Causes and Effects of the European Economic Crisis - Essay Example

However, to understand the issues being faced in the crisis, one has to first determine the underlying causes that were responsible for the European economic crisis in the first place. Though several factors can be said to have been put into play, one major cause is the poor management of the banking systems in countries such as Spain, which left them in dire need of assistance to maintain their operations and remain afloat. This occurred as a result of factors such as lenient lending policies that led to a huge number of defaulters as the economic situation worsened in these countries, meaning the banks were not able to get their money back. The recession that is being faced worldwide also played a big role in the development of the crisis as investors were no longer willing to risk delving into the market due to the fear of losses.

The crisis led to several outcomes as various markets were affected and were not able to function sufficiently due to the lack of investments. Banks that were not able to regain their money collapsed and even the major ones stumbled as a result of the defaulters while the Euro also dropped in value as a result of people choosing to switch to more stable currencies in their business dealings.

Though the UK supports the recovery of the Euro, the steps that have been taken by the European Union, such as the formation of a Single Supervisory Mechanism (SSM) for all banks, may lead to a fading influence of the UK in the Euro Zone. The development of these bodies may lead to the interests of the UK being ignored or overlooked during the voting process on various decisions as the bodies focus on what will help the member states rather than the interests of the UK.

As a result, the UK has requested financial safeguards that will protect the powers that the Bank of England holds, which, if not met, may result in Britain pushing for an exit from the European Union. This may affect the UK financial sector as most Euro dealings occur within its vicinity, and if this reduces, it may have a similar effect on the business dealings that take place.

Other businesses such as banks and even retail shops may be affected by this outcome as the use of the Euro goes on the decline in the UK, which may lead to a potential loss of jobs. The best solution would be a quick resolution to be reached between the UK and the European Union, which will serve both interested equally to avoid an economic fallout.