Euro Crisis

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EUROPEAN DEBT CRISIS – ORIGIN, CONSEQUENCES AND POTENTIAL SOLUTIONS F RA N TI Š E K N E M E T H Abstract What is the European debt crisis? As the head of the Bank of England referred to it in October 2011, it is “the most serious financial crisis at least since the 1930s, if not ever.”1 In fact, the European debt crisis is the shorthand term for the region’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it’s intended to be. Although these five were seen as being the countries in immediate danger of a possible default,…show more content…
In late 2000 due to financial crisis the Greece largest industries, tourism and shipping, were badly affected. The Greece had joined the group knowing that it would be easier for it to get the debt with a globally strong currency Euro. The Greeks continued lavish spending (events like Athens Olympic which are reported to cost Greece several times more than the estimated cost, public care) combined with long following trade deficits and large tax evading population lead the Greece budget deficit and public debt to rise to insurmountable amount. And now, the deficit percentage and the debt to GDP ratio for the Greece are highest among 2 all the European States. Adversaries like housing bubble in Spain and speculation by traders in Portugal leads to similar situations in these countries as well. These European peripheral countries (PIIGS) borrowed enormous amount of debt in Euros, for example Greece has a total debt of 540 billion dollars, 125% of its GDP (see Table No. 1) and hence they have huge sovereign debt obligations (see Figure 1). Table No. 1: The Debt/GDP ratio of PIIGS Source: Figure 1: European PIIGS countries Source:
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