FINANCIAL CRISIS IN EU

Financial Crisis in EU

Financial Crisis in EU

Introduction

The economy of the European Union (EU) suffered in the fourth quarter of 2008, a 1.5% contraction, according to data released by the European statistics office Euro state, confirming that financial crisis hit the block longer than expected so far.

The drop is more pronounced than calculated by the European Commission that it expected a contraction of 1.3% in the quarter, and five tenths higher than the U.S. in the final three months of 2008 fell by 1%. For their part, poorer outcome shows the euro zone, which accumulates nine months and suffers negative first recession since its inception in 1999. In all of 2008, GDP grew by 0.7% while the EU did by 0.9%. The contraction of the last quarter affected major economies in the region, such as Germany (-2.1%), France (-1.2%), Italy (-1.8%), United Kingdom (-1.5%) and Spain (-1.0%) (otaro, 2009, 212). The fall in Germany is also the largest quarterly decline recorded since the reunification in 1990. The Central Statistical Office Germany confirmed for 2008, a rise of 1.3%, Germany had grown by 2.5% in 2007. Exports fell 11.8% year on year in November and 7.7% in December. In the case of France, the increase in private consumption does not prevent the country plunge into recession by decreasing 1.2% in the last quarter of 2008. The drop was the steepest since the oil crisis in 1974. Exports fell by 3.7% and investment by 1.5% while private consumption increased by 0.5%. In 2008, French GDP grew only 0.7%, compared to 2.1% in 2007. The announcement of these data coincided with an increase in the budget deficit to 56,200 million Euros in 2008, representing a rise of 44% over 2007.

Background

According to preliminary calculations the EU statistics office, both the GDP of the euro zone and the EU fell 1.5% in the fourth quarter, well above the 0.2% decline the previous quarter. Thus, the area of the single currency has made three straight quarters with decreases in activity (-0.2%, -0.2% and -1.5%) and confirmed the entry into recession in the economy Twenty-seven after losing two consecutive quarters activity.

The feared scenario of a recession is a reality for many of the Member States, especially for the larger economies of the EU.

Highlights the sharp deterioration in the first EU economy, Germany, in the last three months of the year fell 2.1%, the steepest drop since reunification in 1990 and well above the 0.5% fall the previous two quarters, Spain, too, after suffering a contraction of 1% between October and December (-0.3% from July to September), fell into recession in 2008, which ended fifteen years of continuous expansion.

In turn, Italian GDP fell last quarter by 1.8% (after 0.6% decrease from the two previous periods) and also worsened the situation in the UK, with a drop of 1.5% (compared to the previous decline of 0.6%).

France, where GDP fell by 1.2% from October to December is the only major economy that ...