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Sovereign Debt Crisis Essay

750 Words3 Pages

The European sovereign debt crisis occurred during a period of time in which several European countries faced the collapse of financial institutions and high government debt. The crisis started in 2008, with the collapse of Iceland's banking system, and spread to Greece, Ireland and Portugal during 2009. They were unable to repay their government debt, or bail out their banks without the assistance of third-party financial institutions such as the European Central Bank, the International Monetary Fund and the European Financial Stability Facility.
This essay will aim to discuss some of the major contributing factors that caused the sovereign debt crisis and how regulation and government intervention is essential in solving the sovereign debt crisis. It will also discuss some of the key macroeconomic and finance theories relevant to the crisis and how this can assist in the prevention of another crisis.
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Sovereign debt is defined as bonds issued by a national government in a foreign currency, in order to finance a countries growth. However sovereign debt is usually a risky investment when it comes from a less developed country and usually a lot safer investment when it comes from a well development country (Li, 2011).
Some of the contributing causes of the sovereign debt crisis include the global financial crisis of 2007-2008, what is …show more content…

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