This website uses cookies to ensure you have the best experience. Learn more

Causes Of Euro Debt Crisis Essay

1257 words - 6 pages

Causes of Euro debt crisis

1. Profligacy of the European Government & Unsustainable Fiscal Policy

Countries including Greece, Portugal, Ireland, Spain and Italy in Europe are now paying a heavy price on their profligate way of spending, as reflected by the Euro debt crisis starting from late 2009. Fiscal policy is the use of government expenses and taxation income so as to influence the economy, while the average fiscal deficits had grown from 0.6% in 2007 to 7% at the beginning of the debt crisis across the Europe (Économistes Atterrés, 2010). Therefore, more and more debts were being issued by the above governments so as to support their national expenses, leading to an ...view middle of the document...

3% in 2012 (Graph 3). Yet, the Greece Government was running out of money and had to default their debts eventually, reaching the highest amount of debts in modern history on 2009 with 300 billion euros (BBC Business NEWS, 2012b). Greece debt holders, mainly governments from the euro zone have to write off the debts then, leading to a loss of capital and affecting their ability to repay their own government debts. As a result, domino effect has raised, where it is a chain reaction that the government in Europe were unable to get pay from the debts they hold and thus have to default their issued debts ultimately.

Figure 1 Government Debt to GDP ratio from countries across Europe

Source: http://www.tradingeconomics.com/greece/government-budget

Figure 2 Greece Government Budget (1995 – current)

Source: http://www.tradingeconomics.com/greece/government-debt-to-gdp

Figure 3Greece Government Debt to GDP (1995-current)

Source: http://www.tradingeconomics.com/government-debt-to-gdp-list-by-country?c=euro+area

2.1 Monetary policy inflexibility

Monetary policies are rulings by the government authorities so as to achieve a target interest rate and keeping inflation under control by controlling the supply of money (Friedman, 2002). However, there is only one single monetary policy being established within the Euro zone. And thus, none of the individual member is able to implement any independent monetary policy that is suitable for their own countries during debt crisis (Cox, 2012). Throughout the outbreak of Euro debt crisis, loosing monetary policy such as increasing the money supply would be helpful to alleviate the crisis. Printing money from the respective reserve bank could devalue a country’s currency and thus being able to repay debt holders and easing the risk of default. On top of that, increase in money supply could be beneficial in terms of making its exports more attractive to foreigners at a cheaper price. An increase on tax revenue based on an increased GDP can then be expected. Hence, this may help to relieve the fiscal deficit by regaining competitiveness even there is a need to pursue deflationary policies (Pettinger, 2011). Yet, it is prohibited for the countries within the euro union to do so.

2.2 Prohibition of devaluating EURO currency

Euro was officially comes into existence on 1 January 1999(BBC News, 2012). While the European Union consists of 27 sovereign member states, and all of these countries used the same currency, “EURO” except Britain. Thus none of its member could adjust EURO based on its own economic conditions. For most countries, the government would devaluate its currency when they face financial downturn. As the lower exchange rate for its currency...

Other Papers Like Causes of Euro Debt Crisis

The Causes And Consequences Of The Russian Crisis Of 1998

2311 words - 10 pages The causes and consequences of the Russian crisis of 1998 The period 1995 to mid-1997 was boom time for Russia’s financial markets. The value of the Russian bonds and stocks soared, with the participation of foreigners in these asset markets increasing rapidly. International investors’ optimism about the country’s future was lifted by stabilization policy that followed the advice of Western institutions. Russian crisis of 1998 were caused

What Are the Implications and Problems That the Eu Have Faced Because of the Recent Eurozone Debt Crisis? What Does the Future Hold?

2954 words - 12 pages member states maintained budget discipline in order t diminish systematic risk and encourage monetary stability. The diagram below shows the euro area where the government gross debt is the most, the most alarming country is Greece as it has a debt of over 125%, most of the countries have 75% or more debt which is a serious matter. There are a group of countries that have been affected by the debt crisis more than other Eurozone countries they

B) What Were Some of the Major Causes of the Recent Global Financial Crisis (Gfc), and What Have Been Some of the Ongoing Economic Impacts, Either Globally or Locally in Singapore, of This Crisis?

3419 words - 14 pages , 2012, pp. 204). The recent global financial crisis began in the year of 2007 and the intensity increased in the subsequent year. Global financial crisis in 2007 happened as result of a number of factors such as government mandated subprime lending, imprudent mortgage lending, housing bubble, securitization and a few other more factors, which will be discussed. Causes The government mandated subprime lending has contributed to the financial

Euro Paper

979 words - 4 pages suggested a complete plan or facility is needed for the rescue fund in order to have financial stability. The Euro zone has caused tremendous debt and increasing high unemployment in several of the countries. Many countries do not want to do business with Europe because of the crisis of the euro zone. According to the New York Times article, the European Union going back to their original currency will be difficult but possible and can make the

Editorial on the European Crisis

1004 words - 5 pages , Susan; Kelly, Kate; Mollenkamp, Carrick (26 February 2010). "Hedge funds are ganging up on weaker euro" (http://www.jstic.com/Newsgroup/WSJE/2010/WSJE_February_26th.pdf). Wall Street Journal. Retrieved 15 August 2012. 9. "State of the Union: Can the euro zone survive its debt crisis? (p.4)" (PDF) (http://pages.eiu.com/rs/eiu2/images/EuroDebtPaperMarch2011.pdf). Economist Intelligence Unit. 1 March 2011. Retrieved 15 August 2012. 10. "Council reaches agreement on measures to strengthen economic governance" (PDF) (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/119888.pdf). Retrieved 15 August 2012.

Discuss and Analysis the Movements in Value of the Euro Against the Pound Since January 2008

2137 words - 9 pages was dragged by the financial crisis in the USA and Iceland. In contrast to the Euro area, the UK had suffered more. The Euro was at 0.74, its weakest point at the beginning of 2008. The reduction of interest rate announced by Bank of England and the UK debt level which was greater than 40% of GDP made the value of GBP depreciated significantly and dropped by 27% (Fig 4). The inflation rate of the Euro area and the interest rate of the UK

Debt Crisis

2404 words - 10 pages since there were doubts about its ability to offset the huge sovereign debt it owed as well as government deficits. This crisis of confidence in Greece resulted in the significant downgrade of the Greek bonds into a junk status as well as the Greek bond yield spreads notably rose (Brutti and Sauré, 2016). The financial unrest gradually spread to the entire European Union zone and the European stocks tumbled, and the euro currency reached 2-year lows

Eurozone

2584 words - 11 pages punishment)” (“The causes: A very short history of the crisis,” 2011). Furthermore, Italy, Spain and Germany, started off with a government debt of 113%, 62.4%, and 61.3% respectively (Roscini & Schlefer, 2012, p.69). Evidently, this illustrates that the European Union, as a whole, was already experiencing critical debt issues, but chose to ignore them in favor of the political agenda, hoping they would disappear. Ten years later, the Euro debt

Greece's Economic State

1515 words - 7 pages finances than they have fluctuating within their own nation. Countries deficits are still increasing after the US financial crisis and it has led to continuous austerity agreements and negotiations to prevent these issues from relapsing. Greece is in a classic sovereign debt crisis and while struggling to fix their deficit, (currently the largest in the Eurozone) this turned to controversial debates whether or not to let Greece free of the euro, or

Financial Crisis

680 words - 3 pages had the most exposure to Greek debt (1.1% GDP of Germany) >> if crisis spreads exposure for Germany is much bigger 10% of GDP (Spanish & Irish banks) >> bailouts showed affect: spreads tightend, sovereign bond market calmed down...“it seemed to work“ ECB: Secrurities Markets Programme (May 2010) interventions in the euro zone public and private debt securities to ensure depth and liquidity for dysfunctional market segments Fall 2010

Pigs Issue

2403 words - 10 pages The root-causes of the Greek sovereign debt crisis Basil Manessiotis paper presented at the 2nd Bank of Greece workshop on the economies of Eastern European and Mediterranean countries Athens, 6 May 2011 1 Introduction To better understand the current sovereign debt crisis in Greece, a longer view is warranted The 20 year period 1989-2009 is bounded by two major fiscal crises in Greece: the 1989-1993 crisis, and the ongoing crisis

Related Essays

Causes Of The Sovereign Debt Crisis

2475 words - 10 pages In the immediate aftermath of the financial meltdown in 2008, the global crisis has made an important shift. By then not the private banking sector, from where the financial crisis originally emerged from, but sovereign states face the risk of default. In order to analyse the multifaceted character of the European sovereign debt crisis, this essay focuses on its systemic causes. Contrary to the argument of popular Northern European politicians

The Debt Ceiling Crisis Of 2011

2512 words - 11 pages humiliate the opponent, rather than solve the debt crisis in attempts to serve their political agendas. Both sides were doing their best to defend their positions and reputations in fear that if they did not their party would lose American support and the election. At times, it appeared that there was a lot of confusion in who said what and a lot of reneging. Everyone in the debate took their turn in shifting their positions as the talks continued

Causes Of The Indonesian Financial Crisis

1195 words - 5 pages Causes of the Indonesian Financial Crisis When the financial crisis hit Asian countries in mid-1997, Indonesia did not escape the impact. It became one of the worst hit countries during the crisis. The question to be answered is what really caused Indonesia, which at the time had a magnificent economic growth to collapse along with most of Asian countries. This paper studies the factors that may be causing the crisis and how the combination of

The Real Causes Of The Syrian Crisis

971 words - 4 pages The Real Causes Of The Syrian Crisis The Syrian conflict is one of the most top issues at the moment, because now, after that in Syria was used chemical weapons it affects all worldwide. The Syrian civil war or Syrian uprising or also known Syrian crisis is an ongoing armed conflict in Syria between forces loyal to the government and those seeking to out it. It all started 15 March, 2011 with demonstrations which were part of the wider