Prelude to crisis
The debt crisis was preceded and, to some extent, precipitated by the global financial recession that worsened the economy in 2008-2009. When the “housing bubble” burst in the United States in 2007, banks around the world found themselves flooded with “toxic” debt. Many of the so-called subprime loans that fueled the huge increase in homeownership in the United States began with low “teaser” interest rates that rose to double-digit rates available to homebuyers in later years. It was a variable rate mortgage. They can no longer afford it, leading to widespread defaults. Mortgage lenders often don't just hold the loans, they sell them to investment banks, which bundle hundreds or thousands of loans with other loans to create “mortgage-backed” securities. I was there. In this way, these loans spread throughout the global financial system, causing overleveraged banks to fail and causing financial system contraction. credit. The housing market declined further as banks were reluctant to lend and excess inventory and foreclosures from the bubble period flooded the market, driving down real estate values.
Around the world, central banks have stepped in to shore up financial institutions deemed “too big to fail” and taken steps to prevent further major banking crises. Finance ministers from G7 countries have met multiple times to coordinate their efforts. These measures range from lowering interest rates and implementing quantitative easing (an attempt to increase liquidity through the purchase of government bonds and bonds) to injecting capital directly into banks (a technique used by the United States in its Troubled Asset Relief Program), to The measures ranged from financial easing. Or complete nationalization of financial institutions.
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Which country was the first to experience a financial crisis other than the United States? Iceland. Iceland's banking system completed privatization in 2003, after which the country's banks became heavily reliant on foreign investment. Notable among these institutions was Landsbank Inn, which offered high-interest savings accounts to residents. with the UK In the Netherlands, through the Internet-based Icesave program. Iceland's financial sector assets eventually exceeded 1,000 percent of the country's assets Its gross domestic product (GDP) was large, with external debt exceeding 500% of GDP. In October 2008, the Icesave run led to the collapse of Landsbankinn. When the Icelandic government announced that it would guarantee the funds of domestic account holders, but not those of foreign account holders, the news sent ripples through the financial systems of Iceland, the Netherlands, and the United Kingdom. About 350,000 British and Dutch IceSave depositors lost about $5 billion, and the ensuing debate over who would compensate them created a diplomatic rift between the three countries that will take years to repair. It happened.
Within weeks of IceSave's collapse, Iceland's massively overleveraged banks virtually disappeared, the stock market plummeted by about 90 percent, and Iceland, unable to cover its external debt, filed for bankruptcy. declared to be in a state. The Icelandic government collapsed in January 2009, and the next prime minister Johanna Sigurðardóttir imposed a series of austerity measures to qualify for state bailout loans. International Monetary Fund (IMF). However, what separated Iceland from the ensuing debt crisis was its ability to devalue its currency. Iceland is not a member of the eurozone, and the country's currency, the krona, was allowed to depreciate significantly against the euro. After that, inflation soared and GDP contracted sharply, but real wages began a gradual recovery in 2009.
crisis spreads
Since the creation of the eurozone, many member states have violated the financial guidelines set out in the Maastricht Treaty. European Union (EU). These requirements included keeping the annual budget deficit at no more than 3% of GDP and public debt at no more than 60% of GDP. Greece, for example, joined the eurozone in 2001 and has consistently exceeded its budget deficit limit every year. However, the lack of actual punitive enforcement mechanisms meant that there was little incentive for countries to comply with the Maastricht guidelines. Each of the PIIGS countries reached a moment of crisis due to different factors: the bursting of the housing bubble; Spain's collapsed domestic banking sector Ireland's economic growth slows with portugal These included ineffective tax collections in Italy and Greece, all of which posed a threat to the euro's survival.
The EU's response to the crisis was led by the German Chancellor. Chancellor Angela Merkel, President of France. with Nicolas Sarkozy President of the European Central Bank (ECB) Jean-Claude Trichet (succeeded by Mario Draghi in October 2011). As Europe's largest economy, Germany would bear much of the financial burden of an EU-funded rescue plan, and Merkel paid a domestic political price for her commitment to preserving the EU. Billions of dollars in loans from the EU and IMF will ultimately be pledged to the struggling eurozone economy, but their implementation will depend on recipients' willingness to implement far-reaching economic reforms. Become.
