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EUROPEAN FINANCIAL CRISIS AND FINANCIAL MARKETS - Essay Example
Finance & Accounting
Pages 6 (1506 words)
This paper analyzes the impact of the Euro zone debt crises on the financial markets. This paper analyzes the impact of this crisis on the equity market, and the bond market. This paper seeks to answer the question: What was the impact of the European Financial Crises on the bond and the equity market?
Acharya (2013) observes that a combination of factors led to the emergence of the European Union Financial Crises of 2010-2013. These factors include availability of easy credit conditions which occurred during the periods 2002-2008, and they led to high risk borrowing and lending practices. Patomaki (2013) believes that other factors include globalization of finance, imbalances in international trade, poor governmental fiscal policies, the economic recession of 2008-2012, and ineffective methods used by these nations to bail out troubled financial institutions. Acharya (2013) observes that the European financial crises had began unfolding late in 2009, when the government of Greece gave a revelation that previous governments did not give accurate reports of their budget deficits.
In fact, they were under-reporting the financial position of the country. The revelation of this under-reporting occurred during the first quarter of the year 2010. During this year, the government of Greece gave a revelation that the 2009 budget deficit was 12.7%, and not 5%, as reported by the previous government (Patomäki, 2013). Roth (2013) denote that the Maastricht treaty made a provision which required parties to the treaty to maintain a budget deficit which is lower than 3% of the country’s GDP. Greece had a debt of around 400 billion pounds, and the French government owned 10% of this debt (Roth, 2013). This debt crisis spread to other smaller countries such as Portugal, Ireland, and Spain. Tyrie and London (2012) denotes that this crisis led to economic imbalances within Euro zone countries. ...