Debt Crisis Management Case Study

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1. What is a sovereign debt?
Debt is instrument issued by one country government to another country government for development process like infrastructure, improving health standards, education and defense. When government is not able to pay the debt, they tax its own people and if they needed print more currency, which creates the economic harm in the form of inflation and unemployment.

2. What is a sovereign default?

3. What are three primary methods which might be used individually or in combination to resolve the debt crisis?

Throughout the period 2009-2011, European Union and other international institution tried to find the solutions for growing EU debt crisis. Debt crisis management prepares the both short and long term plan, but they needed to combine remedies for both symptoms and the cause. Debt …show more content…

The EFSF is a public limited company combined by 16 countries sharing the euro in 2010. The main purpose of EFSF is to provide financing to EU members through loans. The specific tools are available to the EFSF involved the ability to extent loans to members and to finance through loans to government member. EFSF issue bonds and other financial instruments in capital market. First EFSF is temporary, but euro member think to create an EFSF permanent rescue mechanism, the European stability mechanism (ESM). The ESM treaty was signed in 2012 by all the members, from 2012 ESM is a sole instrument to provide finance. The EFSF will continue to operate its roll over outstanding EFSF bonds, which were issued to raise funds for Ireland, Portugal and Greece. This is necessary because the maturity of loans provided to these countries is longer than maturity period of bonds issued by the EFSF. As from 2013, the EFSF is no longer engage in financing new bonds or enter into new loan facility agreements. The ESM is sole and permanent mechanism for providing financial assisting to euro

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