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The EMF must, therefore, employ a more intelligent approach than that previously employed by its predecessor. During the period the EFSF was in existence, the interest rates charged were extremely high. For instance, in the case of Ireland, the interest rate charged by the EFSF on the Irish rescue program was up to six percent. The effect of this was very unfortunate: first of all, it made the Irish government experience hardship when trying to reduce its budget deficits that would consequently reduce the debt accumulated. Secondly, the EFSF charged Ireland an interest rate that was three percent above what had been charged on Germans, Dutch, and the Austrian government, which is a risk free rate. Simply put, what the EFSF did sent the signal that with such rates there was a risk of default. Meaning, the government of Ireland was not in a position to recover and put its budgetary situation in order. This should explain why the financial market developed mistrust that led to them also charging high risk premiums that consequently led to a high risk of default (Degrauwe p12).
It is not easy for governments to borrow money from the Eurozone in their own currencies. This is because there are quite a number of challenges that countries face by going this direction. One major challenge is that the European debt crisis is treated as a series of a country’s individual problem and not as a collective responsibility that has occurred as an outcome of systematic problems in the Eurozone. This makes the economic sovereignty of a member state become vulnerable whenever they are in debt. This is because unfavourable market sentiments can force them to default. This may lead a country to a situation of being in unstable as a consequence of high interest rate. The high interest rate on a country means that domestic lenders will also have to demand high interests on borrowers and this is what leads to economic crisis (Degrauwe p12).
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The paper is an attempt to research about the effect of the economic crisis of Greece in the world economy. The economy of Greece, which was a fastest growing one from the year 2000 to 2007, faced severe downturn from the late of 2009. The economy was flooded by the foreign funds in those years. The burden of Greece surpasses €340 billion and this is expected to increase which is more than the economy of Greece.
13 Print. 13 13 The European Sovereign Debt Crisis during 2010-2011 Background of the Financial Crisis The ‘Sovereign Debt Crisis’ is a serious havoc in the securities’ global markets, which make it difficult for universal “European Monetary Union” associates, to fund their budgets (Viana 2).
For instance, countries have budgets to, which require expansive engagement with other countries to achieve reasonable growth and prosperity. Countries also have security demands, which they can only address when cooperating with others. In addition, countries have populations that always demand jobs to generate income for sustenance over particular period.
stem, economic reasons that will provide the readers a good explanation why the market value of gold remains the same but not the market price of houses will be highlighted in the study.
The study of microeconomics enables us to understand the basic interaction between each
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