The Euro Zone's Sovereign Debt Crisis Response And Enlightenment

The future of the euro-zone sovereign debt crisis is still unclear. Although theEuro area passed the second round of the Greek aid program on March14, the year2012is still a severe test for the PIIGS five countries. Because these five countrieshave been facing large scale of debt which will reach deadline, fiscal austerity andrecession risks. To get rid of the sovereign debt crisis, the Eurozone will go through apainful process in the future.This paper can be divided into five chapter.The first chapter is the introduction ofthis paper. By worldwide comprehensive literature review of the topics like Europeanfiscal and monetary policies coordination theory, European capital marketcharacteristics and the euro zone sovereign debt crisis relief plan, this paper establishedthe theory basis and research orientation. In the second chapter, this paper introducesthe process of the crisis and analyzes the debt characteristics through two angles ofview, that is, debt scale and debt structure. And we can see that the pressure of due debtis great. The third chapter analyzes the causes of the sovereign debt crisis frominternational aspect and euro zone aspect. The emphasis is on the euro zone aspect. Bycombine the concept of “club goods”, this paper establishes a game theory model toexplain the excessive debt which is one cause of this debt crisis. The forth chapter isthe emphasis of this paper. Firstly, I analyze the dilemma of euro zone and make acomment on the initial solutions. Then I focus on the debt restructuring in Greece,which is a hot topic and dramatic breakthrough in solving the problem. lastly, I build amodel and figure out its "Bayes Equilibrium" in order to illustrate the necessity toestablish fiscal union in euro zone. Then I detailed discuss this fiscal union plan. In thelast part, I make a comparison between local government debt of China and theEuropean sovereign debt, and reach some advices for Chinese government.