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European Sovereign Debt Crisis - Essay Example

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The debt crisis has had many implications on various markets ranging from bonds, gold, equity, forex and other derivatives. The crisis resulted in the underwriting of bonds since many financial institutions had purchased them from the weak economies within the union. These countries in return did offer little premiums that seemed secure (Eichengreen, 2002). These bonds continued to pose more risks as the effects of the debt crisis worsened. The prices of gold, forex, equity and other stocks across the union have also been undervalued because of the debt crisis. This is because the countries that are enjoying growth are being forced to lag behind by the countries at the heart of this crisis.
The concept of sovereign default refers to the failure by the authorities in an independent country to repay their debts completely. This could also result in the occurrence of a debt crisis in the independent nation (Manasse, Schimmelpfennig and Roubini, 2003). When the lenders perceive a country as refusing to repay their debts they demand higher rates of interest from them. This is due to the risk of defaulting on these loans. A country defaults on the repayment of their loans mainly due to bankruptcy and the collapse of the previously ruling regime. In Russia, the collapse of the Communist regime left the individual states bearing the burden of the previous communist bloc.

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Summary

The European Union’s inability to handle the debt crisis in Greece is shaking the financial markets across the entire continent. The impacts of the debt crisis are being felt across the money, valuing of capital and derivatives…
European Sovereign Debt Crisis
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