European Sovereign Debt Crisis

European Sovereign Debt Crisis

Introduction

The European sovereign debt crisis has become a common reflection in the financial scene. This is attributed to the actuality that it represents the financial crisis that is currently affecting some of the countries in Europe in the form that they have to receive assistance form third parties in order to re-finance the government debt. The global economic crisis affected many nations but it has had a rather lasting effect on Europe. The trust in the financial stability of Europe begun to falter in late 2009 when the development of the sovereign debt crisis was become succinct and it was mainly being felt by the investors. This led to the development of the government debt levels on a global level and the rating agencies were forced to downgrade the debt of some of the euro zone countries such as Greece. The banking system of Iceland collapsed and this is highly connected to the start of the European sovereign debt crisis, which started spreading to other areas including; Portugal and Ireland. The debt crisis was affecting the vital aspects of the economic system of the nation leading to the lack of confidence for the businesses and economies. Taking immediate action to try and stabilize the situation was necessary and this was witnessed in 2010, where the finance ministers of Europe started the process by accepting 750 billion Euros. The creation of stability would be approached through the development of the European Financial Stability Facility (EFSF), which would ensure that stability would be maintained across Europe. The eurozone leaders had to gather and develop strategies that would be applied in ensuring that would be no more collapse of the member economies experienced. Therefore this paper aims to look at the European Sovereign Debt Crisis.

2. CAUSE OF THE CRISIS INTRODUCTION

Some of the reasons that affected the economic global crisis are related to the European sovereign debt crisis. The main causes behind the phenomenon are termed as complex factors that have been combined together where the globalization of finance is included as well as the fact that the nation engaged in borrowing practices at a high level during the period, there have also been cases of international trade imbalances, the slow growth rate of the economy in 2008, the bursting of the real estate developments, the government had also taken onto taking the private burdens or engaging on the socializing of losses, there were also cases of high spending that occurred on a constant level which did not coincide with the slow growth rate of the economy and the governments applied specific approaches in bailing out the banks which affected their economic balance. The governments continued to apply the same approaches in their financial activities while the global world had to make adjustments in regards to the economic