ECOSY – Young European SocialistsResolutions and Declarations - DraftsSubmitted by member organizations within the deadline – 1/03/09
Change for Europe - Odnowa dla Europy - Bewegung für Europa - Omslalag voor Europa – Changeonsl’Europe - Zm
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na pro Evropu -
Αλλάζου
µ
ε
την
Ευρώπη
– Változást Európának - O zmene pre Európu -Förändring för Europa – Cambio para Europa - Mudança para a Europa - Permainos Europai –Spremenimo Evropo - Cambiamo l`Europa - O schimbare pentru Europa - Muudame Euroopat –Forandringer for Europa – P
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RMAI
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AS EIROPA - Muutosta Eurooppaan -
Промяна
за
Европа
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Bidlag
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Combat the economic crisis and regulate the financial system
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By: JUSOS
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In the summer of 2007, the world has been hit by one of the biggest financial crisis
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in history. In the following months this financial crisis has turned into an economic
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crisis affecting the entire world. But not everyone is equally affected by this crisis.
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This counts especially for Europe. Not every country in Europe has been hit as hard
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as Ireland, Great Britain or Latvia.
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The crisis began with a breakdown of the real estate market in the US. Low interest
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rates and lacking regulation in the US made it very easy for many people to buy
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houses and other real estates. Lower income households were literally pushed into
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debt. As collaterals for these mortgages, everlasting increasing real estate prices
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were expected and incorporated in the calculations. An enormous bubble was created
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which attracted capital from all over the world. All these investors wanted to have a
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big share of the big expected profits. Large savings from emerging countries such as
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China, who invested abroad instead of developing their internal market, were
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attracted. The free international financial markets and the lacking regulation made
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these bubble grow faster and faster. Since the basis for this was the expectation of
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everlasting increasing real estate prices in the US, the big crash was only a matter of
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time.
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Many banks worldwide were directly involved in these highly speculative investments
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which led to a total crash of the global banking systems. Thus, the financial systems
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could not fulfill its original purpose anymore: financing the investments of the real
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economy companies. This triggered an economic crisis. Small economies like Iceland
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or Latvia totally broke down and bigger economies are suffering from a deep
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recession now. Many countries had to take over several banks or help them with big
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bail outs to ensure the financial stability of the country. These bail outs and
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takeovers have to be paid by the public which is us. In other words banks have
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privatized big profits over many years and now the losses are being socialized.
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One of the reasons why this crisis happened is the deregulation of global financial
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markets that allowed high risky financial market products like hedge funds and
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private equity funds. This non-regulation made it easy to speculate in a large scale.
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Another reason for the crisis is the unequal distribution of wealth. The gap between
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rich and poor has spread in the last years. Those who own already a large amount of
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money worldwide are only a few people but those got even richer the last years.
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They have a lot of free capital which they don’t need to cover their basic needs. This
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allows these few people to undertake enormous risks in their investments which led
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to the high level of speculation in the markets.
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Another problem is wrong incentives for the bank management. CEOs of the banks
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have stock options or their bonus is based on the profit made in one year. This leads
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to an extreme short term orientation of the company and is thus not very
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sustainable.
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