European Sovereign-Debt Crisis

Topics: European Union, United States public debt, Eurozone Pages: 5 (1763 words) Published: November 12, 2012
European sovereign-debt crisis is still going on in some countries in eurozone, such as Greece, Spain, Ireland, Portugal. The origins of these crises started from Greece when the government borrowed a huge amount of money from foreign investors and was unable to repay. As a result, a financial crisis started to hit Greece as the starting point of the crisis over countries in Eurozone. While the old deutschmark (DM) bloc – Germany, France, etc. experience lower than average growth and inflation, the Eurozone experienced the contrary. In general, instead of global factors as the causes of the crisis, the Eurozone itself should hold responsible for the start and spread of the crisis.

European sovereign-debt crisis is still happening within Europe, which gave some of the countries in the euro area a hard time to re-finance their government debt unless they are supported by third parties. There are many factors that cause the ongoing European financial crisis. Many countries within Eurozone have been affected by sovereign debt crisis due to the raise of government debt level or private debt sector. Although this ongoing crisis has happened in some of Eurozone countries, it gave a huge impact for the area as whole in general. This paper will be analyzed whether global factors or domestic factors are to be responsible for the origins and the spread of the ongoing crisis.

II. The origins of European sovereign-debt crisis and causes:
In 2008, the world hit crisis due to bad banking practices. Both Eurozone bank and American bank faced the same problems as they gave many people loans even they were not able to repay. However, the crisis in Eurozone happened as a result of the system European Union deals and does their trade policies. During the period of 2002-2007, a major increase in savings was available for investment, which became one of the factors that caused the crisis. There are four main issues that we need to consider to analyze the roots of the crisis, which are the high level of government debt, trade imbalances, economic recession with high unemployment and loss of confidence. (Wikipedia) Since late 2009, the current Eurozone crises have been happening and spreading around the Eurozone. Firstly, Greece debt crisis quickly transformed into crisis of the entire Eurozone is the result of the Greeks government borrowing a huge amount from foreign investors and banks. Consequently, how each European country was related to this crisis had a loan of and spent the money varies. The worst result from the sovereign debt crisis is when the nations have the only option of default. It is involved the interconnection in the global financial systems. It forces the banking systems of credits a big loss. In 2010, many economists believed that a high government debt level was the main factor of European crises. That was quite a wrong statement as only Greek government borrowed big money from private and foreign bank and investors. The rest of European areas are related to other factor, mainly interacting with trade imbalance within EU countries and banking problems. Before the crisis, EU kept interest rate low and money was flowing from Northern are to Southern are of Europe. It is not about how much they can borrow; it is about how low the ECB made the interest rate. There are also concerns about lacking of growth and high unemployment in the Eurozone, especially among the Eurozone periphery. Speaking of trade imbalances, the major result of it is based on the build-up of public debt in the periphery. The policy responses was failed to correct these imbalances. The main focus is about how to improve the competitiveness of these countries to reduce their cost of production and boost exports. The question is what role Eurozone countries help to lower their trade surpluses. Investors were threatened by higher interest rates from some governments with higher debt levels, deficits and current account...
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