The European Economic and Monetary Union is in the midst of its worst crisis since the single currency was introduced in 1999. Countries such as Greece, Portugal and Spain are struggling to finance their budget deficits and are seeing interest rates surge on their sovereign debts.
Global investors are now giving these countries a wide berth out of fear that they will not be able to repay their debts – in other words suffer sovereign bankruptcy. With no sign of investors returning, the EU and the IMF have been forced to put together a loan package of EUR700bn while at the same time buying up government bonds in the market and thus in reality taking on a portion of the existing debt.
Bond purchases are being made via the European Central Bank. The loan package ensures that the above countries can finance their budget deficits for roughly the next two years – giving them a breathing space in which to get their finances under so much control that they can tempt investors to return. The ECB purchase programme also means that investors wishing to divest their bonds can do so without the market collapsing and yields exploding.
You can download the full article in PDF format below.
Danske Business: Could the euro collapse?