Essays on Sovereign Debt Crisis Report

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The paper "Sovereign Debt Crisis" is a wonderful example of a report on macro and microeconomics. The Euro sovereign debt crisis began due to a combination of factors; the global financial crisis and sovereign debt developed in various EU countries like Spain, Greece, Ireland, and Portugal in late 2009. Consequently, a crisis of confidence in debt instruments was issued by these countries. In early 2010, it caused shock in the global market was extremely rapid due to the euro area's strong integrated financial systems and trade. However, the crisis was more severe in Greece and threatened other countries' economies in the Eurozone. The European Union has worked with the International Monetary Fund to resolve the debt crisis, as well as to restore the market confidence in Eurozone.

For example, some of the fiscal trouble countries such as Greece, Portugal, and Ireland have been rescued. Nevertheless, the Eurozone sovereign debt continued to threaten the financial market in the first half of 2011. The primary reason for the need to stabilize the situation was the assumption that it would result in a financial contagion and spread to other member states in the euro area making the debt crisis to become even more complicated.

The crisis also sent the shock through the global banking system, calling for government and central bank interventions. During this period, the banks had accumulated a large holding of sovereign debt, particularly from countries with large sovereign debt outstanding (Berger & Bouwman 2013). As the crisis became severe, Greece restructured their debt, and thus triggered losses on the lending bank balance sheet. We are going to analyze, how the crisis affected bank lending, the policy adopted, and the challenges faced by the regulators. Impacts of the sovereign debt crisis on banks' exposure The crisis that erupted in 2010 has affected the banking system calling for government and central bank intervention.

European authorities have promised to donate 1 trillion euros for recapitalization purposes (Chrysoloras 2015). The central bank made short-term loans of significant amounts to the members of the euro banking system as a way of mitigating the impacts of deteriorating sovereign debt on the banking sector balance sheet. They argued that if no measures were taken, the crisis would be the most instantaneous threat to the global economy.

References

Berger, A. N., & Bouwman, C 2013, ‘How does capital affect bank performance during financial crises?' Journal of Financial Economics, vol. 109, no. 1, pp. 146-176.

Chrysoloras, N 2015, 'Emergency Liquidity Assistance for Greek Banks: Explainer'. Bloomberg Business week, Viewed 16 December 2015,

Gertler, M., & Kiyotaki, N 2010, 'Financial Intermediation and Credit Policy in Business Cycle Analysis' in Friedman, B, and M Woodford (eds.), Handbook of Monetary Economics, Elsevier: Amsterdam, Netherlands.

Popov, A., & Neeltje, H 2013, 'The impact of sovereign-debt exposure on bank lending: Evidence from the European debt crisis', Vox, Viewed 16 December 2015,

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