US Financial Crisis and its impact on Europe (2008 and later): How did the US financial crisis impact European Countries in their politics, economy and political parties

By Mireille Maddah

“The world economy is like an ocean liner without any lifeboats”, says an economist for the HSBC Bank research team.[1] The world economy is an interlined network conjoining not only different states with each other; but also, their fate altogether. The United States 2008 housing and financial crisis is no different to such claim. the crisis itself may have started with very specific proportions i.e. the inevitable collapse of the Lehman Brothers bank leading to epic proportions concerning people’s debt history and how close was it to defeating the world economy because of complications leading to such disastrous result that the world, somehow, is stull recovering from until the present time.[2] The downfall spiral of the bank was only the very beginning to a bigger issue that involved many sectors and not only the financial one; from them we count: the entire banking system, companies which reply on credit and their revenue, insurance companies dealing both with creditors and the other firms that they are issuing their credit from, commercial banks which had had their amicable reputations beforehand, enterprises that insured mortgages and their lending procedures and every other sector that had to come across dealing with such companies. Eventually, the biggest of fallacies committed during that crisis were personified during the ‘housing-bubble’[3] crisis that tumbled down and drowned the U.S economy and housing market to be exact. The crisis that occurred back then did not elude its trails into its national circumstances only; but also to the rest of the world, and primarily, to the European continent as one of the many global victims that had to endure it. Although it is safe to safe to say that government’s own greed as well as the private incentives lead by mortgage companies are the leading sides of why such crisis has taken part in the first; it is also credible to foresee all involved sides and understand how big that damage was that it had gotten all the way across the Atlantic and involved itself into the European financial market.

Back in 2008 and the years that have succeeded it, the U.S was relatively flourishing and interest rates seemed to be lowering in hand sight of the borrowers looking for profitable loans with the least possible hassle. Needless to say that the U.S consumer confidence, in particular, was at an all-time high back then and even people with a skeptical amount of income were encouraged and motivated enough to take part into the incoming wave of loans and mortgages, even if the formable premises didn’t advise them to. The European hand got exposure from such crisis for many reasons, but one of the most important, was the ultimate fact that many European countries have dabbled within American-based real-estate, which caused all of these insecurities not only to be projected upon the national boundaries; but also, include the European market along with it. It is no secret that when it comes to the United States fiscal policy, it has to do with what it finds most appropriate to comprehend and not into consideration with other countries in mind; but since the U.S itself is one of the main players affecting the world economy and how it runs through; eventually, whatever may have happened or even can happen will affect the European finances and even transnational banking system that is ought to deal with its American peer.[4] That financial contagion has spread across the continent’s most embellished commercial banks and triggered the confidence of the European consumer as well, and not only the American one at that. The European banks that have dealt with the mentionable American insurance companies and banks across the nation have suffered from the circumstances that such crisis gave birth to. This is event can be described as a perfect example for a chain reaction type of event which ripples to both the regional and the international borders of the entire involve states complex, where this “shock wave” even included mighty Russia and the unpreceded results that it has to deal with because of what has taken place over at the U.S.

Nevertheless, other European countries have found that one of the most suitable ways in order to fight such an epidemic is to pump money and cash flow into their own affected banks; for example, in the case of France and Belgium mounted a nine-billion dollars’ worth of money lifeline into the French-Belgian lender – Dexia.[5]

Unlike the American systematic way of dealing with such crisis, the Europeans don’t wait for matter to get worse; on the complete contrary, the citizens have been alarmed by the creepiness of what has controlled the market and took it to another leading level. Unlike the U.S officials, and even banking financiers, who have taken their fingertips out of the issue and handed it, semi-fully, over to the White House officials to figure it out by their own. The European public knew that addressing the matters from the core right at the very initiative phases of the issue can only lead to better effects concerning how much such causalities can be immensely reduced. While in the U.S, policy makers are the first crisis managers to be attentive to, given the fact they are the ones who can come up with ad hoc solutions which can penetrate the resolutions and create long-term solutions able to resolve any future-like crisis. This process itself takes more time and contemplation in comparison to the European strategy whose action upon impulse is the usually first step in conflict management. This is why the word pragmatism comes to mind when we think of the U.S and how it deals with such situations. Moreover, what helps the U.S in a way is the monochromatic pigment that the administration takes on once a president has been elected, since the same policy will be applicable and it doesn’t have to satisfy an array of different parties, or even coalitions for that matter, in order to find a practical way to endure the crisis. The federal bank has always come for assistance whenever the national economy of the U.S found its way within a stumble[6], not only does this gives a dependency feel to how does the U.S deal with such crisis; but also, it shows how the American public and the government are quick to point their fingers into the federal reserve before any small alterations can take place by the people themselves. Such criteria the Europeans have avoided; although the public is always the main ‘mass suffrage’ target, but they are also part of the solution, and not the problem.

The problem with the crisis also is the fact that once it has integrated the complex fabric that is of Europe – it meant that such issue will find its place in between countries, such as Eastern Europe, that suffer from low account deficits and low currency rates, which cannot afford to contain such huge crisis issued from the American shores. Moreover, countries such as Spain and Ireland have a very low foreign currency reserve which they cannot put within the jeopardy lines and expect that it wouldn’t be all gone to waste because of the huge errors made by the American crisis and its effects on their domestic financial wellbeing.

Fundamentally speaking, this American crisis was even more difficult to tackle because of the type of liberal, capitalist economy that it is known of. When it comes to Europe, the reason why it didn’t suffer as much, it is because the solution of ‘nationalization’ is always put forward when such a deficit takes place since the European states know that no matter how liberal they maybe with their financial terms, at the same time, a supervision by the government much always be on alert and not to lose complete sight of what can happen. The American administration could not have thought of such solution at any risk factors, since the public needs to tackle such issue without being alarmed by the government’s overall involvement with the banking and crediting system. At the same, the U.S not only has it been worried on the confidence of its own citizens; but also, the foreign confidence issued from the Europeans themselves. The tradition of nationalization is so flexible and malleable to the Europe to appoint that it can lose trust linkage with other countries suffering from any type of crisis, and since some European countries do suffer from the European Union’s skepticism – it can lead to further complications concerning how well the financial crisis can recover.

Ultimately, the world economy is indeed interconnected and no major state can undergo any form of change or alterations without expecting some overseas states to give over their voice to any transition made.

[1] HSBC Holdings PLC ADR HSBC (U.S.: NYSE). (n.d.). Retrieved November 21, 2015, from http://quotes.wsj.com/HSBC

 

[2] Lehman unveils first loss since going public. (n.d.). Retrieved November 21, 2015, from http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2791390/Lehman-unveils-first-loss-since-going-public.html

[3] Housing Bubble: a temporary condition in housing market speculated by unjustified conditions causing the prices of to rapidly increase over a relatively short period of time.

[4] Landler, M. (2008, September 30). The U.S. Financial Crisis Is Spreading to Europe. Retrieved November 21, 2015, from http://www.nytimes.com/2008/10/01/business/worldbusiness/01global.html?_r=0

[5]

Kelion, L. (2011, October 6). How Dexia was caught out by the Eurozone debt crisis – BBC News. Retrieved November 21, 2015, from http://www.bbc.com/news/business-15180153

 

[6] TIMIRAOS, N. (Ed.). (2015, August 17). U.S. Lacks Ammo for Next Economic Crisis. Retrieved November 21, 2015, from http://www.wsj.com/articles/u-s-lacks-ammo-for-next-economic-crisis-1439865442

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