EURO AREA ECONOMIC CRISIS: SOME BASIS AND WAYS OF OVERCOME Maisuradze M.Yu.

Scientific Associate, PhD (Economics) Institute of Industrial Economics of the NAS of Ukraine, Donetsk, Ukraine Maisuradze A. 4th-year student, aculty of !ana"ement Donetsk National #echnical Uni$ersity, Donetsk, Ukraine With process of financial globalization development of international financial system is characterized by significant increase in the countries public debt. Nowadays the national debt is an integral part of financial system in many countries and it is one of effective tools in the mechanism of macroeconomic regulation and implementation of economic strategy. Rapid growth of external debt in the world could be grounded by the need to increase reserves and to ensure stability of the national currency, by the large budget deficit, the imported energy resources dependence, the production needs of national economies etc. Management and maintenance of public debt is one of the priority tas s of the governments financial policy and an important criterion for stability of the global financial system as a whole. !urthermore, an effective debt management can prevent crises and ensure stability of socio"economic development. #mportance of managing the public debt was emphasized by many economists, among them are $.M. %eynes and $. &tiglitz. Nevertheless, there is insufficient attention to the external debt crisis problems and to ways of its overcome. 'he goal of this article is to study the basis of the debt crisis in (uro area countries and to outline possible ways of its overcome. )ne can define the public debt as a challenge posed by the budget deficit. #t represents amount of an outstanding budget deficit accumulated during existence of the state. * violation of the repayment schedule of loans borrowed by the country is one of signs of external debt crisis.

+risis begins when a country announces its insolvency because of impossibility to pay off its debt, or cancellation of the debt. (mergence of the external debt crisis is usually explained by structural and specific factors ,-. /0. &tructural factors are associated with underlying economy trends of the debtor country. these include1 the general recession or negative external shoc s. the difficulties in the balance of payments. the decrease in long"term capital inflows attracted by favorable terms. the increase in short"term loans due to mar et conditions. the withdrawal of capital from the country because of current economic and political situation. the loss of confidence to the country from foreign lenders due to the growth of its accumulated debt and the corresponding reduction in foreign lending. !rom the other side, specific factors are associated with depressed state of the countrys economy because of structural, financial, or cyclical crises. !or example, the debt crisis of the -234s was caused by a relative excess of ban capital and repeated increases in oil prices in -256, -252 and -234. 'ransfer of transnational corporations into developing countries, caused by rise in investment demand due to low interest rates, led to augmentation of governments current expenditures for compensation of higher oil prices. #n *ugust -23/ Mexico was unable to pay its debts to foreign commercial ban s and at the same time some of 7atin *merican countries announced termination of their debts payments. &o, the external debt crisis 8uic ly spread to a large number of countries and has evolved from the regional to the global phenomenon ,90. :ut, opposed to the crisis of the -234s, (uro area crisis was grounded at structural factors. (uro area debt crisis began in late /442 when the new ;ree government revealed that previous governments had been misreporting the government budget data. <ereupon growing budget deficit eroded investors confidence that caused an extremely rise of bonds. =ue to panic the fears, concerned fiscal positions and debt level of a number of (uro area countries, were unsustainably spread. #n May /4-4 ;reece received the financial assistance pac age >loans? from other (uro area governments and the #M! in order to avoid defaulting for its debt. #nvestors became increasingly nervous about public finances in #reland and @ortugal

and, as their bond spread rose, the two countries also re8uested (uropean #M! fro financial assistance pac ages that were finalized in =ecember /4-4 and May /4--, respectively, than #taly and &pain claimed of their difficulties,6, /. A0. #n general the policy measures have failed to reassure mar ets ,6, /0. 'hus, the debt crisis has negatively influenced economic development of debtor countries. 'he burden of the debt slowed economic growth leading to higher interest rates and forced the governments to use loan capital to finance internal and external deficit. +onsidering more thoroughly the external debt of (uro area countries ,B0 one can find that since -22A #talians percentage of the debt at ;=@ was more than -44C, only after /443 in the most of (uro area countries this ratio grew up considering that over the -4 years before /443 (uro area countries thought to be well developing. 'he greatest impact at (uropes ;=@ growth had ;ermany, !rance and the D%, their growth rate slowed in /4-4"/4-- because of the crisis of /442. #t should also be noted that not only (uropean countries growth rate of ;=@ slowed, the same trend was observed in the Dnited &tates, $apan and +anada ,50. )n the average for (uro area countries the ;=@ growth index exceeded E-F only in /4--, but for such a large debtor as ;reece this mar has been left unable until now. =espite (uro areas economy recover in /4-/"/4-9 the crisis is far from its over, and it is not only ;reece who experiencing obvious problems with its external debt. 'he lowest ratio of the total external debt to ;=@ in the last A years was in (stonia >less then 3C? and 7uxembourg >less then /4C?, who did not suffered very much of the crisis, but such countries as ;ermany and !rance have had the ratio of the total external debt to ;=@ more than 34C since /4-4 ,B. 50, and this shac ed their economy. *s for ;reece and #taly, their debt ratio seriously affected their financial viability and further recovery. (uro area countries ;=@ slowed after the crisis of /442 that negatively affected the overall external debt of these countries, and despite return in financial confidence (uro area countries real economy remains sic . !orecasts from the

(uropean +ommission in May /4-9 showed (uro area ;=@ shrin ing by 4,6C in /4-9, following a contraction of 4,BC in /4-/ ,30. 'hus, some strategic points to the ways of outcome are1 the debt restructuring. the conversion of debt securities and direct investments. the discounting of the debt. the sale of the debt on the secondary mar et etc. ,-. 90. *t the same time, traditional mechanism of the debt restructuring could be used1 the adoption of the countrys program of stabilization and economic reforms supported by the #M! and the World :an >concessionary loans?. the agreement of the @aris +lub of official creditors to restructure the net flow of funds related to the debt servicing on concessional terms, and the restructuring of the loan after three years of strong program of adGustment and reform approved by the #M!. the debtor countrys bilateral negotiations with the countries outside the @aris +lub and private creditors to grant the same conditions of debt restructuring that are granted by the @aris +lub. the issuance of new concession loans to the debtor country >to ensure radical economic and structural reforms that in the future will contribute to the payment of the debt? ,90. *lso one can propose financial assistance to the ban s in improving their li8uidity >with the support of the (uropean +entral :an ?, pursuing substantial economic reforms and reforms in economic governance ,60. 'hereby, the external debt has become a maGor factor in slowdown of (uro areas development. the burden of the debt service payments continues to ma e the budget deficit deeply. 'he central role in solving the problem of the external debt fulfills (uropean monetary and credit institutions. &olutions for the debt problem could be found by accepting this, it should be a shared responsibility of debtor and creditor countries, commercial ban s and international financial institutions. References

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