Accounting: Question-Answer

Posted: August 26th, 2021

Accounting: Question-Answer

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Question 1: European Central Bank Short-Term Interest or Refinancing Rate

Nominal interest is an interest rate before adjusting the inflation. It is the stated rate on loans before compounding or changing any prices(Verdun, 2017). European Central Bank uses nominal interests to short-term interest rates, which are given as inflation rate adds real interest rates. Lenders and investors use the actual interest rates as it reflects the value of purchasing power of the interest paid on loan or investment. It also represents the time value of money by taking into account the inflation adjustments. Investors and lenders use effective rates as it shows the loan interest expressed as an equivalent interest rate when the interest rate is compounded annually (Verdun, 2017). The following is the formula for effective interest rates;

The formula is

Where: i= effective rate

            r= stated rate

            m= compounding periods

ECB’s inflation-targeting Policy Problematic for Economies Such As Spain, Greece, And Portugal

            ECB’s inflation-targeting policy is problematic as most nations using the euro do not have a fiscal union (Schivardi et al., 2017). The lack of a standard fiscal policy for the entire Eurozone makes it hard to control European leaders in implementing the strategy. European leaders cannot impose their measures such as tax policies or pension reforms in another country, which may be necessary for quick economic recoveries.

Problems of Debt-to-GDP ratio

A high debt to GDP ratio is problematic since a country is unable to finance its long-term development projects and meet its short-term obligations.  It makes a state unable to meet its pension obligations, and the country is at a higher risk of a debt default (Summers, 2016). High debts caused by the financial crises from the property bubble debts were transferred to the sovereign debts due to the slow government responses. 

Question 2: Turkey’s Agreement on the European Union and Arguments Against

            Turkey has made numerous efforts to integrate into the union, but most European countries continue to reject Turkey’s request for full membership. Turkey’s integration will be crucial in adding the European internal market size as it will add around 75million consumers(Czuczai, 2019). The EU needs Turkey to create closer cultural and economic relations with Asian nations.  It is because the block needs better energy transport routes, with the country being the best alternative corridor to the Russian path.  The state will be a necessary bridge in connecting the European continent to the Middle East, Central Asia, and the Caucasus oil and gas reserves. Thus, adding turkey will strengthen NATO and European security, as it contains the second-largest army in the block.

           The country’s rejection is on four grounds that incorporates geographical, economic, political, and cultural.  The political reason for the rejection includes the country’s human rights record and the Cyprus issue, which does not match well with other European nations(Verdun, 2017). Turkey’s denial is also because of geographic reasons, as almost 97% of the country lies in Asia. The European Union fears sharing borders with unstable political nations such as Syria, Iraq, and Iran. Opening the membership to turkey will also lead to other countries such as Kazakhstan or Uzbekistan requesting for full membership in the union (Phinnemore & İçener, 2016). The European politician’s fear of adding a vast nation as Turkey will result in it adding more economical and social issues and problems. It is because the country has a large unemployed population, and that Europe has not fully recovered from the global economic crises of 2008-2009.  On a religious and cultural level, many nations fear to integrate the nation into the European Union. The reason is that the country has different traditions than those found in Christian Europe, hence making it challenging to implement full integration.

Question 3: Reasons for United Germanyand a Strong European Union

            More significant nations have a substantialeconomic influence than smaller and less significant ones in the world and continental stage. Bavaria, as a free nation, would have less financial power in the continental stage. Besides, it makes it easier for the state to face global challenges (Braunnagel et al., 2016). Joining the German union could lead to the elimination of economic barriers such as tariffs, which hinder inter-trading. It also makes the state enjoy getting economic immigrants from other countries in Germany and the European Union. These could fill up the shortage of personnel besides improving the economy’s skill gaps. Further, a strong European Union is crucial to Germany’s success since through widen the market for the country’s products. Equally, a robust European union would ensure that the competencies of states like Bavaria are transferred to the European Union(Braunnagel et al., 2016). Therefore, joining the European Union makes it easier for German states to establish their businesses in other European countries without going through many legal and political hindrances.

Question 4: EU’s handling Hungary and Spain

The handling of the refusal by Hungary to accept migrants was different from that witnessed by the Catalonia separatists. The European Union took a tough stance against Hungary, even going far as suing the nation for refusing to comply with the blocks’ decisions.  The country was sued for refusing to take in asylum seekers and noncompliance with the legal obligations on relocation (Czuczai, 2019). The Union was not justified in the case as the country had refused the quotas on the basis that it felt that the migrants did not comply with the country’s cultural and religious values. The EU handling of the Catalonia crisis was different as it did not interfere with the crises or even try to stop the referendum(Czuczai, 2019). The European Union should intervene in the crises as it will result in other nations facing succession attempts from their economic and political regions. The intervention should involve making sure that the Spanish government addresses the issues raised by the referendum leaders.

References

Braunnagel, D., Falk, T., Wehner, B., & Leist, S. (2016). BPM adoption in small and medium-sized companies in Bavaria.

Czuczai, J. (2019). Disintegration and the EU Migration Crisis?–legal divergences, current legal challenges, and those are lying ahead, (pp. 327-354). Nomos Verlagsgesellschaft mbH & Co. KG.

Phinnemore, D., & İçener, E. (2016). Holding the door, half-open the EU and Turkey 10 years. Journal of Contemporary European Studies, 24(4), 446-462.

Schivardi, F., Sette, E., & Tabellini, G. (2017). Credit misallocation during the European financial crisis. Bank of Italy Temi di Discussione (Working Paper) No, 1139.

Summers, L. H. (2016). The age of secular stagnation: What it is and what to do about it. Foreign            Affairs, 95(2), 2-9.

Verdun, A. (2017). The political leadership of the European Central Bank. Journal of European

Integration, 39(2), 207-221.