Table of Contents
1.0 Introduction 3
2.0 United States Economy 3
3.0 Europe Economy 5
4.0 US vs. Europe Economy 7
5.0 Conclusions 9
6.0 References 10
The most argued question in terms of economic growth is comparison of the economy of globally diversified countries. The question who has the greatest economy has always been a subject of debate. If the population of Europe is taken into consideration that has more than 650 million people and an amalgamation of 27-member European Union such is the large Europe that it produces an economy that needs to be equivalent to the United States and China put together. However the case seems to be different. This is evident from the simple fact that the average gross domestic product (GDP) in the U.S. is 40% higher to that of the European Union. The difference keeps on varying when considering EU-12, EU-25.
Discussions and studies indicate that the United States of America is far away from sovereign debt crisis and its economy cannot be decelerated by a meagre slowdown in the global market. However, the debt crisis anticipated in the states of Europe is a large when viewed mutually. For instance, in the case of Italy or Spain it has been observed that debt crisis went out of control and the leaders of respective zones become hapless and failed in stopping so. As such the debt incurred to European sovereign turned into toxic as similar to that of subprime mortgage securities of 2008 crash eroding the banking system and leaving the tremor all over the world. Therefore, the ultimate threat to the global economy at present perceived to be is from Europe than the U.S.
This essay furthers to investigate into and find the difference between United States and the Europe economy. In this context each of the countries` economies are initially discussed followed by a section wherein comparison of both the economics is done. Finally the conclusions are drawn based on the discussions.
United States Economy
The United States holds the largest economy in the world with $14.3 trillion nominal GDP as estimated in the year 2009. This is approximately thrice that of the size of Japan`s economy. In terms of power parity purchasing, it is greater than the economy of China. A high level of output per capita is also maintained within the U.S. economy which has influenced the nations all over the world with its large economy. In driving the U.S. economy to reach its success, purchase, sale and trade of international products highly contributes without which the foreign trade results irregularity in governing the issues of commerce (Bromley, 2001).
The economic freedom granted to private sectors is the key feature for the growth of U.S. economy since it allows the private sector to come out with appropriate economic decisions to define the direction as well as the scale of what really the U.S economy generates. Whatever is produced by the U.S. is then traded with other countries and thus it helps in establishing the global relations also.
The workforce and productivity determines the status of U.S economy. The U.S has shown a constant growth in the workforce and is evident from its history. This makes U.S. to establish and acquire greater economic expansion when compared to other countries.
Besides being the largest economy, United States also known as the largest trading nation all over the world. The U.S. dollars are constantly in circulation because of being the leading importer in the world. Because of such popularity the dollar has been using as a standard unit in the global market while trading for the commodities such as petroleum, gold and etc. Even the countries like Japan, China, states of Persian Gulf, and EU posses reserves of huge dollars because of a fear that keep them out from dollar. Within the market-oriented economy both business and private individuals take the decisions whereas the federal as well as state governments purchase the required goods and services from the private markets. Hence, U.S. business individuals take most of the benefits from their counterparts of Europe and Japan to increase their capital and at the same time try to lay-off excess workers to develop new products.
During the process of developing economy they even come across barriers while entering the competitors` market and are considered higher than that of entering the U.S. market itself. With the increase of new technologies, U.S. firms are getting much closer to it more particularly in computers, medical, aerospace and military. The onset of technologies into the market broadly describes the steady growth of “two-tier labour market” which at the base resides people lacking education and at the top professionally qualified people and such they fail in meeting the pay rises, coverage of health insurance and various other benefits.
In order to maintain balance in financial markets, the U.S. Congress started Troubled Asset Relief Program (TARP) with an expenditure of $700 billion in the year 2008 and used a part of this fund to buy equity in the banks and industries of U.S. and by the early 2011, most the fund is also repaid to the government.
Additionally US Congress passed a bill in January 2009 which is signed by the President Barack Obama and a $787 billion allocated towards fiscal stimulus of which two-third to be used on spending and one-third on tax cuts – to generate jobs and for recovering the country`s economy. With an objective to provide health insurance to about 32 million American citizens by the year 2016 and to improvise the medical aid, health insurance reform bill was also introduced into law in March, 2010. During the month of July 2010, the president of United States Barack Obama signed DODD-FRANK Wall Street Reform and Consumer Protection Act, proposed to encourage financial stability as well as protecting consumers from the problems of financial crisis, terminating bailouts for taxpayers, improvising accountability and maintaining transparency in financial system by necessitating financial derivates subjected to as per the regulations of government (Buti et al. 2003).
The Europe economy consist more than 665 million people living in about 48 different states. The wealth of states of Europe varies in particular, the poorest of states however much better than poorest of states of other continents both in terms of living standards and GDP. The variation of wealth can be seen and more common in East-West divide. The states of Western Europe have high GDPs as well as living standards and on the other side, states of Eastern Europe trying to come out of collapse of former Yugoslavia and USSR. Europe largest economy is mainly because of Germany that ranked third in terms of nominal GDP and in purchasing power parity (PPP) GDP held fourth rank. As a single unit, European Union is the largest economy all over the world consisting of 27 member states for its economical integration. Initially European Union included the states of France, Belgium, Italy, Netherland, Luxembourg and Germany. Its expansion during the period 1973 to 1986 included states of Greece, Denmark, United Kingdom, Portugal, Spain and Ireland.
In the year 1995, its further expansion even included the states of Sweden, Finland and Austria. By the year 2004, a considerable expansion had been witnessed with the joining of ten member states into Europe Union. The states include Slovakia, Slovenia, Poland, Malta, Lithuania, Latvia, Hungary, Estonia, Czech Republic and Cyprus. In the final expansion, Bulgaria and Romania joined the European Union that happened in 2007 (Baldwin, 2009). In order to expand the European Union further by adopting new states, it has become imperative for EU to provide the benefits to already existing states and to increase the level of prosperity. For a state to get joined in the European Union, attainment of political as well as economical stability considered essential. This will provide safety and benefit to both parties. A budget is essential for the state for attaining prosperity and to reach at the devised objective. Likewise, the budget also enables E.U. to develop its economy and to attain prosperity. Though budget is simply a list of planned expenses and revenues, its allocation and implementation plays a vital role. Since the E.U. budget is assumed as a basis of solidarity and the same time tension among E.U, the knowledge of budget is considered important to understand European Union (Baldwin, 2009). The E.U. budget indicates the expenditure and revenue as planned for the union. However, the expenditure distributed according to its area and by member. The expenditure by area is meant for the purpose of meeting agriculture, needs of poor regions and other miscellaneous things.
From the statistics of European Union, the industrial production is observed to sink by 2% in September from its previous month, which is the steepest slide ever, noticed since February during the year 2009. This decline extended from weaker margins of Portugal, Italy and Spain to powerhouses of Germany, Netherlands and France. When compared to its previous year, the output showed an increase of 2.2% which is only the weak gain in span of two years. According to Ben May, an economist at consultancy Capital Economics suggests that the euro-zone with such development will soon get into deep recession.
However in the third quarter of E.U., the factories achieved a slight gain because of solid growth during the month of July and August. In this regard, economist states that economy of euro-zone will expand by 1.5% on regular annual basis. The growth achieved in France and Germany would however balance the weakness witnessed in the rest of euro bloc. These economic figures are showing glooming actuality of vulnerable members of European Union. However without the economic growth of Greece, Italy and others, problems of government debts remain existed even after the increase of taxes as well as cut spending. Unless the policy makers in Europe improves the economic framework through the provision of incentives for firms, the increasing pace of innovation and the growth rate of productivity cannot be budge. This will influence firms to make an investment in R&D as well as on their ability for applying new knowledge in the development of product and its innovation. An innovation helps in generating and increasing productivity effectively which allows economical growth and more importantly the resources are shuffled or reallocated towards new firms to establish high growth prospects. The essential elements assumed for enabling the expansion of new companies so quickly and successful are competition, labour market flexibility, provision of finance, exit and entry of firms and etc.
US vs. Europe Economy
At present the economic condition of Europe is poor when compared to the US. Though the growth forecasts of the year 2011 for the U.S. had been anxiously reduced by the economists since the GDP of U.S. was unconvinced when compared with the European states it is in a better condition. In the late June, 2% of growth projection was raised by the IMF for the euro zone. As per the report given by HSBC, rather than in the euro zone national finances is feebler in the American states (Allan, 2000). Even though, under this situation U.S has one benefit i.e. the luxury of time over Europe.
The latest financial disorder was being subjected to U.S. debt due to the effect of the world`s investor community. This explains that the costs which are being borrowed by U.S proceed to decline but with the use of real plan such deficit can be fulfilled to restore the growth of America. On the other side the euro zone does not have particular luck. The very weak economies of the zone such as the PIIGS, involving Greece, Ireland, Portugal, Spain and Italy have the borrowing costs which stay more elevated. This leads to the pressure on the governments who have to reform programs through implementation along with huge speed and also pressure upon the remaining euro zone to receive most dramatic action in order to halt the contamination.
The other reason for the question that Europe is more danger when compared to America: the members of Europe just don`t wish to give the sacrifices essential for the determination of the debt crisis. There are political divisions which are initially economic, that the U.S. possess except everyone who trust that they are working in the comfort of a country as well as essential reforms which are however painful. The fundamental political as well as an economic change are being faced by Europe if the debt crisis of Europe is being resolved truly.
As the euro zone`s individual members are being considered unwillingly, the political as well as economic integration level will be taken. This explains that the adoption of the dramatic reforms may have a direct impact on the national sovereignty such as the merging policies of national budget – – – — the monetary union is competed with the fiscal i.e. financial union. In Europe, based on the creation of fiscal union the euro zone will survive. First step to create fiscal union is preparing a time table even though its creation cannot take place all the night. At present there is a deficit in political will but with increase of crisis, the choice will become certainly harsh.
A few years ago, U.S. has remained in the fine lines of the world. The agreement of the debt which was produced by the political bickering was extensively considered to be insufficient as well as incomplete. The credit rating of America which was downgraded in a standard and poor manner has been rising to take care of the world`s economic health which is very important. The U.S. growth which was slow has been a threat to the overall global recovery. The markets have been changed into the volatile roller coasters from London to Seoul due to the disorder of stock-market on Wall Street. Presently it is simple to get annoyed on the U.S. for the illness of the world`s economy. In the latest days the U.S. is being included as the source of uncertainty. Somewhere in the Europe the true risk occurs for the global economy.
In conclusion it is submitted that United States economy when compared with the European economy is far better this is indicated in the comparison of the GDP. The per capita income that is maintained in the U.S. cannot be seen in the European economy, the focal reason being the grant of economic freedom to the private sector where equality is maintained in the United States the same thing is not seen in Europe because the states within the Europe are divided as east and west within this division higher GDP can be seen in the western states to that of eastern states. Reports and Research indicates that gain that the U.S. has over the Europe is because of the luxury of time. In common when we talk about debts though U.S. is facing the impact when compared with Europe where the borrowing cost of on the rise and elevated position the situation of such governments is far more critical than that of the U.S. as initiatives are in process to restore the deficit and are giving positive results. The main reason being the commitment and sacrifice given by the American people that are greater compared to that of the European States.
Allan, D. Political Economy in Macroeconomics (Princeton) 2000. Print.
Baldwin, R. and Charles W. The Economics of European Integration, McGraw-Hill, 2009. Print.
Bromley, S. “The EU and international economic governance” in Thompson (ed.) 2001. Print.
Buti, M., Eijffinger, S. and Franco, D. `Revisiting the Stability and Growth Pact: grand design or internal adjustment?` CEPR Discussion Papers, 3692, Centre For Economic Policy Research, London. 2003. Print.
Linter, V. `The development of the EU and European economy` in Thompson (ed.) 2001. Print.
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