Effectiveness of the European Structures in dealing with the Debt Crisis
According to Veron (2018), the European Union was facing a severe financial crisis from 2007 to 2009. The reason being most of the financial institutions in the EU adopted the same model that had driven the USA into a debt crisis. The subprime mortgages foreclosure led to losses in the financial sector, hence sparking the financial crisis. The policies suggested concentrated on three facets; liquidity, corporate, and capital structure (Eubanks, 2010). This essay will focus on determining if the European Union structures in banking and supervisory were sufficient in dealing with the debt crisis.
European Central Bank and European Commission are the primary federal institutions that formulated the decisive policies. The first was the six-pack legislative package focused on the governance of the economy to improve liquidity. Austerity measures were also put in place to help the member nations recover from the debt crisis (Govaere et al., 2011). The EU also adopted the two-pack structure in May 2013, which concentrated on supervising the financial sector within the EU. The architecture would allow the European Securities and market authority to strengthen the Stability and growth pact by setting a deficit limit for member states. Last but not least, they dealt with budgetary control via the creation of scheduled budgetary timelines for all the member states (Veron, 2018).
The banking and supervisory structures were vital in stabilizing the member countries’ financial economy during the financial crisis. Moreover, it helped the Euro currency to remain competitive against the declining dollar during this period. The benefit is that the member countries,’ especially those with a stronger economic standing in the union, could continue with their financial activities with ease (Chiti and Teixeira, 2013). The loans helped them to cater to different factors in their economy while looking for ways to stabilize. According to Schimmelfennig (2014), it initiated a long term process geared towards harmonization of the activities in the banking and non-banking sectors. The aim was to ensure that the member states can move towards a single unified market for the different financial services.
However, there was a weakness in the implementation of the packages that were proposed by the European Union. The reason is that there was a lack of an institutional innovation taking the form of the EU-funded bail-out of the transnational fiscal establishments (Kostadinovski et al., 2013). Besides, there was a lack of active financial supervision by the EU. The member countries had the work of monitoring, which resulted in an ineffective way implementation of the suggested strategies. The result is the stabilization process was not even (Pisani-Ferry and Sapir, 2010).
In conclusion, the banking and supervisory structures adopted by the European Union were vital in helping the member countries recover from the financial crisis. It provided them with bail-outs essential in pumping finances into their economies. Nevertheless, the lack of a unified supervisory institution was detrimental as it resulted in poor implementation of the policies. The result is that it has hindered the smooth transition of the union from the debt crisis.