The Recession Spreads to Europe

In the last post, I talked about the basic problems the Financial Crisis has led to. Whereas, here I'll take some crucial factors which are fundamental to know about, considering the fact that the recession has led to Europe. Moreover, how the recession affected the rest of the World from Europe onwards.  

The first country which was affected by the wave was Great Britain, because of the fact that the country has a big financial sector which operates throughout the World. Therefore, the exchange rate of the dollar against the British GBP (also called pound sterling) fell; knowing that American dollar is the main currency used in the World; the financial intermediaries had problems solving that. This had a repeating stance, but in more economic violation.

A Salary fall occurred due to the fact that businesses could not provide as much workforce, and due to the recession that occurred in mid-2008, there were about three million people unemployed. The GDP fell by 3.1% and lots of the banks were closing down, or integrating with other banks to somehow save their positions.

However, this gave firms operating in an oligopoly market a good chance to make profit, considering the fact that their competitors may have weakened. An oligopoly market is an industry in which there are a small number of suppliers selling one particular good.

England was one of the countries that had the most economic impact, since it had the largest financial market. Furthermore, a summit was created in 2009. It called G20, which was a meeting of representatives from 19 countries including: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and United States.

The governing bodies of the summit were European Council and European Commission. This summit was created to solve economic problems around the World and to get out of the recession.

Gordon Brown, the Prime Minister of UK said that "we need one trillion dollars to save the World", and after this we would be investing into a new: global economy, intervention in the financial sector and stability laws used globally. This was the money asked from the IMF (International Monetary Fund), and it was triple the money they were prepared to pay.

Therefore, for 185 members in the summit, the demand was 750 billion dollars plus the extra 250 billion that was asked for. This demand was made, after several countries in Europe did not pay the IMF on the agreed dates. In other words, they wanted to borrow the money, not knowing when to pay it back. The IMF put specific conditions to the members that were connected to the G20.

Mentioning Europe; Ukraine had borrowed 10 billion dollars (when demanding 40 billion) and invested it in the workforce, instead of investing it into developing the economic growth as agreed with. This is why they could not pay on the agreed year, so the trust of the IMF to lots of countries around the world failed.

However, in 2011, reports say that UK is slowly going out of recession and starting to recover, whereas other countries are still in recession today.

Anyhow, this recession closed lots of businesses, made a lot of people unemployed and most importantly taught everyone a lesson that there is no strong economy which stays strong forever, because as the economy grows, so should new laws and regulations be adapted in the new economy. Finally,  what benefits this economic failure has done was it decreased the gap between rich and poor throughout the World, and this has opened the eyes of a lot of people, that how much the poor countries were affected by the economic downturn.

Business news around the World

The following details are going to be based on the World news in a business perspective. There will be news posted twice a week on most enthusiastic articles used from  www.euronews.net website.

Introducing the business world, we know that a Credit Crunch occurred in late 2007. This started from US banks not lending money to their customers due to the fact that there was a big debt starting when customers did not pay the banks in the correct agreed timing. This has lead to customer dissatisfaction and mistrust to the largest banks in US. Afterwords, a crisis appeared which nobody was expecting; the operating financial intermediaries and public limited companies which sold their shares yesterday for (example) $1000 per 0.001%, today were sold for only $10. 

A big fall in the price of the shares shocked the whole financial market. Therefore, the Federal Reserve System came to fix the chaos and the value of American dollar depreciated by 25 cents against Canadian dollar from 2008-2009, which was 1 dollar. However, from 2009-2010 appreciated to one dollar against 1 Canadian dollar, and had a plus minus 5 cents until today. This effected both international trade and the businesses operating in US. The Federal Reserve System used the theories from the monetary policy to help keep the dollar as stable as possible. This led to less goods being exported, and more goods being imported with very high taxes.

Panic in the financial market affected car manufacturers and created massive competition between the car industries, which led to lots of car industries closing down, making prices fall by at least 50%. In US, there is a called GM and it's the largest car manufacturers in USA. This company got bankrupted and had over 50,000 employees. Well, the unemployment in the short term grew by 3.8%, which is about 5.8 million people unemployed.

This has brought up a new problem which was caused from the fall in prices and created a massive recession. A big fall in prices of goods sold made a lot of businesses close up and lose finance. This slowdown in the economy of US has spread throughout the World and effected everybody. 

The spread of this panic was as fast as an economical HIV, and the next article will be on which kind of effect did this spread give.