Comparative Study Of The Latin American And The European Sovereign Debt Crisis

Sovereign debt refers to the debt borrowed by a government on the guarantee of its national credit.The sovereign debt crisis is an economic phenomenon in which a government cannot repay its debts and sovereign default occurs.Since the 19th century,the sovereign debt crisis has occurred continuously throughout the world.The Latin American debt crisis stemmed from soaring oil prices and excess liquidity,which caused by the oil crisis of the 1970s.Firstly,Mexico announced the extension of debt repayment in August 1982.Then,Brazil,Argentina,Chile,Peru,Colombia and Venezuela have been in serious debt crisis.In that decade,the average debt ratio of the seven Latin American countries had increased by six times,and the total external debt has increased by more than ten times.The European sovereign debt crisis originated from the 2008 US financial crisis.Greece announced its fiscal deficit in October 2009.The three major international rating structures have cut their ratings on Greece's sovereign debt.European countries such as Ireland,Italy,Spain and Portugal have successively erupted sovereign debt crisis and spread to the entire Euro zone.There are many similarities between the outbreak of the sovereign debt crisis in Latin America and in Europe.These two sovereign debt crises both have made a sustained influence,to some extent,hindering the development of the regional economy and the world economy.Therefore,this paper takes two sovereign debt crises as the object to carry on the comparative study.In order to provide some reference for the new era of China,to reduce the local government debt leverage,to prevent and solve the major risks.From the seven Latin American countries to the five European countries,from developing countries to developed countries,the sovereign debt crisis is everywhere.In this context,this paper makes a comparative study of the Latin American sovereign debt crisis and the European sovereign debt crisis,and systematically analyzes the performance characteristics,causes and solutions of these two sovereign debt crises.By comparison,we find that crisis countries all have the problems of slowing economic growth,single economic structure,fiscal deficit and high debt ratio before the outbreak of these sovereign debt crises.The difference is that the Latin American countries and the European countries are at different stages of economic development,their purpose of borrowing are different.Latin America countries are in high inflation,while prices in Europe keep stable.In the cause of the crisis,they both have been impacted by the external environment.From the internal perspective,we find that the crisis countries' economic structure was unreasonable,their current account was deteriorating,and their fiscal policy was expansionary.Their differences were the use of debt funds,the adoption of monetary policy and exchange rate policy.In response,crisis countries all adopted tight fiscal policies to reduce their fiscal deficits.But the Latin American countries negotiated debt with their creditors mainly through North-South dialogue.European countries,on the other hand,adopted temporary European Financial Stability Mechanisms,the European Financial Stability Facility and a permanent European Stability Mechanism to help the crisis countries.These two sovereign debt crises led to a recession in global economic growth,raised unemployment,raised debt ratios,and caused devaluation of the currency and deterioration in international trade.The difference is that Latin American sovereign debt crisis's impact on the developed countries was concentrated on commercial banking sector,while the European sovereign debt crisis had a very serious impact on the world's trade,investment and finance sectors.