Greek Debt Crisis

Topics: European Union, Eurozone, Debt Pages: 11 (3532 words) Published: January 19, 2013



1. Preface
2. Introduction
3. Aims and Objectives
4. European Debt Crisis
▪ Greek Debt Crisis
▪ Causes of the Greek Debt Crisis
▪ Effects of the Greek Debt Crisis
▪ Solutions to the Greek Debt Crisis
5. Research Methodology
6. Conclusion
7. References


Europe's debt crisis is a continuation of the global financial crisis and also the result of how Europe attempted to solve the global financial crisis that brought an end to a decade of prosperity and unrestricted debt. European attempts at defending itself against a deep recession, has now created a new crisis of unsustainable and un-serviceable sovereign debt. In early 2010 fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning some European states including European Union members Portugal, Ireland, Italy, Greece,  Spain,(affectionately known as the PIIGS) and Belgium. This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany. Concern about rising government deficits and debt levels across the globe together with a wave of downgrading of European government debt has created alarm in financial markets. The debt crisis has been mostly centered on recent events in Greece, where there is concern about the rising cost of financing government debt. On 2 May 2010, the Euro zone countries and the International Monetary Fund agreed to a €110 billion loan for Greece, conditional on the implementation of harsh Greek austerity measures. On 9 May 2010, Europe's Finance Ministers approved a comprehensive rescue package worth almost a trillion dollars aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility. Europe's heavyweights spent massively on stimulation packages. However such attempts at defending themselves against a deep recession, has now created a sovereign debt crisis. The crisis in Europe has to do with the fear that some countries may be unable to pay back their use more money than they earn. Governments were able to borrow so cheaply in the past decade that running a deficit was often used to stimulate economic growth. One of the ways governments can raise money is through selling bonds, which are bought back after a number of years with interest added. Interest on government bonds has been low for most European countries because bonds were considered secure investments. The market worked on the assumption that governments would always be able to afford buying them back. But what if a country can’t pay back their loans? If a business or individual is in this position, they default and are found bankrupt. But countries can also default on their loans. Argentina defaulted on almost $100 billion of debt owed to the World Bank in 2002. Unemployment soared to 25 percent, GDP dropped by over 10 percent and the Argentine peso lost half its value overnight. This is the scenario that European leaders wanted to avoid when in 2009 concern started to mount over Greece’s ability to pay off its debt. Should Greece default, it would probably be forced to pull out of the euro with unknown but potentially grave consequences for the global economy debt. But debt in itself is not always considered a problem and European governments often.


A DEBT CRISIS deals with countries and their ability to repay borrowed funds. Therefore, it deals with national economies, international loans and national budgeting. The definitions of "debt crisis" have varied over time, with major institutions such as Standard and Poor's or the International Monetary Fund (IMF) offering their own views on the matter. The most basic definition that all agree on is that a debt crisis is when a national government...
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