Impact and Response to the Financial Crisis: Comparing the EU and China Policies

This article, in a comparative approach, assesses the impact of governments’ policies both in the EU and in China to handle the impact of the international financial crisis. Europe, recovered quickly from the crisis, but it continues to experience low overall macro-economic performance, with noticeable variations among the EU’s 27 member-nations and the 17 Eurozone members. Debt levels and unemployment rates remain relatively high, and European authorities are forced to look for a balance between fighting inflation by raising interest rates and supporting demand, which necessitates a more permissive policy. The collateral impact of the financial crisis on Europe resulted in a currency crisis that endangered the euro and was caused by Maastricht mechanisms for convergence and stability that regulate the functioning of the Economic and Monetary Union (EMU). China quickly returned to a high growth rate that was fueled by the implementation of vast expansionist policies by the national and provincial governments. After a brief recession, the Chinese economy very rapidly resumed its high performance levels in terms of GDP growth, trade balance, and currency reserves. The Chinese economy’s recovery from raises questions about its ability to change its growth model by abandoning a model based on promoting exports and on heavy investments in infrastructures, particularly in economic sectors that are not always productive, a strategy that creates a drain on households, whose savings finance the current growth model.