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The European Sovereign Debt Crisis - Research Paper Example

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The European Sovereign Debt Crisis

In the year 2001, Greece joined the EU (Schafer, 1). Greece had to pay a return rate that was higher than the fiscal market. Originally it had to decrease its debt to obtain a standard rate of fiscal debit in order to join the EU. After a while, the deficit rate became enormous, thus, leading to the rise of the sovereign debt crisis in the year 2009. Therefore, it is arguable to state that is the starting point of the European debt crisis. This paper will attempt to look at the causes and effects of the European debt crisis. How Greece became the origin and what other countries were affected by the situation. Finally, the current state of Europe after the debt crisis shall be analyzed. Greece had one of the fast growing economies and as a result had a massive deficit. As the global financial crisis came to pass, Greece was greatly affected. This was evident especially on the country’s largest industries (tourism and shipping industry). This led to lump sum spending to keep the economy going, but instead the sovereign debt increased with each passing day. ...
External debts of Europeans states are at the center of the recent crises. In general, the debt crisis is associated with the budget deficits being in excess of the values provided by the Maastricht Treaty, and the Stability and Growth Pact (Ludwig Von Mises Institute, 1). These groups only focused on debt and deficit ratio ignoring external debts. Consequently, the laws governing the European Central Bank do not allow single investors and creditors to borrow government bonds in case of a crisis. Eventually, the debt crisis became alarming as the country decreased public benefits (Greece froze civil service salaries and in turn raised taxes and retirement ages). Causes of the European Crisis in Greece Market Problems and Liquidity States retained their control of the budgets, even though, the Maastricht Treaty centralized monetary policy. This enabled the government to watch over the fiscal policy of the state, but with time it was evident that this mechanism had failed. Stein (1) claims that, markets underpriced the default risk. The credibility of the Stability and Growth Pact would be at jeopardy because of the inability to determine the actual deficit. European Debt Due to the unsustainable nature of the debt crisis, major world markets fear that debtors in Greek Land and all around Europe would default. It is evident that most European countries accumulate debt due to their irresponsible manners or behavior. Problems with debt are often caused by lack of competitiveness and anomalies that need orthodox macroeconomic fine-tuning. Therefore, fastened fiscal policies and strict actions are needed to bring things back to normalcy. Economic Fundamentals and European Public Debt ...Show more

Summary

Instructor: Contents Introduction 3 Causes of the European Crisis in Greece 4 Market Problems and Liquidity 4 European Debt 4 Economic Fundamentals and European Public Debt 5 Sustainability in Debt 5 Issues with Collective Actions 5 Political Systems 6 Hazards due to the Debt Crisis in Europe 6 The Current Financial Condition in Europe after the Crisis 8 Conclusion 10 Works Cited 11 The European Sovereign Debt Crisis Introduction The European deficit crisis refers to the inability of some European countries to pay off their government debts without third parties having to intervene…
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