EUROPEAN DEBT CRISIS

Are Global or Domestic Factors To Blame For The Origins and Spread of The Sovereign Debt Crisis In The Eurozone?

Are Global or Domestic Factors To Blame For The Origins and Spread of The Sovereign Debt Crisis In The Eurozone?

European Sovereign Debt Crisis

The euro officially came into force on 1 January 1999 as a virtual currency, in bank accounts and wire transfers denominated in euros and three years later was made ??concrete step in working capital: euros in your pocket instead of francs, marks, lire. The euro has become a major international currency: euro banknotes began to circulate around the world, and the bond market in euros soon began to compete with the dollar bond market. The creation of the euro has instilled a new sense of confidence, especially in those European countries that were historically considered as risk countries for investment. The ECB's monetary policy has been based primarily on the needs of Germany: the lack of domestic demand caused by the German policy of moderation and wage tax required rates of interest low enough, that do not depress it further. The real rates, however, were much lower in peripheral countries, characterized by a structurally inflation above the European average. These countries, which previously had high rates, were taken by the euphoria of loans. Capital flows have so cheaply produced a building boom and a household debt in Spain and Ireland, and the public sector in Greece (Wearden, Graeme, 2011, p. 8).

In Greece it was mainly the government to turn large loans: during the years of easy lending, the Conservative government greek did a lot of debt - more than what is permitted by the Stability Pact. When the government changed in 2009, accounting tricks came to light, and suddenly it appeared that Greece had a deficit and a debt substantially much larger than previously thought, with a consequent crisis of confidence among investors who comiciato to demand higher yields to buy government bonds greek, increasingly aggravating the situation. Greece is actually a case is not representative. Only a few years ago, Spain, by far the largest economies in crisis, was a member of the European model, with a balanced budget and public debt as a percentage of GDP was half of that came the German. The same is true for Ireland. And then what happened?

Thanks to low interest rates, these countries have had a housing boom: the construction is a stimulus of the economy and in fact these countries have grown, but at the same time also grew in nominal wages and prices. In Ireland, house prices have increased from 1998 to 2007 by 180 percent. Even in Spain, prices rose almost as much. Productivity in some of these peripheral countries has grown more than in Germany, but since nominal wages grew more than productivity, these countries lost competitiveness relative to Germany, where the nominal wage growth was rather slower than the growth in productivity. Germany and his entourage (Austria, Netherlands, ...