The construction of financial supervision system under Greek debt crisis

Introduction

The financial crisis and the Greek sovereign debt crisis have accelerated the innovation and construction of EU financial supervision system. This report is analyzing the cause of Greek sovereign debt crisis on the basis of the domestic factors, the international factors and EU factors. Moreover, it illustrates the construction of financial regulatory system of EU based on the level of macro and micro. The macro level has a European systemic risk council; the micro level has a secondary European financial regulatory system which is constituted by EU and member states.

The EU also has emergency mechanism on the stage, such as, The European financial stabilization mechanism and The European financial stability facility and associated with a series of regulatory measures. The emergency instrument and institutional measures launched by The Greek crisis and the European Union have provided experience and lessons for worldwide in response to the global financial crisis around the world.

Causes

The Greek economy was one of the fastest growing in the euro zone during the 2000s.

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The government of Greece run large deficits due to a strong economy and falling bond yield. Debt to GDP has remained above 100% since the introduction of the EURO. The global financial crisis in 2008 makes the Greek economy suffer a severe setback and the global financial crisis reveals its weak financial situation from two aspects. First, the economy structure of Greece is relatively single, which means the growth of its economy is instable. Second, the debt investment strategies of National Bank have produces a great burden to the Greek economy.

However, the global financial crisis just pushed the exposing of the financial problem of Greece and the country overspent and failed to tell to the European Union the actual size of its ballooning deficit are the primary cause. Furthermore, the European Union also did not review the figures sent in by Athens properly.

Long term solutions

The Greek sovereign debt crisis stimulated the process of the form of EU financial regulatory system. The explosion of U.S. financial crisis has made Europeans understand that the European financial regulatory did not consist with the market integration process. The leaders of European Union have made significant strategies for ensuring fiscal stability in the long term. Currently, in order to avoid a possible domino effect caused by Greek crisis and to avoid a weak euro, the member state of the European Union, on the one hand, require that the Greece itself must cut spending on a wide range, on the other hand, the member state ask to speed the reform of EU financial market up and strengthen the financial regulatory system on the level of European Union and its members. In order to establish financial regulatory system and its associated measures, there are three primary aspects to focus on: first, the financial regulation of the EU members, strictly control and limit the problem of debt overweight. Second, it is necessary to strengthen financial supervision to prevent the speculation by speculators. Third, it is crucial to solve the institutional structure problem of Euro itself. These three must collaborate and communication with each other.

Financial regulatory institution

In order to strengthen European financial regulatory reform, the EU commission proposed to establish “European Systemic Risk Council” on the macro level and “European System of Financial Supervision” on the micro level. The main responsibilities are: establishing regulatory policy at the macro level and conveying to European regulatory bureau or providing early stage risk warning; to compare the observation of the development of macroeconomic and to propose dominant policy in correspond to the change of the supervision. For instance, responsible for collecting、 analysing financial stability information, publishing risk warning, to take overall regional action when one country has encountered difficulty and hardly deal with it. It aim to solve a major drawback which is exposed by the financial crisis, the financial system is helpless when the systematic risk is complex, associated and between department and cross – department.

Emergency system in phase

In order to solve the Greek crisis, the EU and its members use emergency relief instrument to manage debt crisis. The main emergency systems in stage are: establishing “European Financial Stabilisation Mechanism” and “European Financial Stability Facility”. Above all, all the instruments and measures are to ensure that the union is able to deal with the debt crisis and also to ensure such crisis will not happen in the future.

My comments

I would like to make a comment on the European problem of the Greek crisis. It seems that the Greek government is unable to deal with its budget and is incapable to reduce public spending and increase tax revenues. Since the introduction of the EURO, the financial situation is worsened every year. In my opinion, as Greek crisis has become a European one, i do believe Europe is taking fundamental economic reforms which are necessary to copy with the imbalance of the Greek financial crisis.

Conclusion

As mentioned above, the Greek crisis and the institutional measures introduced by the EU have provided significant experience for worldwide in dealing with the global financial crisis. First, all crisis has its latency and incentives, it is important to prevent the source in order to prevent the financial crisis and the sovereign debt crisis. Second, the financial crisis and the sovereign debt crisis have brought an opportunity to the reform of the world monetary system and the financial system, it also a challenge for the leading position of US dollar. From the development of the European integration process, each crisis has pushed the innovation and improvement of the system of EU in the past and lead to European integration ultimately. The development of the European integration could say that is a process of overcoming the crisis constantly and innovation of system continuously.

References
Antonis Antoniadis, 2010. Debt Crisis as a Global Emergency: The European Economic Constitution and Other Greek Fables Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Matthew Lynn, 2010. Bust: Greece, the Euro and the Sovereign Debt Crisis Martin Feldstein, 2011. Greek default is just a matter of when, not
if. In: Financial Times. (24.06.11)