Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 22 Issue 2

VI. E ffects on the F inancial L andscape, L essons L earned and N ew T rends The debt crisis revealed several structural problems within the EU framework and within European economies. An important lesson to be taken from these recent events is that a currency union should also result in a fiscal union (Dombret, 2013). This understanding has led to the revisions of several EMU policies: Policymakers have introduced new packages of legislation, such as the “two-pack” for Eurozone members in 2013 to prevent excessive levels of debt and ensure fiscal stability (Eurozone Portal, 2014). The “two-pack” strengthens the existing SGP by imposing a budgetary coordination, and stricter economic and financial surveillance in the euro area. The member states budgetary plans will be assessed by the European Commission prior to their adoption and members experiencing financial instabilities will be monitored closely (Eurozone Portal, 2014). Severe weaknesses in the banking sector were also revealed by the debt crisis, reminding that banking crises have the strong potential of slowing down the global economy (Nowotny, 2012). European governments are working towards setting up supervisory authorities in the banking sector to enhance financial stability. A key pillar of the future banking union, the Capital Requirements Directive, which sets stronger capital requirements for banks, was adopted in January 2014 additionally to Basel III. The Single Supervisory Mechanism should enter in force in autumn 2014, creating a supervision system for banks within the EU (ECB, 2014). A banking union should lead to better supervision of the sector and ensure that immediate action is taken when weaknesses are detected. It should also reduce the interdependence of financial institutions and governments (Dombret, 2013). Following the crisis, the financial landscape was transformed and new trends have emerged. European central banks and governments have become more involved in the financial markets to reduce the probability of longer recessions (El-Rian, 2011). The sovereign debt crisis has clearly revealed banks’ inefficiency to identify and measure the various types of risk they face. Therefore, the financial institutions have been working on strengthening their risk management divisions to respond appropriately to future crises (Dombret, 2013). Moreover, several banks have downsized their investment banking divisions to concentrate on their core operations. Their lending standards have increased to comply with the new regulations, making it more difficult for individuals and companies to access credit. Consequently, private equity firms, which comply with softer regulatory requirements, have been entering the lending market (Tett, 2014). VII. C onclusion This essay identified inefficient regulations, budget deficits, and vulnerable banking systems as the main causes of the European sovereign debt crisis, which initially erupted when it became public knowledge that Greece faced default. The crisis led to soaring volatility within the financial markets and contributed to the revaluation of risks. Moreover, financial institutions faced liquidity issues and the need of financial restructuring. In response to the crisis, several measures were implemented to stabilize the weakening Eurozone economy. As a result, confidence could be restored; however there are still some economic and fiscal challenges. EU member states have increased their policy coordination after understanding that tougher preventive measures to control budget deficit and bank failures are essential to avoid a repetition of the debt crisis. Furthermore, alternative financial institutions have emerged. R eferences R éférences R eferencias 1. Alderman, L. 2014. Banks Take On European Debt, Despite Underlying Problems. [online] Available at: http://www.nytimes.com/2014/01/22/business/bank s-take-on-european-debt-despite-underlying-proble ms. html [Accessed: 18 Mar 2014]. 2. Allen, W. A. and Moessner, R. 2012. The liquidity consequences of the euro area sovereign crisis. BIS Working Papers. [report] Bank of International Settlements, pp. 1-26. 3. Alloway, T. 2013. Credit default swaps run out of road. [online] Available at: http://www.ft.com/ cms/s/0/03cbf666-34e7-11e3-8148-00144feab7de. html#axzz2vQJftDkn [Accessed: 2 Apr 2014]. 4. Arghyrou, M. G., Kontonikas, A. and Ros. 2012. The EMU sovereign-debt crisis: Fundamentals, expectations and contagion. Journal of International Financial Markets, Institutions and Money, 22 (4), pp. 658--677. 5. BAFA, B. 2014. Bundesamt für Wirtschaft und Ausfuhrkontrolle: Umweltprämie. [online] Available at: http://www.bafa.de/bafa/de/wirtschafts foerderung/umweltpraemie/index.html [Accessed: 2 Apr 2014]. 6. BBC News. 2011. Leaders reach Eurozone debt deal after late-night talks. [online] Available at: http://www.bbc.co.uk/news/world-europe-15472547 [Accessed: 18 Mar 2014]. 7. Bernoth, K., Von Hagen, J. and Schuknecht, L. 2012. Sovereign risk premiums in the European government bond market. Journal of International Money and Finance, 31 (5), pp. 975--995. 8. Choudhury, A., Logutenkova, E. and Kirchfeld, A. 2012. Investment Bankers Face Termination as Europe Fees Fall. [online] Lessons Learned from European Sovereign Debt Crisis 65 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals