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In October 2009, the beginning of the global financial crisis in addition to Greece public debt admittance, glimmered shock throughout global markets as the full extent of Euro zone debt levels occurred (3). This paper will analyze the causes of this debt crisis, possibility of its persistence, its implications as well as some mitigation measures to curb the crisis.
In May 2010, Greece became the first EU country to get assistance from EU and the IMF worth 110billion Euros. Some of the Greece greatest matters that have continuously led to debt crisis have been its high level of public debts and its augmented budget shortfalls. In the year 2001, Greece already had a public debt beyond 100% of GDP, when it was joining the Euro. The adoption of the euro currency facilitated more approving terms for the refinancing of government debt, and the augmented GDP growth. However, Greece faced certain limitations, for instance impossibility to diminish the currency due to being members of the euro zone, and the lack of aggressiveness of its economy partially because of over hiring and overpayment in the public domain (Minescu, 99).
In Italy, the global recession tightly shook trade activities, credit as well as trade confidence. The global decrease in demand reduced Italy’s sales overseas, constricting Italy’s private expenditure and productivity. In addition, the country’s joblessness rate persists to be the lowest amongst Europe’s debt-ridden nations. However, terror of adverse market reactions has restricted Italy’s capability to use economic policy to encourage its economy. By the year 2010, the general public debt increased to approximately 116.7% of GDP (Sandoval et al, 7).
In Ireland, the global financial crisis hit the country in a very different way from the other affected countries. In Ireland, there was no compound plagiarism or the shadow banking systems. In the past decade, Ireland became a country of property developers and that is the only
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“Debt Crisis in Europe Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1581481-debt-crisis-in-europe.
In order to increase productivity and competition in the European Union, a single currency was to be inculcated in the project of European Single Market. In addition, this would offer a monetary policy with credible inflation targeting for those countries that had been marred by the challenges associated with high inflation rates.
Executive Summary Europe has experienced two interrelated crises over the past few years namely the banking crisis emanating from capital market security losses, as well as homegrown boom-bust problems and the sovereign-debt crisis that was caused by recession experienced in the region.
Ultimately, cheap credit was easily available to banks for borrowing. Details of the Crisis Shadow Banking comprises of financial institutions such as investment banks which do not come under the category of commercial banks and hence were not regulated by the US federal government.
The crisis was preceded by clement fortunes of low risk premia, rapid growth in credit, abundant liquidity and growth in real estate bubbles (Jackson 1). Many financial institutions in Europe were rendered susceptible to asset market corrections by overstretching leveraging position.
However, Wallison (2012, p. 71) expressed the view that “in a true sovereign debt crisis, a country cannot meet its debt obligations, largely because it does not have enough of the currency in which its debt is denominated.” The European sovereign debt crisis began in 2008 with the banking crisis in Ireland with the contagion of the crisis spreading out to Greece, Ireland and Portugal in 2009 (Investopedia 2012).
In the second part, the essay will try to analyze the relationship between sovereign debt default and capital market modelling of banks with the help of research reports of Goldman Sachs Global Economics, Organisation for Economic Co-operation and Development or OECD.
The euro’s value is deteriorating on a daily basis and the costs involved in protecting commercial bonds are on the increase. The values of capital goods have also been on the decline around the globe. There has been an increase in the investors’ fear concerning the market trends around Europe.
he Greece deficit was the first explicit sign that the Euro-zone was facing and had been facing severe problems in their financial structure and regulations, and these problems would go on to affect all the nations in the European nations.
The European Sovereign debt crisis
8 Pages(2000 words)Essay
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