Unfolding the European Sovereign Debt Crisis
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In early 2010, the so-called Greek sovereign debt crisis broke out as a result of Greece’s national debt reaching 125% of its GDP (€340 billion) and its budget deficit 13.6% of the GDP, causing concerns in the international financial market over the ability of the Greek government to repay its huge debts. In the meantime, small eurozone economies such as Ireland and Portugal also sought financial assistance from the EU because of their worsening budget deficit and public debt to GDP ratios. As the Greek crisis persists, the ten-year government bond yield of Italy and Spain, the eurozone’s third and fourth largest economies, rose in 2011 to above 7%, which is a criterion for judging whether a country is facing a fiscal crisis. With the unfolding of these events, there have been worries about the debt-paying ability of the eurozone as a whole, the prospect of an effective resolution to the fiscal problems, and the recurrence of similar events in other members of the euro area, thereby resulting in a sovereign debt crisis on a pan-eurozone scale.
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