European Sovereign Debt Crisis Causes, Effects And Inspiration

Sovereign debt, also known as government debt or national debt, is money or credit owed by a central government. Sovereign debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. A sovereign default is a failure by the government of a sovereign state to pay back its debt in full. If potential lenders or bond purchasers begin to suspect that a government may fail to pay back its debt, they may demand a high interest rate in compensation for the risk of default. A dramatic rise in the interest rate faced by a government due to fear that it will fail to honor its debt is sometimes called a sovereign debt crisis.As the development of economic globalization and financial liberalization, every country in the world is faced with kinds of increasing threats of financial risk. Sovereign debt crisis is one of them, which is caused by heavy sovereign debt burden. Greek sovereign debt crisis, which is started in the end of 2009, and the following European sovereign debt crisis have brought substantial impact on global financial markets, and aroused the attention of the entire world. At the same time, it is also an alarm for China. So it is very important to study the European sovereign debt crisis.First, the paper starts from the introduction of the start and development of the Greek sovereign debt crisis, and then analyzes the diffusion process of the crisis and the stakes between crisis countries. Secondly, it analyzes the causes of European sovereign debt crisis from the conditions of the crisis countries, monetary integration system and exogenous shocks. Thirdly, this paper illustrates the influence of this crisis on European and World economy. Based on these analyses, both negative and positive impacts on Chinese economy are exposed. By analyzing the causes and influences of the European sovereign debt crisis on world and Chinese economy, finally this paper concludes the inspiration to China.