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European Financial Crisis - Essay Example

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In many countries, it was a result of private debts that were caused by a property bubble. The debts were transferred to the government with after…
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European Financial Crisis
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European Financial Crisis

Download file to see previous pages... It did this for years and no country raised a hand to punish Germany. The financial crisis started back in 2007 characterized by a long phase of quick credit growth, low risk premiums, profuse liquidity and the growth of real estate bubbles. Overstretched leveraging made financial institutions susceptible to corrections in asset markets, according to Kolb (113).
The parties that carry the most responsibility for the European economic crisis in the financial sector were banks. Banks in Europe had invested heavily in extremely complex, opaque and highly priced financial products (Van Den Noord 12). Many banks became uncertain of the credit worthiness of their counterparts who had engaged in such investments. This virtually resulted in the closure of the interbank market with risk premiums soaring on interbank loans. As a consequence, the banks faced grave challenges in rolling over their short term debt. In Ireland, for example, the banking system achieved exceptional growth thereby creating external debts far beyond the country’s gross domestic product.
In the government sector, the structure of the Eurozone was widely to blame for the economic crisis. The zone uses one currency, and in the absence of fiscal union, the ability of leaders to respond adequately remained quite limited (Van Den Noord 23). Different countries failed to abide by the fiscal paths or requirements of the union. Governments are also to be blamed for the crisis considering that they did not deal with their over expenditure before the situation got out of control. In Greece, for instance, the government made great commitments to its public workers and gave them huge pension benefits and wages. Governments also borrowed so much from banks.
The Eurozone financial problem is a detachment of a global problem. The global problem is all about lack of equilibrium between the private sector ...Download file to see next pagesRead More
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