In addition, the management of the crisis, involving government intervention and bailouts, with direct consequences both on sovereign debt levels and on state power, has prompted new considerations on the link between politics and economics. For Europe, the political crisis was also deepened by the disproportionate economic problems within the European Union. Europe did not act as a single unit to deal with European banks, working instead at the national levels and through the European Central Bank. As the crisis deepened and the recession generated more problems for peripheral countries such as Greece, two narratives evolved. One is the German version, holding that Greece fell into a sovereign debt crisis because its government maintained social welfare programs far exceeding its scope for funding, and now the Greeks were expecting the European Union to bail them out. The narrative shared by Greece and other peripheral European states is that, through Europe's free trade zone, Germany created captive markets for its goods, while the importing countries, members of the same monetary club, couldn't devalue their currencies. Furthermore, it seemed that the European Central Bank favored Northern Europe in general, and Germany in particular, during the first stage of the financial crisis on the Continent, considering its focus on keeping inflation low.
The debate over solutions for the eurozone crisis has underlined the different political approaches of the member states. As discussions have devolved into a blame game between southern and northern countries, the risk of fragmentation of the European Union has further increased.
Recession in the United States and Europe affected Asian economies, particularly China and Japan. Considering the export market dependency of those countries on both Europe and the United States, the Chinese government faced a possible unemployment crisis, as low exports could have slowed production, an eventuality followed by layoffs and factory bankruptcies. This could have led to massive social instability in the country.
Beijing averted the crisis through two main policy lines. The first was to keep production steady by encouraging price reductions, and the second was to extend unprecedented credit lines to enterprises facing default on their debts in order to keep them in business. The side effect of such policies was inflation, to which China responded (again) by increasing wages. This, in turn, again increased the cost of goods exported, making China's wage rates less competitive. The global financial crisis has forced Beijing to seek out and speed up structural reforms, putting household private consumption at the core of the new economic model China seeks to implement. All this has in fact increased the government's political control over the economy.
Japan, already facing economic problems at the end of 2007, has had to deal with both the effects of a strengthened yen, which already made its exports expensive, and with the global slowdown. Ultimately, Japan's response was the three-part plan called Abenomics promoted by Prime Minister Shinzo Abe. The plan aims to revive Japan's economy through structural reforms that also serve to frame a new economic model for the country. Part of the plan is making use of the Trans-Pacific Partnership to launch strong domestic reforms.
For Russia, 2008 was the year of war with Georgia - an event Moscow used to make its resurgence visible at the global level. Moscow's goal was to show former Soviet states seeking alliances with the European Union and NATO that the West could not back up its security commitments.
