European Dept Crisis 2012

European’s Sovereign debt crisis

Summary

1. Introduction

2. Debt crisis in the European Union

3. The worst countries

4. The solutions to the Eurozone Sovereign Debt Crisis

5. Conclusion

1. Introduction

In our report, we choose to speak about European’s sovereign debts because in the news, we hear a lot of things about European debt crisis, so we thoughit’s a good thing to speak about.
In 1992, for the health of Euro currency, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending (<3% of GDP) and debt levels (<60% of GDP). However, a number of EU member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use ofcomplex currency and credit derivatives structures. The structures were designed by prominent U.S. investment banks, who received substantial fees in return for their services and who took on little credit risk themselves thanks to special legal protection for derivatives counterparties.
The European sovereign debt crisis started in 2008, with the collapse of Iceland's banking system, and spreadfirst to Greece, Ireland and Portugal in 2009. The debt crisis led to a crisis of confidence for European businesses and economies which increased the interest rates and therefore the financing costs.
The European sovereign debt crisis was brought to heel by the financial guarantees by European countries, which feared the collapse of the euro and financial contagion. Ratings agencies downgradedthe debt of several Eurozone countries, with Greek debt at one point being moved to junk status. As part of the loan agreements, countries receiving bailout funds were required to meet austerity measures designed to slow down the growth of public sector debt.
In this graph, we can see the sovereign debt of Eurozone countries in 2010:

2. Debt crisis in the European Union

The European debtcrisis has resulted from a combination of complex factors, including the globalization of finance, easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices, international trade imbalances, real-estate bubbles that have since burst, slow economic growth in 2008 and thereafter, fiscal policy choices related to government revenues and expenses andapproaches used by nations to rescue the troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.

This chart covers only public debt, which represents the obligations of the country's federal government. External debt is the sum of public and private debt owed to foreigners. Some of these countries have external debts far larger than their publicdebt. The ability of the nation's industries to pay the private portion of the external debt relates to their competitiveness, the nation's economic growth, and employment levels, among many other factors.

3. The worst countries

In the European Union, all the countries are indebted but some of them more than others. Indeed it’s the case of the Greece, Ireland and Portugal.Greece:
The crisis of Greek public debt is derived of the fear Greek creditors on its ability to repay its public debt as well as paying the interest of this debt. It results of the global economic crisis and country specific factors such as budget deficit (12,7% of GDP ), the indebtedness ( 160% of GDP ). Moreover, the crisis has been compounded by the lack of transparency in the presentation ofits debt and deficit notably through financial instruments perfected by Goldman Sachs.
Greece has benefited of a new rescue plan of 237 billion euro whose 130 billion loan and 107 billion debt relief. However, this decision simply avoids bankruptcy at short term for the country.

Ireland:
The situation in Ireland is different. Ireland has long been growing and its public...