The European Sovereign Debt Crisis
The European sovereign debt crisis, which 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 (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.
Although a commonly accepted view is that the hidden budget deficit in Greece is the beginning of the European sovereign debt crisis, the real causes of this economic crisis can be various. To reveal the whole event, a comprehensive review of the background is necessary.
Background
On 1 November 1993, the Maastricht Treaty formally came into force, and the European Union was formally established. Afterward, the euro convergence criteria were created. The European Union member states have to meet the criteria before they enter the European Economic and Monetary Union, and use the euro as their common currency.
Admittance to the eurozone brought great benefits to the member states. For those countries whose economies are not strong enough, the common currency prevented the individual economies of the euro-area countries to devalue their currency to make their exports cheaper, which gain them better trade balances. In addition, the member states would be able to borrow the low interest rate loans to improve their domestic economies.
After 1999, the global economy had a rapid growth because of the high-speed development of developing countries. The developing economies covered over 30 percent of the global trade (United Nations, 2012). The savings from those countries make the global savings available for investment have a significant increase. This gave investors a lot of temptation to use these money. The lenders use these savings to make high return investments, and the borrowers use
Although a commonly accepted view is that the hidden budget deficit in Greece is the beginning of the European sovereign debt crisis, the real causes of this economic crisis can be various. To reveal the whole event, a comprehensive review of the background is necessary.
Background
On 1 November 1993, the Maastricht Treaty formally came into force, and the European Union was formally established. Afterward, the euro convergence criteria were created. The European Union member states have to meet the criteria before they enter the European Economic and Monetary Union, and use the euro as their common currency.
Admittance to the eurozone brought great benefits to the member states. For those countries whose economies are not strong enough, the common currency prevented the individual economies of the euro-area countries to devalue their currency to make their exports cheaper, which gain them better trade balances. In addition, the member states would be able to borrow the low interest rate loans to improve their domestic economies.
After 1999, the global economy had a rapid growth because of the high-speed development of developing countries. The developing economies covered over 30 percent of the global trade (United Nations, 2012). The savings from those countries make the global savings available for investment have a significant increase. This gave investors a lot of temptation to use these money. The lenders use these savings to make high return investments, and the borrowers use