With the Euro zone being on the verge of a crash in its economy, the paralysed banking systems of the European Union nations have been disclosed to rest of the world. The financial crisis of European Union has brought in front the underlying problems and the erroneous tendencies of the various countries of Europe. It also exhibited the weaknesses that occurred in the structure of the monetary union which was the prime reason behind worsening the situation. The financial crisis of the Euro Zone has brought with it a plentiful of lessons to be learnt by the policymakers. 

Strong Institutional Framework & Policies are Important :
 It is of utmost importance in today’s scenario to have the good financial policies laid down strongly in the system. It is distinctly understood from the current crisis that the countries which had the unstable fiscal policies were undermined by the economic turmoil before any other nations. One example of the unsustainable policies was exhibited when the financially strong nations were burdened with the financial obligations of the weaker nations. This further weakened the whole of the Euro Zone by weakening the financially strong nations as well in spite of easing out the situation by balancing the debts. Also, the policies once set should be consistently kept under the check. The expenditures should be monitored on a con-stant basis even if it is a boom time for the economy.

Foreign Owned Banks Come to a Rescue :
 Although the topic is highly conten-tious in many emerging markets, the foreign banks help in creating a more efficient financial sector. This enhances the competition in the market which lays the foundation for fortifying the domestic banks. For example, PKO BP and Sberbank, the domestically owned banks of Po-land and Russia respectively, braved out the crisis outstandingly because of the copiousness of the foreign banks in these countries. On the other hand, the domestic banks of countries like Parex in Latvia and OTP in Hungary could not cope up with the trouble because of the absence of the sustain-able and strong business model.

An Increase in Savings Ratio Is Required :
 There has been a remarkable hike in the personal debts of the people living in Europe and US. This culture has proved out to be extremely dangerous for the economies of these nations as it further enhances the current account deficit and creates more imbalances in the economy. Also the Western nations usually do not have the tendency of saving. However, the crisis calls for the increase in the saving ratio of the nations. The savings ratio has been very low for the European countries as the saving ratio of UK sank down below 0% in mid 2008.

 The current crisis requires fundamental decision making by the leaders of the European Union. The learning from this financial crisis can be taken ahead to bring out the breakthrough changes in the current financial systems and improvise the situation. In addition, the support is required at both, domestic as well as international levels.
23/9/2012 09:39:03 pm

nice post


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