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European sovereign debt crisis DURING 2010-2011 - Essay Example

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European sovereign debt crisis DURING 2010-2011

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 ...Show more
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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…
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