In the ashes of Europe’s debt crisis, some see the seeds of long-term hope. That’s
because the threat of bankruptcy is forcing governments to implement reforms that
economists argue are necessary to help Europe prosper in a globalized world—but
were long viewed politically impossible because of entrenched social attitudes.
“Together, Europe’s banks have funneled $2.5 trillion into the five shakiest euro-zone
economies: Greece, Ireland, Belgium, Portugal, and Spain.”
As Steven Erlanger noted in the New York Times, The European Union and the 16
nations that use the euro face two crises. One is the immediate problem of too much
debt and government spending. Another is the more fundamental divide, roughly
north and south, between the more competitive export countries like Germany and
France and the uncompetitive, deficit countries that have adopted the high wages
and generous social protections of the north without the same economic ethos of
strict work habits, innovation, more flexible labor markets and high productivity.
European leaders first joined with the IMF in May 2010 and agreed on a $1 trillion
rescue fund for financially troubled countries. Then, Greece announced deep budget
cuts, Spain cut employer costs, and France raised its retirement age. France also
joined Germany and the United Kingdom in imposing harsh budget cuts.
Governments now face a crucial test of political will. Can they implement the reforms
they’ve announced? The short-term response to those moves has been a wave of
strikes, riots, and—in Spain, Italy, Ireland, and France—demonstrations. Yet
supporters of the EU argue that the mutual common interests of the EU countries will
ensure that reforms are implemented. Memories of the fragility of the continent after
the wars still lingers. Plus, more realistically, Europeans know that in order to remain
globally competitive, they will be stronger as a union than as individual countries—
particularly when going up against such formidable economic giants as the United
States and China.
The first and most relevant reminder is that global business and trade are
intertwined with the political, economic, and social realities of countries. This
understanding has led to an expansion of trade agreements and country blocs, all
based on the fundamental premise that peace, stability, and trade are
interdependent. Both the public and private sectors have embraced this thinking.
Despite the crises in varying European countries, businesses still see opportunity.
UK-based Diageo, the giant global beverage company and maker of Ireland’s
famous Guinness beer, just opened a new distillery in Roseisle, Scotland, located in
the northern part of the United Kingdom.
The new distillery is a symbol of optimism for the industry after the uncertainty of the
global economic downturn. The scotch industry had been riding high when the
financial crisis hit and the subsequent collapse in demand in 2009 ricocheted
through important markets like South Korea, where sales contracted by almost 25
percent. Sales in Spain and Singapore were down 5 percent and 9 percent
respectively. There was also evidence of drinkers trading down to cheaper spirits—
such as hard-up Russians returning to vodka.
When countries borrow, they increase their debt. When debt levels become too
high, investors get concerned that the country may not be able to repay the money.
As a result, investors and bankers (in the form of the credit market) may view the
debt as higher risk. Then, investors or bankers ask for a higher interest rate or return
as compensation for the higher risk. This, in turn, leads to higher borrowing costs for
the country.