Kurt Lewin

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Contents
Introduction…………………………………………………..2 The External Factor…………………………………..……..2 The Internal Factor…………………………………...……..3 The effect of European crisis on China………………..........7 China should use some methods to avoid effect of crisis…..9 Conclusion………………………………………………..….10 References…………………………………………………..11

Introduction
The European Crisis is the European sovereign debt crisis, which refers to the debt crisis in Greece and other EU countries occurred after the 2008 financial crisis. It is no doubt that Greece triggered the European sovereign debt crisis. In 2001, Greece reached the requirements of the budget deficit rate. In the same year, Greece joined the euro zone. But in this process, however, the Greek paid a quiet huge cost. Specifically, in order to reduce its own foreign currency debt, Greek government assigned a currency swap agreement with Goldman Sachs. Through the currency swap agreements, Greek reduced its foreign currency debt to achieve a sufficient rate of fiscal deficit to join the euro zone. But viewed the agreement signed with Goldman Sachs, Greece must pay the higher rate of return than the market price for a long time in the future. Over time, the Greek deficit rate will obviously become stagnant state, which led to the formation of the sovereign debt crisis in 2009.( Chunyan Zhao, (2007)) The External Factor

Since the eruption of subprime mortgage crisis in the summer of 2007, both developed countries and developing countries have generally adopted the double loose monetary and fiscal stimulus policies. In a certain period of time, the method was effective to inhibit the global economic downturn. But at the same time, due to the massive debt, the debt burden of Governments in the world greatly improved, especially for some European countries which were deeply in debt because of complex population structure were even worse. Europe sovereign debt crisis, under this particular context, erupted accidentally and inevitably. (Bank for International Settlements,2010) Greece was the first fall domino. The direct cause is that after the new Greek government coming to the power in November, 2006, the new government found that the previous government covered up the true financial position. The new government increased the budget deficit by the expected 6% to 12.7%, which is much higher than the 3% limit of the provisions of “the Stability and Growth Pact”. The disclosure of the message quickly led to Fitch, Standard & Poor's and Moody's, the credit rating agencies, have downgraded Greece's sovereign debt rating. In April 27, after the Greek government announced a higher-than-expected budget deficit, the Standard & Poor's adjusted the debt rating of Greek government from BBB + down to BB +, which means, under normal circumstances, the debt under this rating cannot access to any finance. Subsequently, the Portugal and Spain Treasury credits also have been downgraded. The same poor financial position of Ireland and Italy also caused concerns in the market. As a result, the financing costs of the parties five countries (GIIPS) greatly increased: on the one hand, the five countries of sovereign CDS (credit default swaps, which to some extent reflects the risk of default on its debt) made a sharp rise and the emergence of volatility since the beginning of the year. At the same time, the 10-year Treasury bonds of GIIPS five countries spreads (relative to Germany) also increased sharply, especially Greece staggering. Although the market, in the short term, gave a positive assessment for European authorities because of launched the € 750 billion European Financial Stability Fund on May 10 this year, GIIPS five countries financing costs remained at a high level. Throughout the beginning of the international financial crisis since 2007, the first stage began in the private sector in the sub-prime, and the landmark event was the collapse of Lehman Brothers. Now the debt problem can...
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