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European Sovereign-debt Crisis - Research Paper Example
Author : jaime03
Finance & Accounting
Pages 6 (1506 words)
European Sovereign Debt Crisis Date Introduction The European sovereign debt crisis is the financial crisis that made it difficult for countries in Europe to repay their debt obligations without seeking help from third parties…
Attempts by international monetary fund (IMF) to avail 750 billion Euros to financially support countries with high debt situation did not mitigate the situation. The paper will, therefore, explore on the causes and evolution of the debt crisis, its impact on the US market, and some interventions undertaken by the US to mitigate the impact. Causes of the Crisis Many factors can be attributed to the crisis that has seen the credit ratings of countries decline and caused shock in the global financial markets. The European Union has been accused of failing to take timely actions and of lingering until the situation ran out of hand. The crisis resulted from a mixture of several complex factors like the globalization of finance, international imbalances in trade, housing bubbles, ease credit conditions between 2002 and 2008 that resulted into high risk lending, and the slow economic growth in the year 2008 (Frangakis, 2006). The factors are elaborated below. a) Increased debt level EU members signed a Maastricht treaty in 1992 where members promised to limit their deficit spending and debt amounts. However, the member countries like Greece and Italy failed to adhere to the agreements of the treaty and instead used complex currency and credit derivatives to increase their debt levels. ...