Impact of the Euro Crisis on the World and Australian Business (Essay Sample)

Impact of The Euro Crisis on "THE WORLD" and "AUSTRALIAN BUSINESS
BUS 854: Assignment Report
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Contact Details
BUS 854: Leading and Managing in Culturally Diverse Environments
Maquire University
Date of Submission
Introduction
The Euro Zone was established fifteen years ago. However, barely a decade into its existence, the Eurozone underwent a significant crisis that threatened the very presence of the union. The Eurozone was established to protect its member states against adverse economic conditions through competitive positioning and access to the large single market within the euro zone. As noted by Lavoie (2015), the Euro was created to preserve the massive consumer market realized by the conglomerate states, prevent the global recession, protect the world financial system, and promote economic growth and prosperity within the Zone. Regardless of the initial blueprint, the Eurozone has experienced massive crises that threatened not only the members and the Zone itself but also the global economy and individual trading partners.
This report seeks to provide an outlay of the Impacts of the Euro Crisis on the global economy in general, and Australian businesses in particular. The first section of this report discusses the global impacts of Euro crisis on businesses and industries within the Eurozone, Australia, and the global community. The second section narrows the discussion to the trade and cultural relationship between Germany and Australia. This includes analyzing the political, legal, social, cultural, and historical characteristics of Germany comparable to Australia.
The Euro Crisis
The Euro Crisis was exacerbated by the 2007 global financial crisis. During the growth periods of the EZ, massive build up of trade imbalances was witnessed, albeit ignored, by EZ member states (Lavoie 2015). Substantial capital outflows from core economies such as Germany into periphery nations like Portugal was initially taken as evidence of real convergence of dynamism between core and periphery economies (Baldwin and Gros 2015). However, it effectively implied that periphery nations were significantly relying on capital inflow from core economies to cover their savings-investment gaps. When the 2008 GFC broke out, core economies could not continue lending to the periphery economies, which triggered crises in the monetary union characteristics of the EZ (Baldwin and Gros 2015).
Some commentaries have, however, asserted that the Eurozone Crisis was exacerbated by the differences in culture among the Eurozone members. The Eurozone financial crisis was worsened by the turmoil Greece found itself. As opined by Kelly (2011), Greece has always been a society where work ethics, financial ambitions, and payment of tax plays second fiddle to the unhurried appreciation of life. Therefore, the Eurozone crisis was a cultural phenomenon as much as it was financial.
Impacts of the Eurozone Crisis
As highlighted by Mascitelli and Park (2012), the impacts of the Euro Zone debt crisis on world economy stems from the affecting economies’ consumption demand, government spending, and investment expenditure, which in turn influences the trade in the international economy. The research conducted by Mascitelli and Park (2012) after the Euro Crisis indicated that the global economy suffered because of the debt crisis. As a result of the Euro Zone debt crisis, the average annual growth rate of the global economy declined by 65 basis points, while the global unemployment rate increased by 181 basis points (Mascitelli and Park 2012). The crisis had a substantial impact on global trade, which plunged into a depression with the average annual growth rate of world trade declining by 114 basis points.
Individual countries experienced massive trade declines as a result of Eurozone debt crisis. The US and China suffered substantially in their import and export businesses as a result of the crisis. For example, the annual growth rate of China declined by 37 basis points, attributed to the Eurozone crisis (Mascitelli and Park 2012). Notably, the export of raw materials, electronics, and machinery suffered the worst blow as trade reductions ensued the crisis.
Impacts on the Euro Zone Industries
The Euro Zone debt crisis had substantial effects on the economies of member states, more so the periphery nations, which experienced build up of intra-zonal debt. The crisis exacerbated the build up of structural current account disequilibria (Mascitelli and Park 2012). The build-up of imbalances resulted from the developments in the external debt in the private sector, mainly households, and corporations.
There is a slowed growth in the emerging economies of the Euro Zone. The Euro Zone was established because member countries would benefit from the vast consumer market within the region. However, the debt crisis has made it hard for emerging economies within the zone to pursue export-led strategies (Filbeck, Louie and Zhao 2014). The greater reliance on the domestic demand factors is presenting the EZ with severe problems. This is exacerbated by the differences in the fiscal policy among member countries, differentiated growth prospects, disparities in interest rate regimes, and policy stances adopted by different governments (Filbeck, Louie and Zhao 2014).
As a result, industries within the EZ cannot benefit from the promised competitiveness of the integrated region. Manufacturers, especially in the more advanced parts of EZ, are unable to take advantage of the vast consumer market due to the inability of consumers to purchase the goods and services manufactured within the region.
Impacts on Australia
Australia has continued to show resilience in the wake of major economic crises experienced by the international community over the past years (Mascitelli and Park 2012). The US sub-prime led to the adversity of the global financial crisis, affecting virtually all developed economies across the globe. Nevertheless, Australia experienced indirect impacts on its economy as a result of the GFC. Major global economic crises do not significantly affect the Australian economy because the country has stable financial sectors. The Euro Zone debt crisis neither had a significant impact on Australia, mostly because of the limited trade ties the country has with Europe (Mascitelli and Park 2012).
Nevertheless, many analysts have pointed out that the debt crisis in Europe inevitably impacts on the Australian financial system. The availability of credit in Australia will be influenced by the debt crisis in Europe. Standard & Poors downgraded the credit rating of the four largest banks in Australia from AA to AA- as a result of the scandals involving Lehman Brothers (Ryan 2011). This came as a result of the tightening of the definition of risk by S& P.
The Eurozone crisis also had substantial impacts on the interest rates and distortions in the Australian financial community. For instance, ANZ Bank declared that it would not respect the central directives provided by the Reserve Bank of Australia, as significant factors affecting banking sector in Australia, such as the Eurozone crisis, were not reflected in the decisions and policies developed by the RBA (Gluyas 2011).
Regardless, Australia remains an uptight economy; significantly shielded from external economic shocks, so long as the major trading partners of Australia remains non-significantly affected. Australia’s minerals remain strong as it trades with China and Asian partners, rather than European markets (Mascitelli and Park 2012). Nevertheless, Australia has significant trade engagements with Germany, a member of the Eurozone. Germany is the tenth largest two-way trading partner with Australia. Major exports to Germany by Australian traders include legal tender coins and gold coins, oil-seeds, precious metal ores, and oleaginous fruits.
Germany PESTLE Analysis
Brief History
Germany and Australia both have historical backgrounds that neither country wants to be proud of. Germany has engaged in two world wars and been defeated in both. Similarly, Australia joined forces with England during the first world war against Germany (Stevenson and Grey 2016).
The two have developed diplomatic ties, in spite of the troubled past. Germany has its consulate in Sydney, Australia since the late 19th century. The diplomatic relationship between the Republic of Germany and Australia was reinstated after the Second World War, in 1949, when Australia established its missions in Bonn. The mission was converted to Australian Embassy in 1952 (Stevenson and Grey 2016).
The trade between Germany and Australia is sizeable, even though it is heavily weighted to imports from Germany. Nevertheless, Australia exports legal tender coins and gold coins, oil-seeds, precious metal ores, and oleaginous fruits. By 2010, the total two-way trade volumes between Australia and Germany totaled to $13 billion, making it the largest trading partner in the Eurozone (Trending Economics 2016). Although the majority of the volumes is accounted for by imports into Australia, Australians can increase their exports to the European country.
PESTLE Analysis
Political Aspects
Germany has a democratic parliamentary system of government. The country’s political system functions under Grundgesetz, a political ideology founded in the constitution in 1949 (Bulmer and Paterson 2014). The German constitution guarantees protection of individual liberties, and division of power. The political system has been dominated by two parties: Social Democratic Party and Christian Democratic Party. The Federal government consists of three key arms of the government: the judiciary, legislature, and the executive.
The constitution of Germany provides Germans with a sense of belonging. The Constitution lays d...