M1_H2_ECONS_CSQ2_Answer

Question 2 Crisis in United Kingdom and Spain Table 2: Spain Key Economic Indicators 2009 2010 2011 2012 2013* Gross domestic product, constant prices (% change) -3.8 -0.2 0.1 -1.6 -1.3 Inflation (% change) -0.2 2.0 3.1 2.4 1.8 Unemployment rate (%) 18.0 20.1 21.7 25.0 26.9 Current account balance (US billion $) -70.4 -62.3 -55.4 -14.8 19.4 Government Net Debt (% of GDP) 42.5 50.1 58.6 73.5 80.8 Government budget balance (% of GDP) -9.3 -8.1 -8.1 -6.3 -4.9 *Estimated figures. Table 3: UK Key Economic Indicators 2009 2010 2011 2012 2013* Gross domestic product, constant prices (% change) -5.2 1.7 1.1 0.2 1.4 Inflation (% change) 2.1 3.3 4.5 2.8 2.7 Unemployment rate (%) 7.5 7.9 8.0 8.0 7.7 Current account balance (US billion $) -31.4 -61.9 -36.0 -93.9 -69.2 Government Net Debt (% of GDP) 62.4 72.2 76.8 81.6 84.8 Government budget balance (% of GDP) -10.3 -8.4 -6.0 -5.8 -4.0 *Estimated figures. Source: International Monetary Fund, 2013 Extract 5: Spain set to reveal its pain in its books Spain, a Eurozone behemoth, is in the crosshairs of Europe's financial crisis. The country is suffering from soaring borrowing cost (for the sovereign bond), a banking system leaking cash and unemployment rates at devastating levels. The Spanish economy is the Eurozone’s fourth-largest -- after Germany, France and Italy -- making up around 11% of the bloc's GDP. After Bankia, the country’s fourth largest bank, asked for a €19 billion state intervention to prevent bankruptcy, the situation in Spain has developed like a perfect storm, with money being pulled out of the country. This leaves Spain in a precarious financial state, driving investors away and making

2    ©Millennia Institute 9732/01/14 [Turn over it more likely to need a bailout by seeking finan cial support from International Monetary Fund (IMF) or European Union (EU). The mood of the markets may, ultimately, dictate Spain's ability to pull itself from its financial hole. Investors already twitchy about the prospect of a "Gre xit" -- a Greek exit from the euro -- will react badly to further bad news out of Spain. Greece has been swallowing austerity medicine to cut government spending and raise taxes as part of the bailout deal with IMF and EU since 2010. But its economy has slid further into recession, and initial hopes it could detach itself from external life- lines within two years now look wildly optimistic. As with other fragile countries within the euro bloc, Spain cannot benefit from an independent monetary policy. Spain has focused on cost cutting and labour reforms in November 2011. Spain has also been under pressure to implement austerity measures to try and combat its debt crisis. If governments implement austerity measures t oo soon they risk snuffing out demand and recovery, but delays could provoke a catastrophe with inflati on and high interest burdens to service countries’ debt. Sourc