Euro Zone Crisis Essay

2661 words - 11 pages

Running Head: EURO ZONE CRISIS 1EURO ZONE CRISIS 2Euro Zone CrisisDefining the Euro Zone CrisisThe Euro-zone crisis is a continuous financial crisis that has adversely influenced Euro-zone countries since late 2009. It is a mutual debt, banking and competitiveness crises of some of the European countries that form the European Common market. The reason for this crisis is that it had become difficult for some European country governments to refinance their debts without the help of private banks and financial institutions. Factors responsible for the European sovereign debt included the globalization of finance, soft borrowing terms which encouraged high risk lending and borrowing practices, international trade disharmony, the bursting of real estate bubbles, the 2008-2012 worldwide recession and the methods used by various countries to provide relief to banks and other large industries that were facing financial difficulties. The crisis actually began with the massive increase in savings that was available from fixed income securities. This amount was around $70 trillion in 2007 which had increased from $36 trillion from 2000. This massive amount of money entered global markets into the hands investors who were looking for higher sources of return. The investors started investing in the international markets because they getting higher returns than those offered by U.S. Treasury bonds. This vast pool of money was too tempting for both lenders and borrowers to resist and policy regulations and control measures were conveniently overlooked. This vast amount of readily available money created financial bubble after bubble all over the world. When these bubbles burst the prices of properties, both commercial and housing took a nosedive. However, the returns on investment to global investors had to be repaid at full price which raised valid questions about the ability of governments for effective financial policies and the banking systems which had permitted this crisis to develop. Here it is important to realize that besides the role of the investors and speculators in creating these bubbles, the governments of these countries were as much to blame for irresponsible borrowing and overspending (Christ, 2013).Timeline of events leading up to the crisisIf a timeline can be put on the beginning of the Euro zone crisis then it can be said that the crisis actually started in October 2009 an election was called and Greek voters expressed their dissatisfaction with the slow-moving, listless state of affairs of the economy. Then in November 2009, the administration of Papandreou exposed proof that shoddy accounting practices had covered up unnecessary and too much borrowing by the previous NDP government to cover a deficit of 12.7 percent of the Gross Domestic Product, GDP. In December 2009, the Greek stock market crashed because it was revealed that the previous administration that Greek's sovereign was Euros 300 billion. Because of this the Greek debt was...

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