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The European sovereign debt crisis during 2010-2011
Finance & Accounting
Pages 8 (2008 words)
The European Sovereign Debt crisis during 2010-2011 Name: Class: Date: Table of Contents Table of Contents 1 Introduction 2 Political Dynamics of the Eurozone Economy 3 Financial Threat to Banks from Sovereign Debt Holdings 4 The PIGS – Portugal, Italy, Greece, and Spain 6 The Greek Sovereign Debt Crisis and Effect on the Stock Markets 7 Correlation of Global Financial Markets & Hedging Risk 9 Conclusion 10 Sources Cited 11 Introduction The European Sovereign Debt Crisis has been a main factor in stock market performance in the years 2010 – 2011, primarily because of the large potential exposure that global banks may have to capital losses if the sovereign debt that they hold in governmen
Historically, when a sovereign nation’s governmental debt exceeds the annual GDP of the country, the risk increases proportionately that the country will default on all or a portion of the debt requirements, particularly in the circumstances where the debt instruments are held by foreigners or in another currency than the national coin. The ability of sovereign nations to generally print money without formal external control is well established and the example of Zimbabwe is an extreme example of this, but the United States has also reached a debt level that is over $15.5 trillion USD or near 100% of the annual GDP outlook, while the economy is also declining and recessionary,. The U.S. Federal Reserve may also print money to bailout banks in the U.S. and abroad, as it has done following the Lehman bankruptcy, but the Eurozone situation is more complex. ...
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