The European Central Bank

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Task 1

Q1

In the backdrop of the sub-prime crisis countries had to take measures to stabilize the economy again. In 2007 a lot of central banks, including the US Federal Reserve and Bank of England became very proactive and they didn’t want to put more money in the system anymore or supporting the lending activities of financial institutions. Measures had to be taken, these were different for every country. First of all, the United states had to take measures. One of those measures was the adoption of a 700 billion dollar rescue package for the sinking financial system in the United States of America, this package is also known as the ‘troubled asset relief program’ or the TARP. The main target of implementing the troubled asset relief program was to provide liquidity to the banking system. Another measure that the USA took was the subsequent investments of huge amounts of money in its quantitative easing programme, since 2008 the USA invested $2.3 trillion in it and in September 2012 they said they were going to add an additional 40 billion dollar per month.

The European Central Bank took similar measures. Those included a Securities Market Programme (SMP), they introduced this program in May 2010. The objective was to supply more liquidity into the banking system. Furthermore, in 2011 they injected  489 billion euros into banks on a 3-year loan, with a 1% interest rate. Also the UK took measures to improve the economy, they introduced the Asset Purchase Facility.

An article in The Guardian about the measurements:

https://www.theguardian.com/business/2008/oct/13/creditcrunch-marketturmoil1

Here is an interesting article about the measures taken by the ECB:

https://www.ecb.europa.eu/press/key/date/2009/html/sp091016_1.en.html 

Q2

I think the globalization had an impact on the crisis, because we live in a new world where everybody is connected and where people can do business all over the world. People all over the world own stocks on American stock exchanges such as Nasdaq and also lost a lot of money because of the economic crisis in 2008. Furthermore, a lot of deals all over the world are made in USD, so in that case globalization also had an impact on the crisis. Because of globalization capital flows at a much  higher velocity, which may make the impact of a crisis more severe. People are able to transact their money way faster, they have the possibility to do investments all over the world just by using their computer for example. During and after the crisis, a lot of countries lost their confidence in globalization because America caused a worldwide crisis. They thought the Laissez-faire was over and that they had to protect their domestic markets again. Everybody thought that globalization was a new gold mine in the new economic world, but because of the excessive growth in a short period of time there had to come a  backlash. Globalization may be a source of economic growth but on the other hand it  may also works in the opposite way, you win together but you also lose together. Globalization, financial liberalization and the improvement in the IT sector has made the economic crisis more severe in my opinion.

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