Euro Debt Crisis

Euro Debt Crisis

Introduction

The sovereign debt crisis in the euro zone, also called euro crisis or crisis of the euro area, is a series of events that have affected negatively from the beginning of 2010 to the 16 EU member states that make up the Euro zone, that is, that have adopted the euro as single currency and interweave a monetary union multinational within the European Union. During this period the states of the Euro zone have been facing an unprecedented crisis of confidence (Della & Talani, 2011), with speculative attacks on government bonds of various members, turbulent financial and stock markets and a falling exchange value of the single currency, in a context of uncertainty and difficulty to reach a collective agreement that still persists.

Thesis Statement

The purpose of the paper is to highlight the importance of Euro Debt Crisis in the economic history of Europe. Similarly, the researcher aimed in finding the different possible factors that lead the Europe towards the debt crisis.

Discussion

Role of Greece

The researcher started the paper by highlighting the beginning of crisis. The crisis began with the spread of rumors about the level of debt of Greece and the risk of default of the Government. It was revealed that for years the Greek government had taken deep debts and had carried out uncontrolled spending, which contravened European economic agreements. When he reached the global financial crisis, the budget deficit rose and investors demanded much higher rates to lend to Greece.

All euro zone countries were affected by the impact of the crisis on the common European currency. There were fears that the Greek problems in international financial markets could trigger a contagion effect that did shake the economies of the countries with less stable economies in the Euro zone, such as Portugal, Ireland, Italy and Spain, which, like Greece (Kosman, 2009), had to take measures to adjust their economies.

Plan by IMF

From the advent of IMF, it played a special role in the world economy. Since March 2010, the Euro zone and the International Monetary Fund (IMF) jointly discussed a package of measures to rescue the Greek economy, blocked for weeks due in particular to the differences between Germany, leading economy in the area, and other members. During these negotiations and at the inability of the euro zone to reach an agreement, mistrust in the financial markets increased, while the euro experienced a continued decline and falling stock markets. Finally, on 2 May, the European Union (EU) and the IMF agreed a rescue plan amounting to 750,000 million Euros, aimed at trying to prevent the crisis from spreading throughout the Euro zone (Choi & Papaioannou, 2009). This measure was added as announced on 10 May of a collective stabilization fund for the Euro zone. Meanwhile, major European countries adopted their own plans to adjust their finances, inaugurating an era of austerity across the continent.

The vision of the credit bureaus

S & P placed its ratings on sovereign debt in the long run of 15 members of ...