Economic crisis means a sharp downturn brought on by financial disaster. A country facing such things is most likely experiences fall in GDP, a drying up of liquidity and rising in prices due to deflation (Sivakumar, Sundara and Krishnaswami, 2012). The global economic crisis of 2008 brought about thoughtful cost for individual and European State for the European economy. It’s been occur by the threat of fall down of financial institute of EU. Apart from this other industries such as housing, manufacturing and stock exchange markets suffered dramatically. This raises the level of unemployment throughout that session. This essay will evaluate the impact of the global economic crisis on the EU and particularly the UK and at the same time explain implication of companies trying to develop a place into EU/UK markets. The first few months of 2009 have seen drastic slowing down of treads, which fell by 21.9% as compared to 2008 (Connolly and Wall, 2011). Overall this was not a catastrophic year of most EU exporters. In the second half of the year crisis started to bite growth rates and cut the developments of counties.
It can be said that global crisis bring about constrain of credit to household, business and at the same time affect the real economy of goods and services within country. It comes because of collapse of an economy circle, which may be found anywhere from real state and stock markets to labor market. Many governments needed to receive different types and amount to support their economy to avoid serious damage. The question is that how the members of EU can take measures independently to overcome that crisis (McDonnell and Burgess, 2013). The EU Central bank played its regular role in the condition as injecting billions of Euros to compensate for the negative effect of blockage in market. It can be said that global economic crisis started in 2007 and it was felt by the global business environment in 2008 in the form of high level of unemployment. This crisis deepened on two major us mortgage finance operation Fannie Mac and Freddie Mac had to be rescued by the us Federal Government. Then followed by bankruptcy of Lehman Brothers bank that failed with the liabilities of US $600 billion in which US government declined to step in to save the organization (Md Khokan et.al, 2013).
This is aimed to encouraging the financial institutions to be able to take responsibility for their action within their different institutions. Within the UK the global economic crisis led to the nationalization of the nor than Rock in the year 2008, in which the Back of England had to provide financial support to the bank to prevent a run on the society cash by depositors. On this a degree of consensus is evident in commentators' preliminary musing. Many voices are already suggesting that the crisis is likely to mark a turning point in international relation of some countries as products by attack of 9/11. Many predict a weakening of support for economic liberalism beyond the immediate banking crisis and fundamental shifting in the global balance power (Steven and et.al, 2012).
When it comes to global economic crisis of 2008, it is a known fact that the main cause of the crisis that led to structure crashing down in 2008 and recession of 2009 was the US sub-prime mortgage leading. Sub-prime loans are type of loans given to people with bad credit condition or those who are not qualified to obtain a loan from the financial institutions. It also involves high-risk loans to lenders with poor non-existent credit (Riaz, 2009). One of the key characteristics which that research highlighted was that the new member states have become increasingly integrated into EU production systems in recent years, with increasing trade in intermediate products between the EU15 and the EU10.Companies in the EU10 are now highly dependent on the exports of final products from the “old” EU, particularly Germany, for their own trade. The sharp decline in German exports thus has repercussions for the trade of the EU10 fails, which exclude the internal EU trade which is vital to many companies (Filippov and Kalotay, 2011).
The act of providing support to unqualified people within the country went ahead to impose an obligation on bank for mortgages. That makes it difficult for the financial institutions to refuse loans or mortgages for such lenders. Its aim was to promote home ownership for mortgages within country. Financial innovation and their complexity have also lead to global crisis. That team implies a situation where the banks design financial products with the aim of achieving client objective such as risk exposure (Jain, Vyas and Roy, 2013). It is important to understand that the innovative practices such as building of subprime mortgage into mortgage-backed securities for sale to investors. These situations, mentioned above, incited the Commission, which is in charge of the application of competition rules, to react. The Commission declared that if the state temporarily intervenes in market prices, the competition would not be distorted. The Commission also determined some regulations about state financial aid towards the banks to protect the competition between the member states’ banks. At this point, state aid can only be given on the condition of helping troubled economies and market players should not be supported over the taxpayers. Moreover, this aid should be restricted only with the national banks (James and Jackson, 2010).
Cause of global economic crisis can be said to be weak and fraudulent underwriting practices exercised by different financial institutions. This is because of the fact that some of the mortgage companies were defective and were not underwritten to policy or did not contain all required documents. The ability of those defective mortgages to increase over a period of time brought about the emergence of global crisis. At the same time the use of predatory lending which refers to the practices of unscrupulous leaders’ borrower’s to enter into unsafe or unsound secured loans (Tsanis, 2010). It can also be argued that the deregulation program swept away many of the regulatory and governmental control and freed up organization to trade across a wider range of activities and territories. As the results of this, the deregulation activities brought about financial innovation and the continuous increase in numbers of shadow banking system.
Financial crisis effected UK in many ways as house prices, unemployment rate, import and exports and exchange rate. Financial Crisis impacted significantly on UK's house prices. In recent years, the house price has been high and reached a record level till 2008. With a nonstop trend in property standards since the deregulation, the credit markets became money-making and attractive to banks worldwide (Macmillan, 2013). Lenders were offering loans that actually more than six or seven times of borrowers’ real incomes and also more than the face worth of their original properties, which predict the excessive risk along the property market. With permanent downwards trends in real estate market, most stakeholders stated that they would still keep negative attitude to the random house price. Expected weak economy and high pressures with household's budget put average house price decline even further. In year 2008 economic crisis give rise UK's unemployment rate to increase from 5.1% to 8.4%. However many economists have predicted that UK's unemployment rate would climb up to 9% in the end of 2012 (Wide and et.al. 2012). A large number of graduates were facing ever most cutthroat employment market, not to mention to find attractive jobs. Thousands of jobs are being lost in even top firms, where banks have merged or distorted or nationalized, and on the high street, where growing numbers of retailers are going ruined, and the remaining staffs to complete the work of three other employees. There were not sufficient job to fill up graduates. Many young people wish to stay at home and rely on claiming unemployed benefits rather than giving another try which would amplify the burden of government shortage (Raileanu. 2013).
Another trend is some students make a decision to continue study master courses during economic downturn series in order to give more room for jobs (The Global Financial Crisis and the European Union, 2011). UK’s export and import improved in ten years; however this condition completely changed after 2008 financial crisis. Decline in economy led many developed countries to face a stern financial problem. Financial crisis also cause world industry to stay in markets. Many countries which imports from UK might not suck up as ever, exports of goods and services decrease by 22.1%. Financial crisis has hit firmly trades in UK, therefore UK’s management able to protect local industries which issue protection policies to decrease imports, and this could reduce struggle for local companies since then UK’s imports decreased by 22.5%. This is one of the main reasons why UK’s imports dropped almost one fifth of the total amount in such a little time. In general, when authentic process were worthless, UK’ exports should be enlarge; however exports declined 22.1% which only 0.4% lesser than the imports of the country (Effects of the Global Financial Crisis on Developing Countries and Emerging Markets - Policy responses to the crisis. 2010).
I do believe that EU countries and the USA both tried to reduce imports to keep their local business markets continue a momentum which was required for healthy growth and these conditions lead UK’s exports dropped down, the reason is more than 60% UK’s exports dealings with the USA and EU countries. The growth rate of UK declined sharply from the end of 2007 to 2009, there was a large fall down in retail sales, many companies become bankruptcy which led to an extensive high unemployment rate especially in the 18-24 age group. Severe reduction could not be ignored for both personal and corporate credit besides a quick decline in the housing and construction markets. Since then, British sterling exchange rate depreciated significantly just like the year of 1992. These economic phenomena can be characteristically reflected on the foreign exchange market during 2007 to 2009 (Raileanu. 2013). The exchange rate hovering is highly sensitive than any other financial derivative, at high risk shifts in high profit. Most of the immediate financial affairs and information can be reflected on the exchange rate straight away, it could be a big gap in even one minute, not to mention a global financial crisis. In that condition nobody could ever anticipate such a sharp decline even in the middle of its endless falling and never could they make a guess of its ending point. Some of the business in the foreign exchange market might have held the opportunities to sell on sterling and gain profit, however, some may be forced to liquidate without correct risk get around and management (Macmillan, 2013). The authentic exchange rate reached its lowest point in March 2009 and climbed up slowly with the same speed of economy recovery resistant. The devaluation of pound results in considerably dropping of tuition fees for foreign students planning to study in UK shrink the prices of luxury goods.
The global crisis of 2008 affected almost every one directly or indirectly because of its ability to lay people off from their jobs and make it impossible to secure an auto loan (James and Jackson, 2010). As results of the far-reaching consequences of an economic meltdown or crisis, it is necessary for countries within the EU to carry out some financial reform in order to ensure a similar catastrophe doesn’t strike again. For ensuring that global economic crisis doesn’t happen again they started auditing the financial institutions regularly. The aim of regular audit is to check the balance sheet of the Federal Reserve and ensure the money is being used toward unfreezing the credit market instead of other profitable activities (Jain, Vyas and Roy, 2013). Another way by which the global crisis can be averted is by giving consumers more information about their loan and therefore their ability to pay. Another way of averting the problems is to request for an initial payment within 10 to 20% on home loan will help to pay off a reasonable amount of the mortgage. This is based on ideas that if individual are deposit a lot of money to own home loan. Last is the mortgage lender of financial institutions to allow the monthly mortgage payments to reflect the current value of the home. Though people would still be responsible for paying the full amount of the loan at time of purchase and the interest would remain the same, bank should lower the monthly payment on the principal amount. This is a win-win condition for the financial institutions and the home owner because the system allows banks to continue to earn their interest (Filippov and Kalotay, 2011).
In the EU the UK took the leading steps by its nationalization of the Northern Rock in Feb. 2008 with the aim of preventing a run on the society’s cash by depositors. The nationalization of the Northern Rock made government the major shareholder of bank having used tax payer’s money to support the concept. Within the UK some of the implications of global economic crisis on banks are based on the fact the UK government effectively forced the UK’s largest mortgage lender such as Bank of Scotland into the Lloyds TSB group in January 2009 which took 43.4% stake in the combined business (Wide and et.al., 2012). Other banks such as HSBC and Barclays were not nationalized but forced to raise capital by new share issues to preserve their capital rations. It is also important to understand that the UK led to the nationalization of Beadford and Bingley Building Society in the late 2008; together with the partial selling of the Spanish’s Group Santander Bank. In terms of UK economy the country experienced large fall in the retail sales, most especially the furnishing and DIY sectors and business. It is also important to understand that some of the businesses within the UK that was already hit by falling sales and profitability faced increasing problems in securing bank support for continued trading (Connolly and Wall, 2011). All well-known brands that have been running its business activities for a long time either went off business or had to close a substantial number of its outlets. MFI, Woolworths and Blacks; this brought about increases in the rate of unemployment especially in the 18 to 24 age groups. The continuous falls in the retail sales and unemployment mean falling taxes revenues for governments worldwide. The UK was no exception to the effects of the global economic crisis (McDonnell and Burgess, 2013).
In terms of a company who is trying to develop its business activities into the UK, they should bear in mind that the economy of UK is still easily broken and country is presently recovering from the global crisis of 2008. For organizations that want to develop their business process to the UK they need to understand that, they required following the lay down laws that rule the country in terms of operating business functions. UK is said to be one of the most organized countries in the world and as a results of this every business process are carried out in accordance with the stipulated rules and regulations that govern that particular sector. As the result of this, the organization must be willing to respect the culture of UK; which on the other hand may be time consuming and waste of resources for the business that aims to expand its business factions in UK. At the same time the company considers the ethical question relating to human rights with the hope of following UK employment law within its business environments. It is important to notices that UK employment law encourages equality and fairness in employment activities and among the employees within the organization irrespective of their races, language or racial background (Bepari and et.al. 2013). The issue of human right takes different forms in global business and these issues ranges from the standard applied to working condition such as safety at work, minimum wages and hours worked by the employees. For the new company trying to develop business activities to the UK; the implications of the UK laws within its business environment may seem too much and tasking to carry out the within the organization. It may also result in unnecessary expenditures trying to follow the laid down rules and regulation so of the country within the sector. The most of finances coming from taxes paid by corporations and businesses within the UK will be required to pay a certain amount of tax which may go a long way in affecting its business together with its level of profitability (Steven and et.al. 2012).
Having the examined the implications of the global economic crisis and the implications on the companies that want to invest its business activities within the UK. It can be said that the global economic crisis a sharp decline of a group of financial indicator such as business and financial institutions bankruptcy rates, asset prices and short-term interest. It caused by subprime lending, financial innovation and complexity, deregulation and the activities of underwriter (James and Jackson. 2010). In order to prevent further crisis the government and the financial institutions have to work together in order to ensure that good policies that will guide the day to day operation are implemented within the organization. The implications of the global economic crisis included the liquidation of banks. The organization willing to expand its business activities into UK must understand that the county is presently recovering from a global economic crisis and at the same must understand the culture of the country, be eager to follow its rules and regulations (Effects of the Global Financial Crisis on Developing Countries and Emerging Markets - Policy responses to the crisis. 2010).