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"Using appropriate theories, outline how the debt problem in Europe evolved over the period 2013/14, and access responses by governments and institutions to various key events"
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It states that the European debt crisis was simply caused by overspending by European governments in the last decade.
The European Central Bank enabled non-naturally low risk premiums on interest rates of government debt belonging to the so called PIILDS countries which are Portugal, Italy, Ireland, Greece and Spain. The self made low rates smooth the progress of overspending and encouraged the overspending that led to a huge dept problem in Europe. Economist realized that overspending had occurred when they noticed a reduced economic growth and the consequent reduced tax revenues that were a reduced amount of the amount needed for the debt payment and disbursement.
There was a concern that came up at the start of the debt crisis that was acted upon by foreign-exchange traders. The concern was that if Portugal, Ireland, Italy, Greece governments fail to pay their debts; the euro would decline in value. The assumption was not logical because the euro would raise not fail, in the face of government not paying the debts. In the case of default, two possible scenarios are possible. The first one is that there will be monetary deflation due to a decrease in the money supply, in this case that no single government takes any step to intervene in the situation. The second scenario is monetary inflation of the money supply. In response to this debt crisis a rise in bond yields.
The reason behind the rising bond capitulate is straightforward, if financiers see an elevated jeopardy related with investing in a country’s bond; they will have need of a higher return to pay compensation for that risk. As a result the claim for higher yields links to higher borrowing cost for the country in crisis, that leads to further fiscal strain which prompts investors to demand for higher wields.
We need to know what actions the European governments and the European Union have taken to solve this problem. The
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The turmoil in the region has undeniably brought down governments, pushed numerous countries into a second recession and put out in the open deep-seated rifts between regions (World Bank 2009, p.13). Notably, fears of this sovereign European debt crisis assumed its shape as the sun was setting in 2009; a time at which the crisis proved to be quite challenging for countries such as Ireland, Greece, Portugal, Spain and Italy for them to honour their dues or even refinance their debts to the lenders in the region (the eurozone lenders) (Tran 2012, p.1).
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