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European Debt Crisis Explained

by admin on February 7, 2013

European debt crisis is the term called for the Europe’s struggle to pay for the debts built in during these recent times. Five European countries including Portugal, Italy, Spain, Ireland, and Greece have failed to increase their economic status which caused their inability to pay back some bondholders. Although these European countries were near to be declared as default, European debt crisis has reached other consequences which caused other countries to fail.

European debt crisis explained

According to the Bank of England’s head, this crisis is a serious one that no one hopes for but it happens. Europe is not the only one that is affected by this crisis as other continents have also faced financial crisis due to this phenomenon. This is because Europe plays a big role when it comes to the world economy. So, if one of its countries encounters financial problems, this would also affect some countries that rely on their economy’s growth. So, how did the European debt crisis started?

The crisis was first experienced when US also faced financial crisis in year 2008 to 2009. This US financial crisis has caused huge damage to the global economy especially to Europe. Greece is the first European country to experience the slow growth because they have failed to start some fiscal reforms. The result was new and quite odd for Greece, but this forced its Prime Minister to announce the nation’s deficits.  The debts of Greece were large and it cannot find a way to hide the problem as it is becoming quite obvious to all its citizens. When investors found out this issue, they demanded for a much higher yield which made the case much worse in the long run. But, why do bonds yields get higher in spite of this crisis? The reason is simple. When investors found out that the risks, they’ll need higher returns for them to be at the safe position and get the assurance that they would not lose what they have invested.

European governments have done everything to solve the crisis. The well-known European Union has done its obligation, but with the consent of seventeen nations that are included in the said union. ECB or European Central Bank has also participated and took some actions. It announced plans to keep yields of some countries like Spain and Italy. The name of their plan is LTRO or Long Term Refinancing Operation. The result of this plan is slow, but the effects are positive and showing great results. There are also some policy makers in Europe that helped the affected countries to stabilize their financial markets for short terms only, but this was criticized.

Some experts said that European debt crisis will end like storms. However, they cannot still assure what to do when they would deal this kind of crisis. That is the reason why some European countries are also doing their best to avoid such financial crisis so they would not be an additional problem to the issue. If you cannot still figure out what other factors affect the crisis, read some articles that shows information about European debt crisis explained.

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