Unit 1
Unit 2
Global Economic Issues
The Global Perspective
In this section we have focused our attention on the impact of the crisis in Australia, with some discussion of the events that transpired in the USA. It is important to remember that these two countries alone do not really make a good sample; both Australia and the USA are wealthy, western countries that have reliable supplies of food and energy, and the governments in these countries are able to support people when they become unemployed. The same can not be said for some other countries.
Perhaps the most striking case has been the virtual collapse of the Icelandic economy. During 2008 the value of the Icelandic krona fell by over 35%. This made it very expensive for businesses in Iceland to purchase imported goods and services. Given the physical geography of Iceland, people in that country are forced to import a large percentage of their food. This meant that inflation increased at the same time; during 2008 inflation peaked at 14%. In order to fight the inflation, the central bank in Iceland was forced to increase interest rates to 15.5%. The combined impact of high interest rates, a falling currency and high inflation acted as a strong deterrent to foreign investment. Those who did have their money invested in Iceland decided to pull out. This resulted in the collapse of the sharemarket in that country; by 2009 the total market capitalisation of all shares had fallen by a staggering 90%. Also at this time, all three of the country’s major banks either collapsed, or were taken over by the government. Iceland was a country in crisis.
The government of Iceland reacted slowly, and during 2009 a new government was elected. Problems in that country became so bad that the government was forced to:
1. Restrict all foreign currency transactions to the purchase of essential food, medicine and oil.
2. Move towards full membership of the European Union, even though both political parties in Iceland had long argued that this would be a direct threat to their sovereignty.
3. Try and sell ambassadorial residences in Washington, London and Oslo to raise the funds that are necessary to keep the country running.
Through their alignment with the European Union, the people of Iceland have a clear voice in the international community. The people of Latvia, on the other hand, are often not as well represented. In January 2009 the financial crisis resulted in rioting in that country. What started as a peaceful gathering to protest about increasing prices and food shortages eventually transformed into the largest riots that had been seen in that country since it was able to gain independence from the Soviet Union in 1991. Ultimately there were four more large protests in Latvia during 2009, and each time many people were either injured or arrested.
A riot is a desperate call from a group of people who feel they have no voice. Latvia was certainly not the only country to face riots during the global financial crisis. Both Greece and Moldova also descended into violence as frustration turned into physical activity. Traditional May Day marches all over the world also ended up in violence; over 50 people in San Francisco attacked store fronts as they moved through the city during the parade, and there was also large scale fighting and vandalism in Germany, Russia, the Philippines, Hong Kong, Italy, Cuba, Spain....and many more. In Kenya a government official was forced to abandon his speech when members of his audience began throwing rocks at him and demanding action in regards to the crisis.
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