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The european debt crisis of 2009

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Financial crisis at global level started to emerge at the end of 2007 and became contagion in nature as the same not only affected other sectors of the economy but also had an impact on the other countries. A similar type of crisis also emerged in Europe wherein major countries of the EU bloc started to face serious debt crisis wherein high government debt became a cause of concern. The crisis started to emerge when, during 2009, a group of 10 central banks of the bloc asked for a bailout package owing to their inability to pay off debt due to liquidity crunch and a greater danger of sovereign debt crisis started to emerge.
European debt crisis started to become significant with the crisis emerging in Greece as the huge government debt of approximately 340 Bn Euros become difficult for the government to pay off considering a drastic reduction in the government revenues due to global financial crisis. During the early 2010, it was relatively clear that the investors demanded relatively higher rates of returns from the countries with higher levels of debts. This was owing to the ever increasing government debt and the corresponding drain of liquidity which increased the overall repayment risk from those countries. The Greece economy was hit hard because it’s two main industries i. e. tourism and shipping industry were more sensitive to the global crisis as compared to other industries.
Ireland was another major economy which was hit hard by the sovereign debt crisis due to the fact that Irish government actually guaranteed the loans of six large banks having portfolios in the property sector. Due to the heavy losses suffered by these banks, Irish government faced the task of honoring its guarantees and hence crisis started to emerge regarding the possible default by the Irish government. Portugal, Spain, Italy were three other major economies which faced the similar debt crisis due to high government debt and the looming default possibilities.
In order to deal with the debt crisis, EU offered bailout packages to the different economies facing such crisis. The overall bailout packages offered to these countries however were combination of the support offered by World Bank, IMF, EU Central Bank and other bilateral and individual arrangements. Overall, more than 480 billion euros were offered to 9 countries of the region to avert any possible sovereign debt defaults due to the crisis.
Apart from giving the emergency support, other measures were also taken including the creation of the European Financial Stability Facility, European financial stability mechanism and other measures were put in place.
One of the key criticisms of the overall governance structure at EU wide level which resulted into this crisis was based upon the argument that at EU wide level, countries are allowed to pursue their independent fiscal policies however; monetary policy was being directed through European central bank. This structure is essentially considered as unstable in nature as debt crisis emerge due to irresponsible fiscal measures taken by the governments.

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