Eu Causes of the Recession Spain and Eurozone

Question 1:

What are the causes of the recession that Spain and other Eurozone countries are slipping back into at the moment?

How are the Spanish people reacting to the consequences of the recession and government policies?

In this Blog firstly I would like to talk about the Eurozone and its history. Secondly I will explain the meaning of recession, its causes in Spain and Eurozone's countries. Finally I would present the consequences of recession and people's reaction in Spain.

The Eurozone, which is formally called the Euro Area, consist of 17 member states that together create an Economic Monetary Union (EMU) sharing the same common currency, which is Euro. Eurozone was established on the 1st of January 1999 although the first talks about the common currency are traced back into 1848. The Eurozone is formed from following countries Italy, Luxemburg, Ireland, Germany, France, Finland, Belgium, Austria, Spain, Netherlands, Estonia, Slovakia, Cyprus, Malta, Slovenia, Greece and Portugal. The Eurozone's main idea and its creation were based on idea of easier trade in-between member countries.

Recession is one of the four Economical cycles (expansion, prosperity, contraction and recession). It happens when there is a decrease in spending and it is visible by the prices of goods and services increasing, living standards decreasing, unemployment raises and businesses stop to expand.

As we learn in the Economy everything is connected, it is like a "domino" if one brick falls the rest will fallow and soon or later it will come to us. In my opinion Credit Crisis, Shortage of Founds, Falling House Prices, and Rising Inflation caused the recession in Europe.

Credit Crisis, which has affected the whole global financial system was caused by actions of US mortgage Banks and their bad loans. As we could witness from this chart in the year 2002 the mortgages were too easily obtainable by people with no creditworthiness. Later on this mortgages were sold to investors as securities, connecting everybody to the equation of "domino effect". Because of bad loans and debts the investment banks faced a shortage of founds meaning that they were not able to borrow money to anyone. Unfortunately the commercial banks relied on model of financed by borrowing to lend; they were borrowing money from the investment banks in order to invest it by lending it to people. By shortage of founds commercial banks faced a big problem in its sector leading to governments bail out and mergers. The effects on people caused from the Credit Crisis were big; getting mortgages loans became extremely hard and the demand on houses decreased. In peoples eyes houses are important form of wealth and when they see that the prices are dropping they start to panic and increase their savings while reducing their consumption,