Financial crisis: who, what, and why?
The world has been by a financial which has now turned into an economic and social crisis. What are the causes of the crisis? Who is affected? What is the EU doing to tackle it?
Background
The financial crisis of 2007–2009, often referred to as "the credit crunch" or "credit crisis", began in July 2007 when a loss of confidence by investors in the value of guaranteed mortgages resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank.
In September 2008, the crisis deepened, as stock markets world-wide crashed and entered a period of high volatility, and a considerable number of banks, mortgage lenders and insurance companies failed in the following weeks.
Impact of the crisis and European citizens’ concerns
Rapidly the financial crisis turned into an economic and social crisis.
EU figures show that unemployment in EU countries using the euro reached 8 percent in December - the highest rate in more than two years. Unemployment in the whole 27-member bloc also increased from 7.3 in November to 7.4 percent in December 2008, according to EU statistics office Eurostat. **Update** Average unemployment is set to rise to 9.4 percent in 2009, while government deficits inside the 27-member union will average 6 percent of GDP, twice the figure allowed for euro-area countries and used as a marker for the rest of the union.
On November 3, 2008, the European Commission predicted for 2009 an extremely weak growth of the BIP, by 0.1 percent, for the countries of the Euro zone (France, Germany, Italy, etc.) and even negative number for the UK (-1.0 percent), Ireland and Spain. **Update** On 4 May, a new economic forecast released by the European Commission predicts EU growth will contract by 4 percent this year, a considerable negative revision from its January forecast of minus 2 percent growth.
The French High Commissioner for poverty, requested the research and survey centre CREDOC (Centre de Recherche pour l’Etude sur les Conditions de Vie) to carry out a survey on the consequences of the economic crisis on households, and in particular on households living below the poverty line.
Published in December 2008, the survey shows that those most hit by the crisis are:
people living in poverty
young people
single parent families
unemployed people
people renting apartments from the private sector
In January 2009, millions of European citizens took to the streets in France, Latvia, Lithuania, and the UK, calling for an end to job cuts and voicing opposition against government reforms.
Already now, the current crisis has a worrying impact on public health. Many European countries may undertake cuts in social spending (health, education and social protection) and healthcare. This will, inter alia, lead to more poverty, food insecurity, unbalanced diet, an increase of alcohol consumption and mental ill health. EPHA calls on the EU and Member States to to do all within their powers to protect the health and well-being of this, and future generations, as a priority.
**Update** The economic crisis could also cause generational conflict. The current economic crisis could sharply worsen the problems associated with Europe’s ageing population and cause friction between younger and older generations if long term structural changes are not undertaken, the European Commission has warned.
In the 2009 Ageing Report, published on 29 April 2009, the European Commission said that the economic downturn "could make the challenges created by ageing more acute."
The report says that EU policy makers have a 10 year window – roughly the length of time left before the baby-boom generation starts to retire – to implement reforms to the health, pension and education systems. After the next decade, there is a large drop off in the size of labour forces predicted.
AGE, the European Older People’s Platform, agrees that Europe’s demography is "beginning to create tensions" between the generations, but that seeing the problem purely through a financial lens was not enough.
"The way in which our society is organised must be reviewed completely in order to rebuild the social fabric that forms the links between and within the different generations," a spokesperson from AGE said.
EU institutions reaction
Commission
On 26 November 2008, the Commission published details of its proposed Recovery Plan to address the impacts of the current financial and economic crisis. This plan was then adopted by the Council. For further information please see EPHA’s article on the Plan.
On 25 February 2009, a group of financial experts put forward 18 detailed recommendations to strengthen supervision of the EU’s financial institutions and markets.
In response to the financial crisis, the European Commission has released a package to increase flexibility of structural funds. This concerns the European Regional Development Fund (ERDF), European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF) and the Financial Instrument for Fisheries Guidance (FIFG).
The package will extend the deadline for EU countries to use their allocations from the 2000-2006 period where fund had not been fully spent (ie 12.5% of the total are still to be used). Member States can apply for these funds until June 30, 2009.
EU Economy Commissioner Joaquin Almunia will name the first group of states to receive disciplinary action by Brussels for breaching the rules underpinning the euro. The Commissioner insisted that Member States adhere to the Stability and Growth Pact, which requires that countries keep their budget deficits below three percent of GDP.
DG Competition has set up a "Economic Crisis Team".
In March 2009, the European Commission published its communication to the Spring European Council and how it suggests to move forward - with a new and important chapter on supporting people through the crisis - in which it outlines measures Member States should consider in the following areas.
1. Restoring and maintaining a stable a reliable financial system 2. Supporting the real economy 3. Supporting people through the crisis (a new chapter!) 4. Promoting global recovery: the European contribution to the G-20 Summit
Parliament
On 15 January 2009, the Committee on Economic and Monetary Affairs drafted a Report.
In this report, health appears only once: the Committee "calls on the development of recovery instruments and policies both at European Union and at Member State level, capable of boosting demand and confidence across the European Union, in accordance with a common set of priorities within the Lisbon strategy, such as [...] health".
None of the 2 draft Reports from the Committee on Employment and Social Affairs nor from the Committee on Budgets even mentioned health.
The Lisbon Coordination Group is also expected to draft a report.
Mid-February, a Joint Parliamentary Meeting was held.
Strong European leadership to tackle the current crisis of confidence and investing in environmental protection projects will help soften the effects of economic slowdown, according to MEPs and national MPs.
MEPs and national parliamentarians from the 27 Member States and the candidate countries held a two-day Joint Parliamentary Meeting, organised by the European Parliament and the Czech EU Presidency, to discuss “A New Deal for European Economic Recovery?”
The Joint Parliamentary Meeting aimed to help inform the European Parliament’s contribution to the Spring EU summit on economic matters, held in Brussels on 19-20 March.
Key conclusions from the Joint Parliamentary meeting:
No to protectionism - yes to the euro
The European Central Bank has a key role to play in facing the crisis and must work quicker to reduce interest rates and to create longer deadlines for paying back loans
The crisis is a test for Europe and only a united and strong Europe can respond effectively. Europe must aim to soften the impact of the crisis for the most vulnerable people
The crisis is an opportunity to invest in a green economy
A decision on the Recovery plan will be crucial, Member States will have to agree on whether to redirect an unspent €5 billion to finance key energy projects
Council
On 1 March 2009, the Czech Presidency of the European Union decided to convene an informal meeting of Heads of State or Government to discuss the economic situation and the European recovery plan. The final statement of the meeting says that protectionism is "no answer to the current crisis" and has a line saying that support for "parent banks should not imply any restrictions on the activities of subsidiaries in the EU host countries."
The crisis has posed the question of what it means to be an EU Member State and to what extent this implies extending solidarity to other members. A push by the new member states to speed up the procedure for entering the eurozone as a way of helping them cope with the economic crisis was rejected by other EU member states. A proposal by Hungary to set up a fund of at least €160 billion for central and eastern European countries was also turned down.
*Update* On 10-12 May 2009, at the Ministerial Conference on the Financial Sustainability of Health Systems in Prague, Member States agreed that “We have to ensure that the sustainability of our health systems is guaranteed not only financially but also is terms of the values and aims embedded in the European countries.”
“Robust and stable health systems are a necessity if the health of all people, from all walks of life is to improve, and that the Member States should continue their efforts to reinforce and improve these systems. Moreover, population ageing brings another challenge to which we must respond, especially by ensuring physical and financial accessibility of healthcare not just for the present, but also for the generations to come”, said Czech Health Minister Dana Jurásková.
EU accused of relying on insiders to tackle financial crisis
EU leaders handling the economic downturn are relying on the advice of a high level group dominated by ’financial industry insiders’ implicated in the current crisis, says a new report published today by Corporate Europe Observatory, SpinWatch, LobbyControl and Friends of the Earth-Europe.
The report "Would You Bank on Them?", examines the track records of members of the EU’s high level group of financial “wise men”, who are charged with helping to frame Europe’s response to the meltdown in the financial sector. The ’Larosiere’ group (named after the chair) has delivered its proposals for reform of the financial system to the European Commission. These proposals are addressed to the European Council (March 19-20) where EU leaders took a position on reforming the financial system.
The report shows that out of the eight men, four have close links to giant finance corporations deeply implicated in the crisis such as Lehman Brothers (Rainer Masera), Goldman Sachs (Otmar Issing), BNP Paribas (de Larosiere), and CitiGroup (Onno Ruding). A fifth, Callum McCarthy, was the head of the UK Financial Services Authority, accused of systematically failing during the crisis. Another, Leszek Balcerowicz, is well-known for his opposition to regulation.
**Update** Council of Europe Commissioner for Human Rights takes position
Speaking at the meeting of the Standing Committee on 29 April 2009, the Council of Europe Commissioner for Human Rights, Thomas Hammarberg stated that “Enabling all people to enjoy equal access to their social rights must now be priority number one...The economic crisis is not an excuse to neglect human rights”.
"It is also necessary to develop concrete programmes which promote social cohesion and prevent any watering down of the already agreed human rights standards. These standards include economic and social rights, several of which are listed in the 1948 Universal Declaration of Human Rights, such as the rights to social security, adequate standard of living, food, education, housing, health, work and the right to rest and leisure."
EPHA action
EPHA contributed to the EU Health Policy Forum’s Open Letter to the Heads of States and Governments.
One of the key messages is that we need a healthy population in order to recover rapidly. Indeed several authoritative EU-based studies have shown the connection between “health and wealth”.
EPHA sent out a Press Release before the Spring Summit (19-20 March 2009), which was published on the EU Health Portal. Click here to read the press release.
EPHA also contributed to the Social Platform’s letter for the Spring Council.
For further information:
OECD Webpage on Tackling the financial and economic crisis
AGE Open Letter to Heads of States and Governments for the Summit on Crisis 1 March 2009
DG SANCO Paper on "The contribution of health to the economy
in the European Union"
Council of Europe Commissioner for Human Rights’s full intervention
Czech Presidency Press Release on the Ministerial Conference on the Financial Sustainability of Health Systems
EPHA related articles
EU Summit cannot ignore health
Belgian Presidency discusses financial crisis with NGOs
article 3311
article 3354
The European Recovery Plan and EPHA contribution
Related documents
Credits
The European Public Health Alliance runs projects which receive financial support from the European Commission. The views expressed in this website do not necessarily reflect the official views of the EU institutions.
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