Greece Out of Euro

Topic: Can the issue of Eurobonds be a solution to the current debt crisis? Word count: 697

Eurobonds is definitely the solution for Euro-crisis?!

By Jean-Timothy Leonora in Netherlands Published: September 30 2011 08:00

This euro-crisis is driving everyone crazy: residents, investors, companies, countries and so forth. Everything started with the credit crunch that hit the VS in 2007; first victims were the house markets, followed by financial institutions, than the whole banking system had liquidity problems which led to disturbance in the international financial system and nowadays we are dealing with the Euro-crisis. Greece is now facing probability to go bankrupt. What should we do about Greece? How can we help Greece? What will happen if Greece defaults? And so you can go on asking yourself more question that has not been answered yet and actually we don’t have the time anymore to answer them. One possible solution to fight the Euro-crisis is that the Euro-zone has to start issuing Eurobonds. Before we go deeper into Eurobonds, I want to explain what will happen to Greece if it defaults. First of all EU wouldn’t look so good, because people are going to ask why didn’t we save Greece. Uncertainty still remains in the market, because one does not know what the effects are after default and which banks have a high exposure to Greece’s debt. This uncertainty will stand in the way of further economic growth. And what about the ‘popular’ name PIIGS, see table 1. After Greece defaults Ireland and Portugal will follow, this is the so called domino effect, Italy and Spain are save for now because the ECB is buying their bonds. If you look at table 1 you can see the amount of debt that Italy and Spain has, these two debts accumulates to more than 80 % of the total debt (PIGGS). Why Italy and Spain? Maybe it’s the low interest rate that looks great or is it maybe because Italy and Spain will have a bigger impact on the economy if they default.

Public debt GDP...