European Debt Crisis – World Economy Explained – Do something about it today http://SilverProphets.com – Click Now and discover how to get free silver!
http://www.mrjohnclarke.com “Roger, Financial Consultant” Originally aired on ABC 7:30 Report, 20/05/2010
The European sovereign debt crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties.
From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. Causes of the crisis varied by country. In several countries, private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts and government responses to slowing economies post-bubble. In Greece, unsustainable public sector wage and pension commitments drove the debt increase. The structure of the Eurozone as a monetary union (i.e., one currency) without fiscal union (e.g., different tax and public pension rules) contributed to the crisis and harmed the ability of European leaders to respond. European banks own a significant amount of sovereign debt, such that concerns regarding the solvency of banking systems or sovereigns are negatively reinforcing.
Concerns intensified in early 2010 and thereafter, leading Europe’s finance ministers on 9 May 2010 to approve a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). In October 2011 and February 2012, the eurozone leaders agreed on more measures designed to prevent the collapse of member economies. This included an agreement whereby banks would accept a 53.5% write-off of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion, and requiring European banks to achieve 9% capitalisation. To restore confidence in Europe, EU leaders also agreed to create a European Fiscal Compact including the commitment of each participating country to introduce a balanced budget amendment. European policy makers have also proposed greater integration of EU banking management with euro-wide deposit insurance, bank oversight and joint means for the recapitalization or resolution of failing banks. The European Central Bank has taken measures to maintain money flows between European banks by lowering interest rates and providing weaker banks (mostly from crisis countries) with cheap loans of more than one trillion Euros.
To address the deeper roots of economic imbalances most EU countries agreed on adopting the Euro Plus Pact, consisting of political reforms to improve fiscal strength and competitiveness. This has forced weaker countries to draw up ever more austerity measures to bring down national deficits and debt levels. Such non-Keynesian policies have been criticized by various economists, many of which called for a new growth strategy based on additional public investments, financed by growth-friendly taxes on property, land, wealth, and financial institutions, most prominently a new EU financial transaction tax. EU leaders have agreed to moderately increase the funds of the European Investment Bank to kick-start infrastructure projects and increase loans to the private sector. Furthermore, weaker EU economies were asked to restore competitiveness through internal devaluation, i.e. lowering their relative production costs. It is hoped that these measures will decrease current account imbalances among Euro-zone member states and gradually lead to an end of the crisis.
The crisis has had a major impact on EU politics, leading to power shifts in several European countries, most notably in Greece, Ireland, Italy, Portugal, Spain, and France.
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European Debt Crisis