Global Business And Environmental Risk †Myassignmenthelp.Com

Question: Discuss About The Global Business And Environmental Risk? Answer: Introducation The European Economic crisis came about as a result of various factors. Noteworthy, the banking industry in European countries faced losses due to the bad debts in the United States of America following the credit crunch .Following the insolvency of most financial institutions, the financial situation of most Europe based countries closed down thus contributing to the overall European crisis. Further, recession boosted the financial crisis in Europe in the sense that there was no financial borrowing and low investment rates thus the economic downturn in Europe(Pettinger,2014).Moreover, the inability of lenders to pay back their credit facilities and the decline of housing prices led to the incurrence of losses by most European banks thus the economic growth decline. Additionally ,the increase in sovereign bonds yield resulting in huge budget strains at the national level contributed to the European economic crisis .Particularly ,Greece s foreign debt in the year 2009,stood at 300bn Euros .Foreign investments in Greece attracted higher bonds and interest rates thus the exposure to bad debts for most European states which prompted the financial crisis in the region(Krupper 2016).Moreover, most banks in the European region considered saving rather than offering credit facilities amounting to substantial strains on the liquidity of financial institutions in the region. With the low investment rates due to high national debts nd high and high-interest rates on loans, most countries experienced national budgetary deficits and low economic activity. In addition, the inadequate structural deficits in most of the European countries may have contributed to the financial crisis n the region. Due to the insufficient financial structures ,most countries were unable to deal with the slow economic growth rates thus succumbing to the economic downturn propelled by the financial crisis(Investopedia 2017).Most of the European countries were ill equipped to cushion themselves against global recession and other economic downturns which in a way expanded the crisis instead of containing or cushioning against it. Further ,the high-interest rates on credit facilities curtailed many countries from investing since most countries in the region were saving their financial facilities as opposed to lending .Also, the countries with huge national debts faced high-interest rates which discouraged them from seeking out financial facilities from the international financial bodies such as the European Central bank and the international monetary fund (Inve stopedia,2015). In addition, the unforeseen risk of underpricing in the house mortgaging system in the United States of America was an important trigger to the European financial crisis(Stark,2009).Notably,the bankruptcy of the Lehman Bank,the rise in asset prices and the sudden credit growth rates are some of the major contributing factors for the European crisis.In addition,there was the overall global imbalances which affected the Eurozone market.Due to the insolvency of most financial institutions ,there was no liquidity to further borrowing thus the decline of the financial sector in the European union countries(Buti,2009).The European economic crisis is directly linked to the global financial crisis and the subprime house mortgaging bubble in the united states of America. Policies implemented by the Government and the Impact on the Economy Predominantly, monetary and fiscal measures and policies are implemented to regulate the economy. Also, the application of non-standard liquidation operation greatly helped increase the lending capacity of financial credit facilities .In addition ,policy rates cuts were incorporated to encourage borrowing as opposed to saving to stir economic activity and investment for economic growth in a bid to overcome the economic downturn in the European countries.(Stark,2009).There was the implementation of automatic stabilizers into various European countries economies .Expansionary fiscal policies were also implemented to stir economic growth rate in the Eurozone .Typically, discretionary fiscal policies are meant to reduce tax rates and government expenditure in the case of economic downturn whereas expansionary fiscal policies are meant to increase expenditure in order to create employment opportunities. Predominantly,Most European countries implemented such policies to cushion their economies against further financial and economic turmoil. Among the monetary policies implemented included inflation targets, price level targets among other policies. Usually, monetary policy is preferred because expansionary policies stimulate investment and encourage consumer spending which is vital for economic activity and growth. Also, through monetary policy, money can be injected into the economy through quantitative easing .However, there are no sure ways of knowing whether the monetary monopolies will achieve the desired result (Green gabage 2015).Fiscal policies are considered flexible and reactionary to economic changes thus has high chances of achieving the desired result .Further, through taxation unhealthy habits or enterprises can be curtailed through fiscal policies .Additionally ,fiscal policies effects are promptly felt thus can be a huge relief for a pressing economic situation(Lombar do,2015). However, fiscal policies are prone to create national budget deficits and the implementation of such policies are dependent on political will. Government intervention during the crisis was vital in the sense that it was able to contain the negative effects of the European economic crisis effects. Through government action, interest rates were reduced, bank liquidities restored, inflationary pressures contained through monetary and fiscal policy. Impact of policies Following the European economic crisis, it was imperative for the European governments to take prompt action to contain the situation hence most governments opted for fiscal and monetary policies. Furthermore ,liquidity managing policies and measures have been implemented to curb the unfavorable inflationary pressures in the Eurozone(Stark,2009).The impact of these monetary policies has been reduced interest rates on financial credit facilities and stability of prices. Further, sanity has been restored in the banking sector of the economies in the Eurozone due to the stable liquidity levels of the current banking institutions in the region .Through stabilized banking liquidity, borrowing has resumed thus prompting investments to which economic growth is imminent . Majorly,With the stabilization of pricing, investor confidence is slowing returning to the Eurozone thus the possibility of more foreign direct investment opportunities leading to economic growth rate.Also, inflationary pressures are slowly dying down which is a sign of controlled inflation through monetary and fiscal policies. Further, a safety net was set up to overcome the effects of the crisis under the European Stability Mechanism which offered credit facilities to its members (European Union,2017).In addition , a treaty on the regulation of national debt and deficits was enacted and adopted by the European countries to prevent a reoccurrence of the crisis through the establishment of rules and recommendations on handling public debt ,expenditure and national budgetary deficits. bubble asset and risk monitoring policies were strongly advocated for and penalties stipulated for cases of breach. Discretionary fiscal policies are responsible for the increase in the gross domestic product index in the Eurozone (Coenen ,Straub et.al,2012) Moreover, the implementation of expansionary fiscal policies is responsible for the slight economic growth rates in the European countries. Explain the role of the failing banks in the European Economic crisis. Before the economic crisis, most of the major banks had low liquid assets hence most of them could not offer loans to struggling institutions .During the crisis, most major banks in the European union region, especially the Central bank implemented monetary policies and other measures and policies to revive the financial economy in its jurisdiction .New policies were formulated and implemented to control inflation ,interest rates in the various economies(Liikanen,2013).Central and federal banks were given broader regulatory and supervisory powers to restore the financial stability of money in the economies. Most of the other banks had to resort to their federal or central bank due to the financial difficulties during and the onset of the crisis thus the implementation of the policy rate. Further the European Central bank exchanged euros to dollars which were offered to the struggling banks in Europe under long maturity dates. Also ,the range of collaterals were also expanded to increase the borrowing capacities of the struggling banks .Through further monetary and fiscal policy, slowly by slowly, the liquidity of financial markets ,interest rates and inflation rates was restored .Notably, the role of the Central bank expanded during the Eurozone economic crisis to involve additional responsibilities and policies .Bond buying ,use of negative interest rates were implored to combat the struggling banking system .Also the European Central Bank was tasked with the central duty of regulating and supervising financial markets in the region(Macbride and Alessi,2015).Specifically, the European Central Bank partook in buying government bonds which wasnt in its traditional role description. The bank implemented a security market plan to reduce credit costs for its member states. Also there was a bond initiative through the outright monetary transaction to deal with government bonds in the Eurozone. Further the European central bank established a banking union .Through quantitive easing,the inflation rates were reduced.Most national European banks were under the supervision and regulation of the European Central Bank which sought to monitor and implement various policies to help restore the liquid of national and federal banks to their original glory .Through the various mentioned ways the European central bank was able to stabilise policy rates,inflation and interest rates of financial institutions through which most European countries in the union have recovered from .Also these actions,economic activity has been stirred as borrowing is possible and investments likely to stem from stability of financial institutions. Economic Consequences of the Crisis Predominantly, there were slow economic growth rates during and immediately after the crisis .Additionally, there were high unemployment rates due to the decline of businesses due to the economic downturn. Also, due to the harsh economic times, there were high inflationary pressures brought about by the financial crisis .Due to the fact that there was little capital in circulation, most financial institutions lacked the liquidity to offer loans to revive struggling industries and promote investment thus there were high unemployment rates (Kapoor and Coller 2014).Following the crisis,there were high unemployment rates,decline of industries,insolvency of some enterprises,low business confidence towards most European countries,high inflation rates and low gross domestic product due to low economic activity. Further, there were high-interest rates on financial credit facilities due to the scarcity of capital following the onset of the crisis. The crisis led to substantial reduction in the gross domestic product of most European Union countries due to the reduced rate of international trade and low economic activity .Also, there were low gross domestic product growth rates if any due to the fact that there were harsh economic times to conduct trade and venture into investments. By and large, there was decline of some industries due to the limited capital flow and harsh trading environment marred by high-interest rates and inflationary pressures .Largely, Government revenue for most of the economies reduced due to the fact that there was reduced spending and more saving during the crisis period(Beker,2013) .Additionally ,there were high- interest rates for credit facilities which discouraged borrowing. Taxation revenue significantly reduced due to less consumption habits during the Europea n economic crisis. Impacts on Europe and the world The fact that European countries are trading partners to most countries in the world means that these countries were affected in one way or another. Noteworthy ,due to the economic crisis ,most countries have lost investor confidence in European countries thus the unlikelihood of full commitment for investment or credit facilities(Knight N .d).Notably, following the economic crisis in Europe ,there was slowed economic growth rate due to the fact that there were no investments to create employment opportunities and banking institutions were unable to offer credit facilities due to lack of liquidity .Some industries declined following the harsh economic times leading to high rates of unemployment across European states(Hanan, n .d).Youths were the most affected in the unemployment gap in Austria and Netherlands. Due to the fact that European countries are involved in international trade, global trade has been disrupted by the European economic crisis. The volume of international trade reduced significantly following the crisis and is slowly recovering. In addition theres need to restore investor confidence by the European countries to its international trading partners .Following the European financial crisis, other global countries have adopted structural and institutional frameworks ,risk monitoring techniques to help abate economic downturn as the one experienced in European countries .Further, there is reduced foreign investment by and in the European countries due to the slow economic growth rates following the financial downturn(Na ,Minjun et.al N .d).Due to the crisis ,the value of foreign direct investment has reduced in most countries. Conclusively, the economic crisis was caused by harsh economic times characterized by lack of liquidity of banks, high national debts and high budget deficits ,high-interest rates ,high inflationary pressures which led to low economic activity in the Eurozone ,high borrowing rates, it can be said that the European economic crisis had major negative impacts on European nations and the world as whole. However ,the European economic bank ,federal and national banks through monetary and fiscal policies have management to stabilize the financial market situation thus favorable interest rates and low inflationary pressures. Despite the slow recovery rate of economic activity in most economies these s hopes that the value and volume of international trade will continue to grow steadily. References Beker, V.A.(2013).The European Debt Crisis: Causes and Consequences. Omics Online. 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