European Sovereign Debt Crisis Rescuing Mechanisms And Analysis Of Their Policy Validity

After the World War Ⅱ, in order to maintain peace and promote development, European countries carried out a series of cooperation and mutually assisting policies. With the establishment of the European Union and the issue of the euro, the Eurozone began to implement a unified monetary policy to promote the development of regional economic integration. The "European model" has been praised and learning in all economic regions ever since. However, further enhanced cooperation also brings moral hazard, making many countries carry substantial debts and deficits. Since the outbreak of the U.S. subprime mortgage crisis, the former stable Eurozone was gradually revealed by many problems. The old model of only relying on traditional European Central Bank, "Maastricht Treaty" and "Stability and Growth Pact" has been unable to maintain stability and economic development in the euro area, which forced EU to reform the European Central Bank, and to add some new amendments to "Maastricht Treaty" and "Stability and Growth Pact". Beside the European Central Bank, EU also began to set up many European economic stability mechanism to monitor and maintain the stability of the euro area’s economy. As Europe’s economic stability is related to the peace and development of the whole world, the researches on the rescue mechanism of EU debt crisis thus having important theoretical and practical significance.This paper conducts the researches from following aspects. (1) Explaining the process and the reasons for Eurozone crisis’formation. Then this paper leads us to the euro zone crisis rescuing methods, namely the European Central Bank and European economic stability mechanism’s bailout programs. (2) Introducing the major institutions which maintain economic stability in the euro zone-the European Central Bank in an elaborated way and also states the systematic and logical flaws of ECB, as well as its critical reforms to better rescue the trouble country’s economy.(3) Explaining why European economic stability mechanism will be set up for handling sovereign debt crisis and how to better assist the European Central Bank to maintain the European economic recovery, stability and development. (4) Assessing the effectiveness of the bailout policy by using Difference in differences model.Based on the above researches, this paper constructs the following conclusions. First of all, the validity of the Eurozone crisis bailout policies are fully-affirmed theoretically. Eurozone’s bailout policies not only maintain the stability of the euro area economy to some extent, but also help correct errors and perfect shortcomings of Eurozone. Secondly, this paper also test the net impact of bailout policies on Eurozone’s recovery by using Difference in Differences model. And the valid conclusions from this model also further affirm the positive effects of the bailouts.