The Causes And Solutions Of Greek Sovereign Debt Crisis

In the year of2001, Greece joined the European abnormally with the help of theGoldman Sachs Group. According to the unified regulation, Greece can only implement theEuropean Union’s common monetary policy and independent fiscal policy. In2005, theEuropean Union relaxed the ‘Stable development Treaty’ and in the following five years,20of the27member countries in the EU breached the treaty in terms of fiscal discipline, theirfiscal deficits as a share of GDP were over3%, which was the crisis warning line, Greece wasincluded. In2009, three major international credit rating agencies including Fitch, Moody’sand Standard&Poor’s had downgraded Greek sovereign credit rating and at that moment, theGreek public debt had increased to three hundred billion euros. The foreign debt ratio as theproportion of GDP had increased to116%, and the deficit ratio to GDP reached12%, it wasmuch more than the limit of Maastricht Treaty, Greece then was claimed that it was right inthe sovereign debt crisis. As a response to the crisis, the EU started the emergency rescue plan,established the European stability mechanism and provided Greece with direct loans. At thesame time, the Greek adjusted their financial structure, and repurchased debt with the help ofthe EU. On December,2012, the S&P firstly raised sovereign credit rating of Greece to levelB-. By now, the Greek sovereign was expected to recover.This article will discuss the reasons of Greek sovereign debt crisis and analyze theeffective solutions to the crisis.First, we review the discussions on the sovereign debt theory. This article willillustrate the intentions and effects of governmental debt, together with the background andbasis of sovereign debt.In the second part, we are going to analyze the causes of Greek sovereign debt crisis.This part we will review the entire crisis process from2001up to now. Then we will study thecauses of Greek sovereign debt crisis from two aspects: the internal and external factorsaccorded to the time sequence and discuss the effects of various factors, which werecontributed to the Greek sovereign debt crisis.Third, in order to settle the Greek debt problems, Greece should adjust its internalfinancial structures in an effective way. In addition, it is necessary to improve the EuropeanUnion’s financial system. At last, according to the ideas which were arisen by the Greeksovereign debt crisis, we will discuss the efficient measures to defense crisis.