The European Sovereign Debt Crisis Research Paper - 1

The European Sovereign Debt Crisis - Research Paper Example After a while, the deficit rate became enormous, thus leading to the rise of the sovereign debt crisis in the year 2009. Therefore, it is arguable to state that is the starting point of the European debt crisis. This paper will attempt to look at the causes and effects of the European debt crisis. How Greece became the origin and what other countries were affected by the situation. Finally, the current state of Europe after the debt crisis shall be analyzed. Greece had one of the fast growing economies and as a result had a massive deficit. As the global financial crisis came to pass, Greece was greatly affected. This was evident especially on the country’s largest industries (tourism and shipping industry). This led to lump sum spending to keep the economy going, but instead the sovereign debt increased with each passing day. With increased borrowing from the International Monetary Fund and the European Union, the Greek government was problem bound. Greece registered a debt of five hundred and forty billion dollars (Stein, 1). This is one hundred and twenty five percent of its Gross Domestic Product. Despite Greece making one or two mistakes, there were other factors that led to the crisis in Greece. External debts of Europeans states are at the center of the recent crises. In general, the debt crisis is associated with the budget deficits being in excess of the values provided by the Maastricht Treaty, and the Stability and Gro wth Pact (Ludwig Von Mises Institute, 1). These groups only focused on debt and deficit ratio ignoring external debts. Consequently, the laws governing the European Central Bank do not allow single investors and creditors to borrow government bonds in case of a crisis. Eventually, the debt crisis became alarming as the country decreased public benefits (Greece froze civil service salaries and in turn raised taxes and retirement