Questions On The Sovereign Debt Crisis - 2450 Words

This essay will address the question â€Å"The sovereign debt crisis shows that any solution to the financial crisis needs to put greater emphasis on the market solutions and less regulation.† It will contain arguments as to why the sovereign debt crisis shows that greater emphasis on market solutions should be made rather than more emphasis on regulations. It will begin with addressing the situation in Europe that is named the sovereign debt crisis. Then it will be followed on by examples of countries that have had hardships with the levels of debts they have accumulated within the euro zone. The flaws and faults in the formation of the European Union via the Maastricht Treaty agreement that where shown in the financial crisis that began in†¦show more content†¦In order to fight the crisis some governments within the European Union had focused on raising taxes and lowering expenditure. This raise of taxes and lowering of the governments expenditure contributed to soc ial unrest as it is only natural the living population would much rather not pay higher taxes (Eichler, 2011). Sovereign debt had risen substantially in only a few Eurozone countries, most dramatically in countries like Greece, Ireland and Portugal. Although only a small amount of countries had a debt crisis or where on a path of having a debt crisis, it had become a perceived problem for the rest of the European union countries as the threat of further contagion was on the brink and a possible break-up of the Eurozone was in peoples thoughts. The global credit crunch in 2007/ 08 affected and exposed countries to the sovereign debt crisis. The credit crunch alludes to a sudden deficiency of trusts for giving, prompting an ensuing decrease in advances accessible. This credit crunch was constrained by a sharp climb in defaults on subprime contracts. These home loans were predominantly in America however the ensuing deficiency of stores spread all through whatever remains of the worl d particularly in Europe. This credit crunch led to many changes within the Eurozone, the following are some of the changes that the credit crunch caused; bank losses such as commercial European banks lost money on their exposure to bad debts in US, recession that resulted