Recent European Foreign Debt Crisis - Essay Example

This saw down turn in small areas of financial systems, which ruined the structure entirely. There are a lot of factors that contributed to the recent European financial meltdown. According to some political economists, the European financial meltdown was bound to happen due to the trade policies adopted by the European Union (Jackson 1). In this regard, they argue that European Union is not proactive enough and act after the facts. This means that they provide response only after the situation has already occurred.

The question that many people among them economist are asking is, why should the European countries care about the foreign debt crisis? This paper will explore the causes of the recent European sovereign debt crisis, what happened and why it is indispensable for the European countries to care about it. The foreign debt crisis in Europe occurred as a result of a number of factors. This include finance globalization, 2002-2008 easy credit condition which buoyant high-risk borrowing and lending practices.

Others include imbalance in international trade, bubbles of real estates, which have burst since then, slow growth in economy witnessed in 2008 and there after, government expense and revenue fiscal policy choices and bail out methods by nations for troubled banks and bondholders. Other notable causes include assuming private burdens of debts or socializing losses (Duthel 1). The crisis has had a lot of negative impacts to many countries in Europe. Jackson argues that initially, the crisis was viewed by European Union (EU) as a phenomenon of America.

However, its devastating effects changed soon after the European countries saw its impact on the country. For instance, the crises led to a sharp decline in economic activities of European countries over a remarkably short time (Duthel 5). The worst being, it led to a sharp decline in global trade, eroding European prospects of trade. This in turn, provided safety regulator for local industries that are reducing their output. It is a mater of fact that many countries depend on trade for economic growth.

This is one of the reasons as to why European countries should take stringent measures aimed at preventing such a recurrence in financial crisis. Economists still see sovereign debt crisis as something that is continuing in the European countries (Duthel 22). This has impact negatively on the countries affected since it makes it hard for some of the countries to be able to pay off their government debts without seeking third party assistance. This interferes with the smooth running of these countries and thus needs prevention and control measures to abate it.

For instance, in 2009, there was growing fear of sovereign debt crisis among investors. This was because government debt levels were rising at an alarming rate across the globe coupled with government debt downgrading witnessed in some European countries (Jackson 4). The concerns grew from early 2010, calling on the finance minister of Europe to approve a package that could help rescue the nations. This culminated to approval of €750 billion for financial stability in Europe and establishing a European Financial Stability Facility (EFSF).

The concerns also lead to leaders from euro zone signing an agreement in October 2011 and February 2012 aimed at designing measures to help mitigate collapse of European member economies. The agreement signed includes measures requiring banks to make up to 53.5 percent write-off of debts in Greece owed