A Study Of Financial Sustainability Of EA Countries And Rescue Schemes In Debt Crisis

Because of the Subprime Crisis, the outbreak of debt crisis in Europe in recent years has caught much attention throughout worldwide. Most euro area members are experiencing awful financial situation, with increasing government deficit ratios and government debt ratios, among which countries like Greece, Ireland, Portugal, Italy and Spain are most serious. Huge financial risk has brought unrest to European financial market, and the unstable stock market and exchange market have also caused threaten to European financial stablization.This paper applies government present-value borrowing constraint model and panel data stationary test to examine the sustainability of 12 euro area member countries, rejecting the possibility of financial crashing in these countries. Meanwhile, this paper proves the function of financial discipline by testing the stationary of government deficit ratio in different periods. The latter half of this paper analyses the current rescue schemes taken by EU and other international organizations. These short-term rescue measures are necessary, but the essential measures these countries needed are long-term economic structural reforms.