The Mystery Of The European Sovereign Debt Crisis And Its Rescue

Greece got stuck into debt predicament, and triggered the European sovereign debt crisis..The expansionary fiscal deficit led to unsustainable large government debt. This paper argues that high welfare, high unemployment and low economic growth are the direct reasons for fiscal deficit and the invited the crisis. Second, as a monetary union, the European Union cannot implement unified fiscal policy, lacked rigorous fiscal discipline, there existed flaws in institutional system and operational mechanism in the euro zone. Third, because of the global economic imbalances against the background of the financial crisis, governments stimulated the economy by expanding fiscal budget; Finally, after the crisis of global economic oscillations, the lack of investors'confidence also worsen the crisis. The Euro zone's sovereign debt crisis shows that, even in the economic downturn, governments adopted expansionary fiscal and monetary policies to stimulate economic growth; they should also make suitable financial revenue and expenditure considering its budget limit, to ensure government debt sustainability. Although under the European Union and the International Monetary Fund joint rescue package, Greek Sovereign Debt Crisis was eased. In the Long run, the euro area's economic fundamentals differences and unified monetary policy of fundamental contradiction will determine the root of debt crisis. Therefore, the EU member states need fundamentally reform its economic and financial structure, strengthen the cooperation and supervision and enhance financial discipline within the euro area.