The European Debt Crisis, Can the World Ignore it and Keep it European Research Paper

The European Debt Crisis, Can the World Ignore it and Keep it European - Research Paper Example Most of these outcomes are as a result of the stimulus packages that were passed by the European governments in an aim to stop the economic crisis that is taking place in Europe1. Most the European governments have spent a lot of resources on the stimulus packages in an attempt of preventing themselves from great collapse but have in turn created a debt crisis2. i. Thesis Statement With reference to the discussion question given, this paper will analyze if the world can afford to ignore the European debt crisis and leave it to the Europeans. It will also analyze the causes of the crisis and what the European governments are doing to try and solve the impending crisis which is threatening to destroy the prosperity of the European countries which have been economically stable as compared to the rest of the continent. ii. Discussion The world cannot ignore the European debt crisis because the European countries came into these debts as a result of trying to solve the financial crisis th at many countries were facing at the time. This debt crisis has made so difficult for most of the European countries to finance the debts that are owed by their governments without any assistance from the outside world. By the end of 2010, over 90 of the biggest banks in Europe had lent over 760 Euros to countries like Ireland, Portugal, Italy, Greece and Spain. Due to this, the bank system in Europe is on the verge of recession. Every attempt at being made to save a bank system that is struggling with that, the same banking system had lent a lot of money to governments. Despite the financial crisis that is being faced by European governments that Euro has managed to remain stable on the financial market although many financial analysts have predicted of its loosing of strength against all the other market currencies3. In November 2011, it was seen that the Euro was trading slightly higher in the financial market than it was at the beginning of the financial crisis. Three countries that were most affected by the financial crisis were Greece, Ireland and Portugal. These three countries account for 6% of the Eurozone’s gross domestic products (GDP) collectively4. iii. Causes The European debt crisis was caused by the financial markets and other financial institutions which were greedy and blind in terms of the eurozone. In addition to that, there was the adoption of the Euro which led to the biggest drop in the interest rates and a lack of confidence from financial institutions to the European governments5. The domestic demand for finance also went very high which in turn cause a surge in the financial sector and in turn caused the a crisis. The growth of the Eurozone countries which was driven by the services offered domestically and construction was accelerated while the export industry in these countries remained in the same position thereby causing abundance in the foreign capital invested in the Eurozone countries. When European countries went to sav e the globe from a financial crisis, the European countries ended up with debts that the governments cannot afford to pay for. In the meantime as this looming crisis was at hand, Germany was transformed in a historic transformation to become one of the world’s largest exporters6. There was also excessive lending by financial institutions which led to a loss of competitiveness due to the unsound economic developments in several Eurozone countries