Eurozone Sovereign Debt Crisis: It's Evolution, Impact And Countermeasures

The Eurozone sovereign debt crisis broke out which is the most difficult eventsafter the Euro is born, and the regional monetary system is particularly embarrassedfollowed by a lot of praise. How to solve the debt crisis is not only a difficult problemjust before the EU but also in front of the world. The world economy showed the signof recovery from an international financial crisis caused by the US subprime crisis atthe end of 2009, but encountered another crisis: the sovereign debt crisis. Since 2010,the crisis has spread from Greek to Ireland, Portugal, Spain and Italy and may developfiercely along with the changes of situation. The confidence of worldwide investorswas badly affected and the financial market was in turmoil again. Therefore, theprospect of the debt crisis was hung over the world. The sovereign debt crisis brokeout most in the Eurozone which was greatly challenging and testing the ten years'birth in Euro.With the advantages of its stable exchange rate, effectively controlling on theinflation and convenient settlement in the Eurozone, the Euro which is as the firstcurrency beyond the sovereign in history had been widely discussed by the theory andpolicy makers before this crisis broke. The explosion of worldwide financial crisis,especially the spread of the sovereign debt crisis in the Eurozone, the EuropeanMonetary Union theory has been testing theoretically and practically again. The hardproblem that the European Union faces that the independence of currency is still as animportant symbol of a sovereign country before a county disappears and the Europeaneconomic integration is confronted with the sorts of restraints and bottlenecks. Due toEuro, the Eurozone countries loss their independent rights to issue the currency toadjust the micro economy. Consequently, it is obvious to see the regional monetarylimitation. On the basis of studies of the causes and evolution of the sovereign debt crisis in the Eurozone countries, this paper analyzes deeply the institutional flaws andeconomic structural inconsistencies, researches the crisis's influences on EuropeanUnion, international financial market and the world economic recovery. Besides, thispaper evaluates objectively the 10-year pros and cons of Euro, rethinks profoundly thehistoric functions and flaws of regional monetary systems. Especially compares andanalyzes all kinds of relief measures and mechanisms and discusses thecountermeasures about the Eurozone debt crisis and Euro's future. All these havetheoretical meaning and practical value to for Chinese government to study theprecautions of debt crisis and problems of Asia Monetary Integration.The paper is divided into 6 chapters. The Chapter 1 is the Introduction. It is aboutthe background of topic selection and its theoretical and practical meaning. In addition,it summarizes and evaluates the researches and studies on the sovereign debt crisisliteratures home and abroad. The main content and arrangements of the structure, theresearch methods, creative ideas and limitations are included in this chapter.The Chapter 2 is the Regional Monetary System and the Eurozone SovereignDebt Crisis. Taking the market failure and government failure as a breaking point, thispaper elaborates the evolution of monetary system from the gold to cashable creditmonetary system and then the regional credit monetary system. This paper analyzesthe financial crisis resulting from market failure and the sovereign debt crisis arousedfrom government failure. Based on that, this paper discusses theoretical basis for birthof Euro-development of the optimum currency area (OCA) theroy and the formationof the European unified monetary system, evaluates the Euro's influences on thebreaking through the US dolls leadership in the international monetary system,reducing the inflation in the EU countries, showing that the Euro plays an importantrole in advancing economic growth, driving the productivity and promoting thefinancial integration. Also, this paper makes the further research about the"ternarydefects"existing in the Eurozone monetary system, analyzing the contradictionbetween the unified and non-cashable credit monetary systems, and the contradictionbetween unified monetary system and independent financial system so as to disclosethe inner relationship between the Eurozone sovereign debt crisis and regional monetary system.The Chapter 3 is the Analysis of the Causes and Evolution of EurozoneSovereign Debt Crisis. This chapter arranges and analyzes systematically the causesand its spreading procedure of the Eurozone sovereign debt crisis so as to deeplyresearch the internal and external factors of its causes. From the external factor first,the continuation and deepening of US subprime crisis is a boil point for the sovereigndebt crisis. The international credit rating agencies results in its spreading and drivingthe debt crisis forward. The speculation of some international investment companiesand hedge funds enlarges the contagion effects of the crisis. Then from the internalfactors, there are many flaws in the system of the centralized currency anddecentralized finance. The internal unbalanced structure of the Eurozone, the socialsecurity system with a high welfare, and the rigid labor market are the seriousobstacles to the development of the EU economy. Besides, the lack of stable financialsystem, precautions of crisis and the relief mechanisms speed up the crisis andspreading.The Chapter 4 is the Eurozone Sovereign Debt Crisis's Influences and Impactson the World Economy. This chapter researches in the influences and impacts from 3aspects: internal European Union economies, international financial market and theworld economy recovery. Firstly, the debt crisis causes the higher cost of financing inthe EU countries, makes the financial situation worse, and put the coordinatingeconomic policies into a dilemma, sharpens the economic unbalance. Secondly, thedebt crisis causes greater turmoil in global foreign exchange and capital markets,changes the capital flows and expends the disorder of the international capital flows.Finally, the debt crisis slows down the world economy recovery and the Eurozoneeconomies develop slowly even in the recessions, which have fierce impacts on theeconomies like America, Japan and China.The Chapter 5 is the Comparative Analysis of the Relief Measures for theEurozone Sovereign Debt Crisis. This chapter lists nearly all sorts of relief measuresof the countries which the crisis appeared, including the short-term and long-termrelief measures of the European Union and International Monetary Fund. On this basis of analyzing comparatively these measures, this paper researches the relationbetween the emergency loans and fiscal financial plans and their functions, analyzesthe advantages and disadvantages of the easier monetary policy and explores thenecessity and limitation of establishment of the European stability mechanism.The Chapter 6 is the improvement of the operation mechanism of the Eurozoneand the future of the Euro. This paper discusses the countermeasures selection of theEurozone Sovereign Debt Crisis in terms of short-term and mid/long-term. From thepoint of short-term first, it is possible to reorganize orderly debts of the Eurozonecounties which have the crisis like Greece so as to prevent these countries from theloss of disorder defaults. At the same time, a withdrawal mechanism should beestablished to equip the Eurozone countries which have non sustainable debts with asystematic basis when they want to withdraw. Then from the point of mid/long-term,there are 2 fundamental ways for the Eurozone to get through the crisis. One is tostrengthen the treatment of the Eurozone economy with strict financial bonds,enhance the macro economy coordination and financial supervision and push thereform of economic structure so as to improve the economic competence of theEurozone countries fundamentally. The other is to strengthen the political andeconomic cooperation of the European Union, put the balanced development of politicand economic integration into effect and make the monetary union and financial unioncoordinate and unify. At last, this paper considers the future of the Euro from strategicprospect and summarizes the lesson and learning from the Eurozone sovereign debtcrisis and its enlightenments to China.