Eurozone Recession Is a Part

Eurozone recession is a part of the global recession, beginning in the United States and then spreading to Europe as early as First Quarter 2009. According to most experts, Denmark was the first country to actually feel the recessionary effects, yet the continual banking and financial issues in Greece, Spain and other countries continue to plague the area. In the Eurozone as a whole, in May 2008 industrial production fell almost 2%, giving fair warning that something was amiss. Retail sales began to fall, a bit over 3% from the previous year, with Germany the only major Eurozone country to register any increase. This increase was not to hold, though, and by July and into 2009, the Zone suffered continual declines, putting the Zone into recession (Eurozone Business, 2008).

Different countries are experiencing the recession in different ways, some far more serious than others. Recent results from 2012 show that Germany is the only economy that is slightly growing, with most of the others in the Zone barely stable or slipping. The seriousness of the issue cannot be underestimated; Finnish Foreign Minister Erkki Tuomioja said that Europe must prepare for the breakup of the Eurozone, while others see the Euro as one of the primary causes of recessionary times.

Causes- There are a number of theories about the cause of the Eurozone crisis, most revolving around the fiscal spending policies of Italy, German, France and Spain; as well as the debt crisis faced by Greece. Many countries ignored their previous agreements about borrowing, and during the boom years, wages rose, especially in Southern Europe. Wages were stable in Germany, which ended up exporting more to the rest of the world and to Southern Europe, while Southern Europe found it far more difficult to export anywhere based on price to value relationships and their own economic issues. Spain and France, for instance, have serious recessions because no one in those countries wants to spend; even corporations and mortgage borrowers are strapped for cash keeping their debts afloat. Exports are uncompetitive, and the governments, now agreeing to keep to borrowing limits, have decreased their own spending (Eurozone Crisis Explained, 2012).

Potential Solutions -- in November 2008, the European Commission proposed a stimulus plan that was designed to cope with the recessionary crisis. It was aimed at spending 200 billion euros to limit the economic slowdown of the European economies through national policies. Clearly, the plan met with limited success, according to Oxford University economist Bent Flybjerg, because spending on infrastructure combined with increased social welfare was a double edged sword that had little positive impact (Flyvbjerg, 2009).

One side says that potential solutions to the Eurozone crisis require cuts in spending, some drastic. Doing this would likely deepen the recession, contribute to even higher unemployment figures (already over 20% in Spain), but might push wages to more competitive levels. Lower wages, though, will make debt reduction more difficult, meaning more people will cute their spending or even stop repaying debt. There might be more strikes and protests as this happens, which would only deepen the crisis. The other side says the opposite -- do not cut spending. However, since borrowing has increased since 2008 because of economic stagnation, there might be a financial collapse as the markets lose confidence (Eurozone Crisis; Carr, 2012).