This was recorded to spread to Greece, Portugal and Ireland at the wake of 2009. This led to the business and the economies’ collapsing and the investors lacking confidence in these economies and this led to the further increase of the public sector debt. The public fiscal balances have faced substantial collateral damages since the 2007 global debt crisis. (Mitsopoulos, M. and Pelagidis, T. (2010) II. Background of the Crisis The crisis majorly erupted in the 2009 autumn season when there was bad governance in the euro zone as well as Greece. The roots of this had come in the previous decade where there was major borrowing in the international capital markets to fund the government budget and the current account deficit. The structural rigidities, weak revenue collection policies, strategies and the profligacy of the Greece government led to this heightened debt crisis. The newly elected government revised the budget to almost double in October. The investors were not pleased by this but the government tried to sell its bonds to the international market which fared well until the euro stat and the European union statistical agency had to go back at it and downgraded its bonds again. The nation then had a great debt in relation to its GDP. There was a weak coordination and management as regards the dealing with deficit. This was seen as the major reason why the debt was not controlled. III. Reasons behind the financial crisis The policies that were put in place were not the right ones to deal with the issue. To make the matters worse, the government wrong timing in the disclosure of the 2009 fiscal deficit to be below 10% and the proclamation that it would rise was sickening as this led to the investors lacking confidence and even lenders to be reluctant in offering loans to Greece. There was ever abundance on ambiguity in the budget lines. The budget lines were used to show the grouped spending items within the division of public administration the management was seen to lack competency and inefficiency due to the ambiguity that mislead the lenders and the investors driving in more fears among them. The officials lacked the knowledge required in the evaluation of the policies against the government preferences. (Mitropoulos & Pelagidis, 2010) These programs have been progressing at a very slow tempo and have, therefore, derailed the reform programs in the health, labor culture and pension schemes and for such reasons, the country has been facing major structural unemployment in the last decade especially among the young people. This has been compensated by the GDP in regard to the feeble laws that have been imposed. (Schneider et al., 2010) On April 23rd 2010, the Greek government made an official request to be assisted by the IMF in conjunction with the euro zone countries because its statistics had shown a major crisis in its part to raise the funds to repay what they owe other countries. IV. Body Portfolio Theory and CAPM Due to situations like the ones facing the European market, investors have come up with various ways to determine pricing of their stocks and manage their risky portfolios alike. Some of the theories used under such are Portfolio theory and CAPM. These are expounded as per the following paragraphs. Portfolio theory is a theory that is centered on the process through which any given investor can make up portfolios that maximize the
Name: Tutor: Course: Date: University: Contents I. Introduction II. Background of the crisis III. Reasons behind the Financial Crisis IV. Body -Portfolio Theory and CAPM -Woes to the Economy V. Central Bank Measures VI. Conclusion I. Introduction There was a European sovereign debt crisis that raged this region in 2010 and 2011…
In order to increase productivity and competition in the European Union, a single currency was to be inculcated in the project of European Single Market. In addition, this would offer a monetary policy with credible inflation targeting for those countries that had been marred by the challenges associated with high inflation rates.
t bonds loses value. Banks typically seek to earn income on funds that they are required to keep as capital reserves on loans through low risk investments such as U.S. Treasury Bonds and other sovereign debt instruments. In Europe, it is expected that the major banks may have excessive exposure to Greek, Spanish, Italian, Portuguese, and other bonds from countries who face an increasing risk of defaulting on their debt.
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).
The sovereign Crisis began because of the dysfunction of the monetary union of the states within the Eurozone in addition to the politicizing of the economic control in Europe. The Impact of the European Sovereign Debt Crisis includes the reduction of the bond yield in the United Kingdom.
What Were The Main Causes of The Eurozone Debt Crisis of 2010/2011, and What Have Been The Significant Policy Responses To That Crisis?
The conception of debt crisis can fundamentally be defined as a massive public debt that is not repayable by any particular nation or a national government and ultimately seeks for financial aid from other countries or any financial institutions (Pescatori and Sy 2004).
However, Wallison (2012, p. 71) expressed the view that “in a true sovereign debt crisis, a country cannot meet its debt obligations, largely because it does not have enough of the currency in which its debt is denominated.” The European sovereign debt crisis began in 2008 with the banking crisis in Ireland with the contagion of the crisis spreading out to Greece, Ireland and Portugal in 2009 (Investopedia 2012).
In the second part, the essay will try to analyze the relationship between sovereign debt default and capital market modelling of banks with the help of research reports of Goldman Sachs Global Economics, Organisation for Economic Co-operation and Development or OECD.
The euro’s value is deteriorating on a daily basis and the costs involved in protecting commercial bonds are on the increase. The values of capital goods have also been on the decline around the globe. There has been an increase in the investors’ fear concerning the market trends around Europe.
een apparent from the working paper of International Monetary Fund (IMF) that since early 2010, the Eurozone had faced significant effects from the recent debt crisis. The countries belonging to Eurozone that have subsequently faced the major debt crisis included Greece,
e governments of the few countries, notably Greece, Ireland and Portugal to address the financial debt crisis dating back to the year 2000 eventually became the major cause of the European sovereign debt crisis (Beirne and Fratzscher, 77). However, the major question that
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