Research On Europe’s Sovereign Debt Crises’Reason

The birth of Euro in1999is a big event in the history of international money and financial system. Since then, The Euro zone has become the money Union of different sovereign countries and a great attempt in the history of human beings.People have different attitude to the Euro and the Euro zone.Someone has high expectation for it. Someone predicts that the Euro zone is doomed to disappear when it was established. Ten years later, the Greece government announced that the government deficit-to-GDP ratio and the government debt-to-GDP ratio in Greece would reach12.7%and113%, more than3%and60%under the terms of the EU’stability and growth pact After that, the international ratings institutions began to lower ratings of Greece sovereign credit. Debt crisis in Greece began. Portugal, Ireland, Italy and Spain basically experienced the same process as Greece.The government announced government fiscal deterioration. Ratings institutions lower ratings.The countries in crisis applied for financial assistance. Debt crisis in Greece developed into sovereign debt crises in European countries.The sovereign debt crises in European countries involved many parties, countries in crises,lenders, core countries in the Euro zone, central bank in Europe, European bank system and ratings institutions and international organization when comes to financial aids. The sovereign debt crises are complicated.For financial aids, all countries perform lesser spending.People from these countries in crises suffer from this policy.Frequent marches led to social crises. The government officials’different opinions on handling crises led to political instability. In the recent years, The sovereign debt crises in European countries have attracted extensive attention from scholars.Scholars hope to find reasons and measures for the sovereign debt crises in European countries and predict the future of Euro and Euro zone.The focus is the reasons for the outbreak of crises.Scholars’ explanations are different and diverse.The explanations are as follows.The sovereign debt crises in European countries resulted from sub-prime mortgage crisis in America. i.e. American sub-prime mortgage crisis further development.Governance defect exists in the Euro zone. Unbalance of economic structure between southern and northern Europe. the growing population aging and high social welfare spending.International ratings agencies’action and culture and tradition in the southern Europe.This essay admits that all these factors acted on the crises.However, these explanations lack of systematic and coordinated thinking.This essay is based on current studies and guided by Marxism.After reading many relative literature and sorting out data, the essay aims to find the nature through the phenomenon and how the nature works and behaves in the form of phenomenon.As a whole,the essay follows the principle of Marxism political economy and tries to give systematic and complete explanations for the reason of the sovereign debt crises in European countries.Marx establishes crisis theoretical framework that includes general,special and individual levels. Concretely speaking, the crisis is classified into economic crisis-general,economic crisis-special and economic crisis-individual.Accordingly, the reasons for the economic crisis are classified into reason-general, reason-special and reason-individual. Study based on this crisis theoretical framework is complete and comprehensive.The research into crisis is systematic and coordinated.Therefore,the essay tries to classify the reasons for the sovereign debt crises in European countries into three levels:crisis-general, crisis-special and reason-individual.The crisis-general reason for the outbreak of Europe’s sovereign debt crisis is global over-production crisis resulting from pattern of income distribution and economic structure change.Over production brings about changes of economic structure.On one hand,many industrial sectors in PIIGS are frozen out and suffer from loss,On the other hand, finance develops rapidly. Financial capital over flows to some industry, which makes this industrial sector expand and excessive development leads to bubble. This condition is what Ireland and Spain experienced.At the same time, financial rapid development makes borrowing money much easier.Global over-production crisis makes use of bad fiscal conditions and industrial defect and passes on the crisis to PIIGS.Finally, global over-production crisis erupted in the form of Europe’s sovereign debt crisis.The crisis-special reason for Europe’s sovereign debt crisis is industrial defect in PIIGS.The crisis-individual reason for Europe’s sovereign debt crisis is unbalance between government revenue and expenditure. Over-production exists all over the world and can pass on conflict and crisis to some places in the open economy. Industrial defect and bad fiscal conditions existing in PIIGS provided the opportunity for this kind of transfer.This thesis contains eight chapters.Main content are as follows.Chapterl is an introduction part.This chapter mainly talks about the research background, the significance, the problem proposed, the research method and the main content, the innovative points and shortcomings.Chapter2is about economic crisis theory that contains some thought guiding modern economic crisis. This chapter elaborates economic crisis theory that contain opinions on economic crisis from western economists and Marxist economists. The latter contains economic crisis theory and fictitious capital theory from Marx and modern Marxists’ economic crisis theory. We hope that some enlightenment can be gained in order to guide the modern crisis by means of complete review of economic crisis theory.Chapter3is study on this Europe’s sovereign debt crisis in the history of economic crises. This chapter reviews the history of economic crises comprehensively. First review the economic history. This part is divided into review of the history of financial crises and over-production economic crises. Second discuss sovereign debt problem and define what is sovereign debt crisis. Third, review the history of sovereign debt default and study this Europe’s sovereign debt crises compared to former crises.Chapter4is about the pattern of global income distribution and change of economic structure.This chapter tries to reveal the nature of this Europe’s sovereign debt crises. First compare wage with profit, explore income conditions of high-income groups and role that labor has played in their income, the change of current wage in the world. We can conclude that the pattern of income distribution in the modern world presents a situation of strong capital and weak labor. Second the world is facing the threat of growing gap between the rich and poor. Growing gap between the rich and poor results in lack of capacity to pay. Industrial over-production conflict exists all over the world. Intensifying over-production conflict makes the economic structure change. Capital from former industrial sector is on the road of centralization. Monopoly begins to take shape. Part of industry capital withdraws from production and comes into financial field. The rest of industry capital goes into luxury segment. This kind of over-production conflict can make use of problems and defect existing in some countries themselves to pass on the crisis to them. Bad fiscal conditions and industrial defect in these countries provide the opportunity for this transfer.Chapter5is study sovereign debt crisis from the point of the structure of government income and expenditure. This chapter analyzes the structure of government income and expenditure in PUGS and compares the difference between PⅡGS and other countries. First introduce general condition of structure of government income and expenditure in the European countries. By this, We can get some general knowledge of components of income and expenditure. Second, study structures of income and expenditure in PⅡGS concretely and in depth. Try to find the main aspect of conflict and where is problem between the comparison of government income and expenditure.Chapter6is about the mechanism how fiscal problem becomes sovereign debt crises and competitiveness. This chapter begins to study sovereign debt crises by means of industrial conditions in PEGS and discusses bad fiscal conditions in PⅡGS leading to sovereign debt crises and how the mechanism works. First try to find the logistic relationship between industrial conditions and Europe’s sovereign debt crises by means of fundamental identity of national income accounting. Second, compared to other countries in Europe, analyze conditions and components of national savings, distinguish different features of savings in PⅡGS. Multiple industrial conditions are expressed behind different savings. Analyze concretely some problems existing in industrial conditions in PⅡGS. Finally, talk about competitiveness in PⅡGS.Chapter7is about the progress which PⅡGS have made after some effort and some enlightenment gained by China through studying Europe’s sovereign debt crises.First of all, state the progress that PIIGS have made after working hard and leading difficult lives. PIIGS are on the road of returning to normal. Second, Compared to economic conditions of PIIGS, Some problems are needed to be focused on in the development of China’s economy, including china’s investment, Chinese local government debt, export and competitiveness, and so on. Some enlightenment is gained. some suggestions are put forward.Chapter8is conclusion. Conclusion is final and general result of this thesis. This Chapter is divided into two parts:research result and policy suggestions.