Dissertation > Economic > Fiscal, monetary > Finance, the state's financial

The Causes and Impact Analysis of European Debt Crisis

Author XuYang
Tutor LanTian
School Dongbei University of Finance
Course World economy
Keywords European Sovereign debt crisis Macro-economy Policy Euro "Stability and Growth Pact" European Economic Integration
CLC F815
Type Master's thesis
Year 2011
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The main idea of this paper is to study the influence on European economic integration, which was caused by Greek debt crisis. Since the establishment of the Euro Zone, dispute has arisen all around the world, while the euro made itself confirm and steady in the international currency system after enduring lots of difficulty, finally, it became the second important currency in the world following US dollars. But the Greek debt crisis, which broke out in late 2009, brought the world economic to the second time deep dive to the bottom after the international financial crisis.In addition, the help from Euro Zone was so slow and ineffective that the credit rate of some members of Euro Zone had been moved down again and again. More and more members were involved in the crisis. It caused great damage to the financial situation of the Euro Zone. Under this international circumstance, it will be quite valuable for us to study how could Euro Zone deal with this kind of situation and where could they find a way to get out and recover as soon as possible. Many economists thought that the defects of euro were thoroughly exposed to the world due to the crisis, and they believed that in the following years, euro will need to face with the risk of breaking up. But this paper keeps another opinion. I think the crisis will be a turnover point of the Euro Zone economy, which means if the European government pays enough attention to the defects exposed, then it will be good opportunity for Euro Zone to adjust their strategy on policy and implementation and make sure the mechanism of facing and resolving the crisis, Euro Zone will move forward to a bright future. Inevitably, there must be reason and value why euro exists. It brought people great convenience in travelling and many other areas. European government will learn a great lesson from the crisis and become more and more mature and stable in the future.I used the methodology of data analysis and comparison analysis in this paper in order to get accurate, timely and valid data to analysis and finally draw a conclusion. Using the methodology of comparison, I want to make the audience clearly realize the gap of the Euro Zone members and the gap between other countries such as US and Japan and Euro Zone. Then the readers will more vividly and clearly understand it.First, the paper got started with the process and reason why here came the sovereign debt crisis. From this part, we can capture an overall picture of the status Euro Zone was in and how was the crisis spreading and influencing other areas. This made me find out the clues for the following statement and articulation. Also, it indicated the dysfunction of the salvation mechanism in Euro Zone. The salvation mechanism couldn’t take measures according to the current circumstance to help out the members in crisis. However, it mixed up with the benefit of each member. There was big gap between those members especially the focus areas each country endeavored.All these facts made great contribution to the costive action of the Euro Zone. Second, I articulated how euro was established and developed. In addition, I highlighted how euro was doing since the break out of the crisis. The restrain mechanism was mainly through "Stability and Growth Pact" which had some restrain provisions such as the limitation of the portion of the finance deficit and the debt status of the member countries taking up GDP. But the facts indicated the randomness of the execution of the pact. Honestly speaking, the pact was no more than a slogan because the members had already gone far away from the limitation without getting any compulsory punishment from the Euro Zone, which indulged the spreading of the crisis. Afterwards, I made my focus on the economic policy of the Euro Zone. Financial policy and currency policy were two most important methods for macroeconomic control. But in order to stimulate the growth and prosperous of economy, the members of Euro Zone couldn’t effectively coordinate and interact the two methods, they could only depend on financial policy. Consolidated currency policy and dispersed financial policy made the development of economy "crippled". Finally, I drew a conclusion of what I had explained and described in the paper the strike the crisis made to the whole Euro Zone and provided some measures which I thought Euro Zone could take to get out of the debt crisis for the government’s reference. Also I pointed out the future development direction of Euro Zone, the biggest economic integration organization.However, there must be lots of defects and shortcomings such as the timeliness of the data I collected because I could only get the data by 2010, so the quantity of the data might be a little small which would count against the analysis of the economic operation trend and made the conclusion deviated from the reality. The paper detailed analyzed the break out, the reason, the development and spread of the European Debt Crisis, commented and predicted all aspects and angles of the event, then made some feasible suggestions in order to help Euro Zone out of crisis. From this crisis, Euro Zone could find out what their feature, advantage and disadvantage were, explore deeply through the problem on system and policy that were ignored when euro was established. I thought it would be a good choice for Euro Zone to improve the political integration and accelerate the process. We firmly believe that there will be no steady economic integration without political integration. After all, members of Euro Zone was not a sovereign country, it is nature for them to have divergence among them. As a result, an urgent problem that needs to be solved to speed up the development of the members is political integration. I believe that Euro Zone will have a bright future after acknowledging and correcting the problems they have.

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