The recession may be over but what next?

The global financial crisis has been unique in its severity. It has thrown some real challenges to policymakers. The growth remains weak, and there are still many unaddressed problems exposed by the crisis. (Schindler, Martin, Berger, Helge, and Bakker, Bas B, 2014)

In economy, I think there’s one important thing to consider: history tends to repeat itself. For example, a little while ago it was reported that the forgotten London’s financial crisis of 1914 has parallels 100 years on. In the article they said that the situation in the 1914 was broadly similar to this decade’s crisis which spread from the US worldwide. In both situations, the financial sector’s activities had been reckless and possible consequences of risky business weren’t taken seriously enough.

Obama-Wall-Street

The 2000 century’s financial crisis has also several other similarities to some earlier episodes: Firstly, asset prices rapidly increased in many countries before the crisis. Secondly, some key economies experienced episodes of credit booms ahead of the crisis and thirdly, marginal loan taking increased dramatically. (Claessens, Stijn, Kose, M. Ayhan, and Laeven, Luc, 2014)

Episodes of large credit expansion have reflected various structural deficiencies, such as explicit or implicit government guarantees, herding behaviour by investors, reduced lending standards, excessive competition, and information asymmetries. These episodes have also been associated with rapid financial liberalization and failed regulation and supervision of financial institutions. (Claessens, Stijn, Kose, M. Ayhan, and Laeven, Luc, 2014)

When it comes to recession the worst is over, however, there is a serious unsolved economical dilemma. Without restoring the balance between labour and capital, neither stability nor growth won’t last for long (Akyüz, Yilmaz,2013: ). In Europe, as elsewhere, creating jobs is crucial for economic growth. Labor market reform is also one of the three medium-term priorities that will have to be addressed. The other ones are reducing high levels of public and private debt, implementing product and taking advantage of new growth opportunities through innovation. In addition to these, well-functioning policy also requires deeper integration between countries. (Schindler, Martin, Berger, Helge, and Bakker, Bas B, 2014)

Instead of these actions that would be boosting prospects for Europe’s economy long-term growth, some states are more and more running into debt. This does provide a chance to make some reasonable investments that would lead to economical growth. However, it’s really easy not to seize these opportunities.

Another problem related to solving unfavourable economical situations is something that has become the most important driver of the economy today. This “quantitative easing” policy is used by monetary market and banks when aiming, for instance, to higher inflation or to influence interest rates. Instead of laying the foundation for a policy that would lead to real recovery, the QE-based artificial option has been approved. (Schiff, Peter D., and Schiff, Andrew J, 2013)

When the bad consequences of political actions finally take place and become reality this is supposedly surprise for everyone. Afterwards emergency solutions are made one after the other and then we just wait for better times. If policy without longer-view goes on and we don’t learn from our mistakes can world economy ever recover? Maybe, but without a clean bill of health.

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5 Responses to The recession may be over but what next?

  1. saararintanen says:

    A very interesting topic and a well-written post.

  2. janileppalehto says:

    Up to date topic. Great insight about the matter!

  3. kkirsi says:

    Very interesting!

  4. opiskelija23 says:

    Current topic! 🙂

  5. slaikka says:

    Good job!

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