StudentShare solutions
Triangle menu

European Debt Crisis - Essay Example

Not dowloaded yet

Extract of sample
European Debt Crisis

According to Investopedia (2012) the crisis led to the reduction of the confidence of the market for European businesses and economies. In contrast, according to the version of Constancio (2012), the European sovereign debt crisis emerged only in spring 2010. The European sovereign debt crisis is the climax of the banking crisis resulting from the demise of the Lehman Brothers and the resulting bailout extended by governments to their banking system (Constancio 2012). In other words, it is held that the European debt crisis started out as a financial crisis from the Lehman Brothers. In the climax of the crisis, government was forced to support the financial system, creating large debts for government leading to the sovereign debt crisis. II. Impact on bond and other markets (equity, derivatives, commodities, forex, gold, etc.) Constancio (2012) has a good discussion on the emergence of European sovereign debt crisis and its impact on the financial markets. We use his interpretation. After the failure of the Lehman Brothers, the ECB or the European Central Bank implemented a policy of strong credit support and measures to boost liquidity way above than what could be achieved by a mere interest rate policy. The European government implemented measures to increase the maturities for debts, more access to foreign currencies and a program of bond purchases. The European sovereign debt crisis became severe with Moody’s downgrade of Portugal on 5 July 2011 (Constancio 2012). The situation plus the risk of a Greek default triggered a sell-off of Italian and Spanish assets. The initial effects of a sovereign debt crisis are for bond yields to go up. However, investors find it appropriate to reduce their exposures to government bonds in view of risks that governments may not be able to pay for their debts. Simultaneously, markets can expect that the foreign exchange markets can be affected substantially as demand for currencies affected by the crisis can significantly go down, proportional to the perception of the extent that the would be affected by the sovereign debt crisis. The effect on the foreign exchange market is important as the effects reverberate on the equities, commodities and derivatives markets. Expected depreciation of currencies affected by the sovereign debt crisis can lead to falling equities, commodity prices and derivative prices. However, as markets are interrelated, or as companies in one country may have investments in companies directly affected by the sovereign debt crisis, all of the financial markets are affected. The more correlated the companies in a region, for example, the more the rest of the markets are affected by the sovereign debt crisis in one country and soon, especially as governments respond to the crisis with bailouts and enhanced liquidity, the correlated governments and economies are affected by the sovereign debt crisis and not only the countries that were initially affected by the sovereign debt crisis. In contrast, to the extent that gold is seen as a store value of value, gold prices can pick up and enjoy a better market. When the financial markets are in doldrums and gold is seen as the better store of value than the bonds, equities, commodi ...Show more

Summary

On the European sovereign debt crisis I. Introduction A popular definition of the European sovereign debt crisis is that it is a situation in which several European countries face a risk of a breakdown in their financial institutions, deterioration of the problem of their large government debts, and condition of bond yields rapidly shooting up (Investopedia 2012)…
Author : frederick21
European Debt Crisis essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"European Debt Crisis"
with a personal 20% discount.
Grab the best paper

Related Essays

The Origin and Significance of European Sovereign Debt Crisis
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.
12 pages (3000 words) Essay
The European sovereign debt crisis during 2010-2011
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.
8 pages (2000 words) Essay
The European sovereign debt crisis during 2010-2011
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).
8 pages (2000 words) Essay
European sovereign debt crisis DURING 2010-2011
Defaulting loan creditors increased in number across the continent of Europe and this led most banks’ grappling with what their next move would be. The financial institutions of many European countries collapsed; there was increased government debt. This began in the early 2008 with the banking system of Iceland collapsing.
8 pages (2000 words) Essay
European Sovereign Debt Crisis
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.
5 pages (1250 words) Essay
Recent European Foreign Debt Crisis
The crisis was preceded by clement fortunes of low risk premia, rapid growth in credit, abundant liquidity and growth in real estate bubbles (Jackson 1). Many financial institutions in Europe were rendered susceptible to asset market corrections by overstretching leveraging position.
4 pages (1000 words) Essay
The European sovereign debt crisis
Many European countries under the Maastricht have clubbed together their monetary authorities under the rules and regulations of the European Central Bank (ECB). All these nations were combined together and were known as the European Monetary Union (EMU).
6 pages (1500 words) Essay
European Sovereign Debt Crisis
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.
2 pages (500 words) Essay
The European debt crisis of 2009

A similar type of crisis also emerged in Europe wherein major countries of the EU bloc started to face serious debt crisis wherein high government debt became a cause of concern. The crisis started to emerge when, during 2009, a group of 10 central banks of the bloc asked for a bailout package owing to their inability to pay off debt.

2 pages (500 words) Essay
The European sovereign debt crisis
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
8 pages (2000 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation