Debt crisis

Debt crisis is a situation in which a country is without the ability of paying back its government debt. When the expenditures of its government are more than its tax revenues for a prolonged period, a country may enter into a debt crisis .In any country,the government finances its expenditures primarily by raising money through taxation. When tax revenues are insufficient, the government can make up the difference by issuing debt. Debt crisis is a situation in which a country is without the ability of paying back its government debt. When the expenditures of its government are more than its tax revenues for a prolonged period, a country may enter into a debt crisis .In any country,the government finances its expenditures primarily by raising money through taxation. When tax revenues are insufficient, the government can make up the difference by issuing debt. Debt crisis is the general term for a proliferation of massive public debt relative to tax revenues, especially in reference to Latin American countries during the 1980s, the United States and the European Union since the mid-2000s, and the Chinese debt crises of 2015. The European debt crisis is a crisis affecting several eurozone countries since the end of 2009. Member states affected by this crisis were unable to repay their government debt or to bail out indebted financial institutions without the assistance of third-parties (namely the International Monetary Fund, European Commission, and the European Central Bank). The causes of the crisis included high-risk lending and borrowing practices, burst real estate bubbles, and hefty deficit spending. As a result, investors have reduced their exposure to European investment products, and the value of the Euro has decreased. In 2007 the global financial crisis began with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. The crisis was nonetheless followed by a global economic downturn, the Great Recession. The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later. In sovereign debt markets of PIIGS(Portugal, Ireland, Italy, Greece, Spain) created unprecedented funding pressure that spread to the national banks of the euro-zone countries and the European Central Bank (ECB) in 2010. The PIIGS announced strong fiscal reforms and austerity measures, but toward the end of the year, the euro once again suffered from stress. The eurozone crisis resulted from the structural problem of the eurozone and a combination of complex factors, including the globalisation of finance, easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices, the financial crisis of 2007–08, international trade imbalances, real estate bubbles that have since burst; the Great Recession of 2008–2012, fiscal policy choices related to government revenues and expenses, and approaches used by states to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, in the early 2000s, some EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards. This allowed the sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions, and the use of complex currency and credit derivatives structures. From late 2009 on, after Greece's newly elected, PASOK government stopped masking its true indebtedness and budget deficit, fears of sovereign defaults in certain European states developed in the public, and the government debt of several states was downgraded. The crisis subsequently spread to Ireland and Portugal, while raising concerns about Italy, Spain, and the European banking system, and more fundamental imbalances within the eurozone.