Political and economic crisis

Definition of crisis
A crisis is any event or period that will lead, or may lead, to an unstable and
dangerous situation affecting an individual, group, or all of society. Crises are
negative changes in the human or environmental affairs, especially when they
occur abruptly, with little or no warning. More loosely, a crisis is a testing time or
an emergency. We can speak about a crisis of moral values, an economical or
political crisis.
In English, crisis was first used in a medical context, for the time in the
development of a disease when a change indicates either recovery or death, that is,
a turning-point. It was also used for a major change in the development of a
disease. By the mid-seventeenth century, it took on the figurative meaning of a
"vitally important or decisive stage in the progress of anything", especially a period
of uncertainty or difficulty, without necessarily having the implication of a
decision-point.
We will consider crises in two spheres: political and economic crisis.
Political crisis
Basically political crisis implies government crisis of a particular country.
A cabinet crisis or government crisis is a situation when the government is
challenged before the mandate period expires, because it threatens to resign over a
proposal, or it is at risk at being dismissed after a motion of no confidence, a
conflict between the parties in a coalition government or a coup d'état. It may also
be the result of there being no clear majority willing to work together to form a
government.

Problems of crisis government. The basic problems posed by any attempt

to provide, by constitutional and institutional means, for strong crisis government
may thus be summarized in five questions.

(1) Who is to be in charge of proclaiming the state of emergency, or the

need for crisis government? A widespread view, often justified with technical
reasons and arguments of greater efficiency, tends to leave it to the executive. This
coincides with a general tendency toward the bureaucratic administrative state; yet
it contradicts the practice of proved democracies to maintain the responsibilities of
parliament. The right to declare a state of emergency should be reserved to an
organ not invested with the powers derived from that state. For the same reason,
this requires a qualified majority larger than the governing majority.

(2) When does the state of crisis eventuate, and how can it be defined? In
general, the practice of confining crisis government to the case of war appears the
least dangerous way. All attempts to apply it to situations of “imminent danger” (as
in recent German drafts) or domestic problems (as in the Weimar Republic and
Fifth French Republic) will lead into a jungle of divergent interpretations inviting
misuse of power and enabling the overthrow of democratic government by one-
party systems or military dictatorship, thus paving the way to authoritarian or
totalitarian regimes.

(3) What does crisis government really mean? Here again the basic

distinction would be between (a) a concentration of power functions, with some
simplification of the governmental process in the framework of responsible
government that leaves intact the competence of legislatures and courts; and (b) the
concept of temporary dictatorship, which, suspending the democratic system and
the rule of law, aims at empowering the executive to enact laws on its own
authority. In the first case, the parliament may temporarily yield power to the
executive by passing “enabling acts,” but retains its prerogatives; in the second
case, the executive commands emergency powers to be mobilized by a
proclamation of a state of emergency and effected by decrees. However, there is
wide agreement that the constitution should not be changed during the period of
emergency.

(4) Which controls are to remain or should be introduced to reduce the

dangers inherent in any of these solutions? The answer again depends on the
degree to which responsible government is abandoned in favor of a bureaucratic
and dictatorial interregnum. If crisis government means merely a strengthening of
democratic government by bipartisan politics or an all-party coalition government,
no basic changes in the system of controls seem necessary. On the other hand, any
serious shift in function between the legislative and executive agencies, even if
only for a restricted period, requires special controls designed to meet the dangers
of unrestricted government with its tendencies to perpetuate and extend the
anomalous power situation.

Among the institutions granting a minimum of essential control, so that the

efforts to defend democracy do not destroy the very existence of democracy are
parliamentary committees and councils representing various groups, an
independent position for the constitutional courts, and the widest possible freedom
of the press. The question remains whether the principle of voluntary cooperation
and self-restriction as practiced in countries without fixed emergency provisions
(e.g., Switzerland or Britain during the war) is not more effective than the most
elaborate schemes of crisis government, since these will never be able to foresee
all the actual forms of emergency measures necessary in a future crisis.

(5) How is crisis government ended? The end of crisis government poses a

final problem that all constitutions with emergency provisions have to meet with
special care. Considering the crucial danger of constitutional dictatorship—its
perpetuation and transformation into a new regime—the question of who, how, and
when an emergency government is to be terminated and must relinquish its powers
is the acid test of any institutionalized crisis government. Such a decision can
certainly not be left to the executive enjoying his increased power; it appears as the
particular function of the parliament. But this implies a continuity of parliamentary
life during the period of suspension. In fact, unlike the Weimar constitution, that of
the Fifth Republic makes the dissolution of parliament impossible during the
period of emergency government. After specifically limited periods, parliament
must always be in a position to decide on the end (or continuation) of emergency
politics.

Historical examples . For reasons of political logic and practical

experience, the problem of crisis government has occupied political theory from its
beginning, but in particular since the rise of the modern state. In antiquity the
constitutional framework of the Roman Republic, with its emergency provision of
a temporary dictator, represented the most elaborate attempt at institutionalizing
crisis government, as distinct from Oriental despotism and unlimited tyranny. The
concept of “constitutional dictatorship” contained, however, the ever-present
danger of turning into permanent dictatorship. The Roman institution of a
temporary dictator nominated for a period of six months by the acting consul—
who alone had the power to proclaim or prolong the state of emergency that gave
the dictator his special powers—was applied successfully during the earlier history
of the republic. However, with the emergence of revolutionary generals in the civil
wars of the first century b.c., it was turned into a permanent regime leading to the
dictatorships of Caesar and his successors.

Modern constitutional arrangements reflect the same lack of distinction

between constitutional emergency provisions and legalized dictatorial regimes.
The transition from the first republic in France to the regime of Napoleon is a
classical example of a pseudo-revolutionary turnover. Between the two world
wars, many feeble democracies surrendered to the same tendency. The
proclamation of a protectionist dictatorship to meet crisis situations determined
developments in Italy (Mussolini), Poland (Pilsudski), Turkey (Kemal Atatürk),
Spain (Primo de Rivera and Franco), Portugal (Salazar), Germany (Papen and
Hitler), Austria (Dollfuss and Schuschnigg), and the Balkan countries; in South
America, such developments belonged to everyday politics.

In Germany, Hitler’s coming to power was a clear result of use and misuse
of the emergency powers given to the president of the Weimar Republic. Under
article 48 of the constitution he had the right to subsede normal parliamentary
legislation by crisis decrees and to apply military force for the execution of such
federal decrees in the states. In 1923, under a democratic president (Ebert), this
power was exercised as a strictly temporary measure for the protection of the
republic; after 1930, under Hindenburg, emergency government became gradually
institutionalized, and parliamentary controls were paralyzed by successive
dissolutions of parliament. It was at this very point that antidemocratic forces of
the right succeeded in breaking up the constitutional government. The Nazi
dictatorship was founded and legalized by posing as a presidential crisis
government, before Hitler managed to override parliament and to suppress the non-
Nazi groups, which until the last party elections (March 1933) commanded a
majority of German votes.

Although these examples demonstrate the dangers contained in the

institution of crisis government, many exponents of constitutional theory maintain
that emergency provisions remain essential to the existence and maintenance of
democratic regimes. The discussion distinguishes between emergency situations
caused by exterior forces (military threat, war) and revolutionary situations
conditioned by domestic developments. Since disturbances in the operation of
parliamentary governments can hardly be cured by extraparliamentary provisions,
it remains open to discussion whether emergency articles should be formally
included in a constitution and how far they should be applied to either external or
internal crises. Consequently, constitutional structure and political practice in
modern democracies have attempted many varied solutions. In substance, the
problem is always how far civil rights may be restricted and to what degree such
increased executive power should be transferred to certain bureaucratic, political,
or even military authorities.

In such Western democracies as the United States, Great Britain, and

Switzerland, the constitutions contain no explicit clauses regarding crisis
government. To meet emergency situations, either parliament is expected to
convey necessary powers to the government or constitutional theory agrees on
implied and inherent powers for the president (as in the United States). By
common understanding, however, the controls by the courts and parliamentary
legislation are not to be curtailed by such concentration of power.

The constitution of the semiauthoritarian French Fifth Republic (1958),

which is reminiscent of the dualistic, parliamentary—presidential structure of
the Weimar Republic, contains far-reaching emergency powers conferred on the
president “when the institutions of the Republic, the independence of the Nation,
the integrity of its territory or the fulfillment of its international obligations are
threatened with immediate and grave danger, and when the regular functioning of
the constitutional governmental authorities is interrupted” (France, Constitution,
1958, art. 16).

Such sweeping stipulations, while leaving everything to the personal

qualities and intentions of the president, contain all the dangers discussed above.
This certainly does not present a strong case for institutionalized emergency
provisions. Nevertheless, there were strong efforts in West Germany to change the
constitution of 1949 and to add an “emergency constitution” that would have
allowed for restrictions on civil rights and suspension of parliamentary legislation
by government decrees, with controls remaining (as a compromise formula) in a
small committee of the two houses of parliament. In the author’s opinion, this
contradicts the original intentions of the Bonn constitution, which was designed to
avoid the mistakes of Weimar by substituting for emergency provisions strong
regulations against antidemocratic activities as well as regulations supporting
stable governments and working majorities in parties and parliament.

Constitutional crisis

In political science, a constitutional crisis is a problem or conflict in the

function of a government that the political constitution or other fundamental
governing law is perceived to be unable to resolve. There are several variations to
this definition. For instance, one describes it as the crisis that arises out of the
failure, or at least a strong risk of failure, of a constitution to perform its central
functions.[1] The crisis may arise from a variety of possible causes. For example, a
government may want to pass a law contrary to its constitution; the constitution
may fail to provide a clear answer for a specific situation; the constitution may be
clear but it may be politically infeasible to follow it; the government institutions
themselves may falter or fail to live up to what the law prescribes them to be; or
officials in the government may justify avoiding dealing with a serious problem
based on narrow interpretations of the law.[2][3] Specific examples include the South
African Coloured vote constitutional crisis in the 1950s, the secession of the
southern U.S. states in 1860 and 1861, the controversial dismissal of the Australian
Federal government in 1975 and the 2007 Ukrainian crisis.

Constitutional crises may arise from conflicts between different branches of

government, conflicts between central and local governments, or simply conflicts
among various factions within society. In the course of government, the crisis
results when one or more of the parties to a political dispute willfully chooses to
violate a law of the constitution; or to flout an unwritten constitutional convention;
or to dispute the correct, legal interpretation of the violated constitutional law or of
the flouted political custom. 

Politically, a constitutional crisis can lead to administrative paralysis and

eventual collapse of the government, the loss of political legitimacy, or to civil
war. A constitutional crisis is distinct from a rebellion, which occurs when political
factions outside a government challenge the government's sovereignty, as in
a coup d'état or a revolution led by the military or by civilians.

Economic crisis
An economic or financial crisis is any of a broad variety of situations in
which some financial assets suddenly lose a large part of their nominal value. In
the 19th and early 20th centuries, many financial crises were associated
with banking panics, and many recessions coincided with these panics. Other
situations that are often called financial crises include stock market crashes and
the bursting of other financial bubbles, currency crises, and sovereign defaults.[1]
[2]
 Financial crises directly result in a loss of paper wealth but do not necessarily
result in significant changes in the real economy (e.g. the crisis resulting from the
famous tulip mania bubble in the 17th century).
 Types of crisis
Banking crisis
When a bank suffers a sudden rush of withdrawals by depositors, this is
called a bank run. Since banks lend out most of the cash they receive in deposits
(see fractional-reserve banking), it is difficult for them to quickly pay back all
deposits if these are suddenly demanded, so a run renders the bank insolvent,
causing customers to lose their deposits, to the extent that they are not covered by
deposit insurance. An event in which bank runs are widespread is called a systemic
banking crisis or banking panic.
Examples of bank runs include the run on the Bank of the United States in
1931 and the run on Northern Rock in 2007. Banking crises generally occur after
periods of risky lending and resulting loan defaults.
Currency crisis
A currency crisis, also called a devaluation crisis,[5] is normally considered
as part of a financial crisis. Kaminsky et al. (1998), for instance, define currency
crises as occurring when a weighted average of monthly percentage depreciations
in the exchange rate and monthly percentage declines in exchange reserves exceeds
its mean by more than three standard deviations. Frankel and Rose (1996) define a
currency crisis as a nominal depreciation of a currency of at least 25% but it is also
defined as at least a 10% increase in the rate of depreciation. In general, a currency
crisis can be defined as a situation when the participants in an exchange market
come to recognize that a pegged exchange rate is about to fail,
causing speculation against the peg that hastens the failure and forces
a devaluation.
Speculative bubbles and crushes
A speculative bubble exists in the event of large, sustained overpricing of
some class of assets. One factor that frequently contributes to a bubble is the
presence of buyers who purchase an asset based solely on the expectation that they
can later resell it at a higher price, rather than calculating the income it will
generate in the future. If there is a bubble, there is also a risk of a crash in asset
prices: market participants will go on buying only as long as they expect others to
buy, and when many decide to sell the price will fall. However, it is difficult to
predict whether an asset's price actually equals its fundamental value, so it is hard
to detect bubbles reliably. Some economists insist that bubbles never or almost
never occur.
Well-known examples of bubbles (or purported bubbles) and crashes in
stock prices and other asset prices include the 17th century Dutch tulip mania, the
18th century South Sea Bubble, the Wall Street Crash of 1929, the Japanese
property bubble of the 1980s, the crash of the dot-com bubble in 2000–2001, and
the now-deflating United States housing bubble. The 2000s sparked a real estate
bubble where housing prices were increasing significantly as an asset good.
 International financial crisis
When a country that maintains a fixed exchange rate is suddenly forced
to devalue its currency due to accruing an unsustainable current account deficit,
this is called a currency crisis or balance of payments crisis. When a country fails
to pay back its sovereign debt, this is called a sovereign default. While devaluation
and default could both be voluntary decisions of the government, they are often
perceived to be the involuntary results of a change in investor sentiment that leads
to a sudden stop in capital inflows or a sudden increase in capital flight.
Several currencies that formed part of the European Exchange Rate
Mechanism suffered crises in 1992–93 and were forced to devalue or withdraw
from the mechanism. Another round of currency crises took place in Asia in 1997–
98. Many Latin American countries defaulted on their debt in the early 1980s.
The 1998 Russian financial crisis resulted in a devaluation of the ruble and default
on Russian government bonds.
Wider economic crisis
Negative GDP growth lasting two or more quarters is called a recession. An
especially prolonged or severe recession may be called a depression, while a long
period of slow but not necessarily negative growth is sometimes called economic
stagnation.
Some economists argue that many recessions have been caused in large part
by financial crises. One important example is the Great Depression, which was
preceded in many countries by bank runs and stock market crashes. The subprime
mortgage crisis and the bursting of other real estate bubbles around the world also
led to recession in the U.S. and a number of other countries in late 2008 and 2009.
Some economists argue that financial crises are caused by recessions instead of the
other way around, and that even where a financial crisis is the initial shock that sets
off a recession, other factors may be more important in prolonging the recession. In
particular, Milton Friedman and Anna Schwartz argued that the initial economic
decline associated with the crash of 1929 and the bank panics of the 1930s would
not have turned into a prolonged depression if it had not been reinforced by
monetary policy mistakes on the part of the Federal Reserve,[11] a position
supported by Ben Bernanke.
Causes of an economic crisis
1. Loss of Confidence in Investment and the Economy

Loss of confidence prompts consumers to stop buying and move into

defensive mode. Panic sets in when a critical mass moves toward the exit.
Businesses run fewer employment ads, and the economy adds fewer jobs. Retail
sales slow. Manufacturers cut back in reaction to falling orders, so
the unemployment rate rises. The federal government and the central bank must
step in to restore confidence.
 2. High Interest Rates

Interest rates limit liquidity—money that's available to invest—when they

rise. The Federal Reserve has been the biggest culprit here in the past. The Fed has
often raised interest rates to protect the value of the dollar. For example, it did so to
battle the stagflation of the late 1970s, and this contributed to the 1980 recession.

The Fed did the same thing decades ago to protect the dollar/gold
relationship, worsening the Great Depression.

3. A Stock Market Crash

A sudden loss of confidence in investing can create a subsequent bear

market, draining capital out of businesses.

4. Falling Housing Prices and Sales

Homeowners can be forced to cut back on spending when they lose equity
and can no longer take out second mortgages. This was the initial trigger that set
off the Great Recession of 2008. Banks eventually lost money on complicated
investments that were based on underlying home values, which were in decline.

5. Manufacturing Orders Slow Down

One predictor of a recession is a decline in manufacturing orders. Orders

for durable goods began falling in October 2006, long before the 2008 recession
hit.

6. Deregulation

Lawmakers can trigger a recession when they remove important safeguards.

The seeds of the S&L crisis and the subsequent recession were planted in 1982
when the Garn-St. Germain Depository Institutions Act was passed. The
law removed restrictions on loan-to-value ratios for these banks.

7. Poor Management

Bad business practices often cause recessions. The savings and loans crisis
caused the 1990 recession. More than 1,000 banks, with total assets of $500
billion, failed as a result of land flips, questionable loans, and illegal activities.

8. Wage-Price Controls

The imposition of wage and price controls has occurred many times in
history, but it's only led to a recession once.
 President Richard Nixon froze wages and prices to stop inflation in
1971, but employers laid off workers because they weren't allowed to reduce their
wages. Demand fell, because families had lower incomes. Companies couldn't
reduce prices, so they laid off still more workers, which led to the 1973 recession.

9. Post-War Slowdowns

The U.S. economy slowed down after the Korean War, which caused the
1953 recession. Similar reductions after World War II caused the 1945 recession.

10. Credit Crunches

A credit crunch occurred in 2008 when Bear Stearns announced losses due

to the collapse of two hedge funds it owned.1 1  The funds were heavily invested
in collateralized debt obligations, and banks that were in a similar over-invested
condition panicked when Moody's downgraded its debt. They stopped lending to
each other, creating a massive credit crunch.

11. When Asset Bubbles Burst

Asset bubbles occur when the prices of investments such as gold, stocks, or
housing become inflated beyond their sustainable value. The bubble itself sets the
stage for a recession to occur when it bursts.1 2

12. Deflation

Prices falling over time have a worse effect on the economy than inflation.
Deflation reduces the value of goods and services being sold on the market, which
encourages people to wait to buy until prices are lower. Demand falls, causing a
recession. Deflation caused by trade wars aggravated the Great Depression.

Biggest crises in the history of mankind

 The credit crisis of 1772

This crisis originated in London and quickly spread to the rest of Europe.
In the mid-1760s the British Empire had accumulated an enormous amount of
wealth through its colonial possessions and trade. This created an aura of
overoptimism and a period of rapid credit expansion by many British banks. The
hype came to an abrupt end on June 8, 1772, when Alexander Fordyce—one of
the partners of the British banking house Neal, James, Fordyce, and Down—fled
to France to escape his debt repayments. The news quickly spread and triggered a
banking panic in England, as creditors began to form long lines in front of British
banks to demand instant cash withdrawals. The ensuing crisis rapidly spread to
Scotland, the Netherlands, other parts of Europe, and the British American
colonies. Historians have claimed that the economic repercussions of this crisis
 were one of the major contributing factors to the Boston Tea Party protests and
the American Revolution.

 The Great Depression of 1929-1939

This was the worst financial and economic disaster of the 20th century. Many
believe that the Great Depression was triggered by the Wall Street crash of 1929
and later exacerbated by the poor policy decisions of the U.S. government. The
Depression lasted almost 10 years and resulted in massive loss of income, record
unemployment rates, and output loss, especially in industrialized nations. In the
United States the unemployment rate hit almost 25 percent at the peak of the crisis
in 1933.

 The OPEC Oil price shock of 1973

This crisis began when OPEC (Organization of the Petroleum Exporting

Countries) member countries—primarily consisting of Arab nations—decided to
retaliate against the United States in response to its sending arms supplies to Israel
during the Fourth Arab–Israeli War. OPEC countries declared an oil embargo,
abruptly halting oil exports to the United States and its allies. This caused major oil
shortages and a severe spike in oil prices and led to an economic crisis in the U.S.
and many other developed countries. What was unique about the ensuing crisis
was the simultaneous occurrence of very high inflation (triggered by the spike in
energy prices) and economic stagnation (due to the economic crisis). As a result,
economists named the era a period of “stagflation” (stagnation plus inflation), and
it took several years for output to recover and inflation to fall to its precrisis levels.

 The Asian crisis of 1997

This crisis originated in Thailand in 1997 and quickly spread to the rest of East
Asia and its trading partners. Speculative capital flows from developed countries to
the East Asian economies of Thailand, Indonesia, Malaysia, Singapore, Hong
Kong, and South Korea (known then as the “Asian tigers”) had triggered an era of
optimism that resulted in an overextension of credit and too much debt
accumulation in those economies. In July 1997 the Thai government had to
abandon its fixed exchange rate against the U.S. dollar that it had maintained for so
long, citing a lack of foreign currency resources. That started a wave of panic
across Asian financial markets and quickly led to the widespread reversal of
billions of dollars of foreign investment. As the panic unfurled in the markets and
investors grew wary of possible bankruptcies of East Asian governments, fears of a
worldwide financial meltdown began to spread. It took years for things to return to
normal. The International Monetary Fund had to step in to create bailout packages
for the most-affected economies to help those countries avoid default.

 The Financial crisis of 2007-08

This sparked the Great Recession, the most-severe financial crisis since the Great
Depression, and it wreaked havoc in financial markets around the world. Triggered
by the collapse of the housing bubble in the U.S., the crisis resulted in the collapse
of Lehman Brothers (one of the biggest investment banks in the world), brought
many key financial institutions and businesses to the brink of collapse, and
required government bailouts of unprecedented proportions. It took almost a
decade for things to return to normal, wiping away millions of jobs and billions of
dollars of income along the way.

МІНІСТЕРСТВО ОСВІТИ І НАУКИ УКРАЇНИ

Одеський національний морський університет
Кафедра Філології

Реферат на тему:
Криза в політичній та економічній сферах

Виконала: студентка 2 курсу 1 групи

Спеціальності 035 «Філологія»
Максимчук Тетяна
Одеса-2021