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The European Sovereign Debt Crisis

The European Sovereign Debt Crisis

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The European Sovereign Debt Crisis

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  1. The European Sovereign Debt Crisis Alessandro Galeone Kory Redden Connor Stewart

  2. Introduction: Europe • Second smallest continent after Oceania • Second highest population density after Asia • With increased globalization there is opportunity for efficient trade between European nations.

  3. Introduction:The Euro • The Euro was introduced on January 4th 1999 and originally included 11 nations. • Some nations were economic powers such as Germany or France while others had weaker economies such as Greece and Ireland. • Today the Euro is the second most reserved currency and is more valuable than the US Dollar.

  4. “The Impossible Trinity” • Theory suggests the impossibility of attaining all 3 features of an ideal currency simultaneously. • 3 features of an ideal currency: • exchange rate stability • full financial independence • monetary independence. • To accommodate the Euro countries had to give up their full monetary independence.

  5. The Euro Crisis • The European Sovereign Debt Crisis refers to the continuing financial crisis that started in 2009. • It is having sever effects on many EU nations as well as on the global economy. • It has caused long recessions, extremely high unemployment, extremely high interest rates, changing of governments, strict austerity measures, violent riots and severe uncertainty surrounding the future of these nations and of the Euro.

  6. The Euro Crisis (2) • Root causes include the incomplete union of nations, the high amounts of government debt, and the downgrading of the quality of that debt. • As a result there was a confidence crisis and it became much more difficulty for governments to sell debt (bonds). • Due to this many governments and banks were put at severe risk of bankruptcy and bailouts were needed to keep nations and firms afloat.

  7. The Euro Crisis (3) • Incomplete unification for the EU means that monetary policy is common throughout but fiscal policy is not. • Countries joining the Euro after its inception readily used up their extra credit for joining piling up significant debt. • This debt was also downgraded in quality, furthering confidence.

  8. Worst Hit Nations • Some nations were more severely affected by the crisis than others; the most affected nations were Greece, Ireland, Portugal, Spain, and Italy. • Nations with weaker economies, whose investments performed badly, who were significantly over indebted and whose debt was severely downgraded suffered more than others. • Other nation specific factors contributed to the difference in severity across the EU.

  9. Least Affected Nations • Germany is the model EU economy as they suffered far less than other nations. • They have since been a key player in helping the crippled economies of nations like Greece recover. • However, recent reports show that they are and were not as sheltered as many believe form the crisis’ effects.