European Sovereign Debt Crisis On China's Revelation

The outbreak of Greek sovereign debt crises, which happened on December 2009, caused a sharp decline in the Greek stock market and led to serious large-scale strikes and street riots. More seriously, the debt crisis has evolved into the Greek domestic economic and political crisis, and dragged the whole euro area into the abyss, making the European Sovereign debt crisis break out.Overall, the European sovereign debt crisis is due to U.S. subprime mortgage crisis, which triggered a global downturn in capital markets and increased the borrowing costs for European countries. However, for years of weak growth rate, the real economy was by no way capable of supporting the excessive debt burden, therefore, capital chain of several nations broke down and the crisis arose. Specifically, the reasons for the outbreak of European sovereign debt crisis can be summarized as follows:three bankruptcy, two binary contradictions, and one wicked consequences.Firstly, the bankruptcy of economic development model. The lacking of new economic growth point for Europe area, together with its weak economic growth rate, had made low interest rates the "hotbed" for real estate and stock market bubble. Secondly, the bankruptcy of financial deepening reform. The liberalization of financial deregulation reforms in the open and small economies, with their underdeveloped financial system, greatly reduced their capacity to resist risks, resulting in excess debt burden when encountered the direct impact of subprime crisis.Thirdly, the bankruptcy of high-welfare system. Europe's high-welfare system led to heavy financial burden. Fourthly, the binary contradiction between European fiscal policy and monetary policy. Within the euro zone, the institutional conflict between single currency and independent fiscal system has weakened the coordination between fiscal policy and monetary policy. Fifthly, the overall supervision of European unity and national independent regulation reduced the capacity of controlling risk. Sixth, the consequences of economic imbalances. Under the imbalance conditions of economic development and economic structure, which have existed for quite a long-term among EU members, the single currency will impact the price and economic stability of small economies, as well as weaken the Europe collaboration in response to the crisis.The European sovereign debt crisis compelled investors to bearish euro area investment prospects, bringing about large capital outflows which devaluated euro and caused sharp European stock market turbulence, fiercely lashing the euro zone's stability and challenging the process of European integration, and casting a shadow over global economy recovery which increased the risk of a "double dip" over global economyIn the short term, seemly plausible measures to reduce the debt burden may include: moderate depreciation of the euro by debtor countries, debt deferral and debt restructuring, but all these are not sustainable. Meanwhile, a currency swap may serve as an effective way to spread the risk of devaluation. However, the most effective way is to establish a Trust Fund sponsored by countries in good economic situation, which can act as a supplement to IMF's short-term liquidity (STL) plan. In the long term, Europe should set up their own credit rating agencies, and establish convenient and efficient information sharing mechanism to strengthen the supervision of international capital flows. In response to future crises, Europe should rely on the establishment of the European Monetary Fund (EMF), which is paid by members of the European Union in the peacetime, to deal with emergency financing needs in times of crisis, ultimately, to rebuild Europe's financial market order and safeguard the euro area and EU Financial stability. In addition, the adjustment of industrial structure, promoting a sustained, stable and balanced development is the fundamental way to stay away from crisis's, and the accelerating the process of European political union, can provide a good external environment for economic development.