The European sovereign debt crisis started. in 2008 with the collapse of Iceland's banking
system. Subsequently, several European countries faced the implosion of financial institutions,
high government debt and rapidly rising bond yield spreads in government securities. In this
context, Greece is an example of a country whose government debt is a matter of grave concern
since it has received the second bailout but still threatens to default. This is ironic since a
developed economy like Greece is considered to aide developing economies. The main aim of
this dissertation is to conduct an econometric analysis of the determinants of the Greek sovereign
debt crisis while the secondary aim is an extensive literature review of the Eurozone sovereign
debt crisis. Regarding the former aim, the variables selected include the government deficit,
current account balance, inflation, gross savings and general government debt of Greece. This
annual data (from 1976 to 2010) was collected from the World Development Indicators,
European Commission data base and the International Monetary Fund. The Vector Error
Correction Model framework was used to estimate our model. Also, the Granger causality
analysis helped to identify the direction of causation. Furthermore, the Variance Decomposition
and the Generalized Impulse Response Function were employed to analyze the shocks of all our
variables on each other. Finally, for the latter aim, we critically review the evolution, causes,
consequences and cures of the Eurozone sovereign debt crisis and then formulate some
suggestions on how to mitigate the effects of this crisis.
The results of the econometric analysis show that there is a significant negative relationship
between general government debt with government deficit and inflation. However, a significant
positive relationship between general government debt and current account balance was found.
There is an insignificant negative relationship between gross savings and general government
debt. The past value of the general government debt and government deficit has the ability to
determine the present value of inflation; and in turn, pass value of inflation, can predict the
present value of current account balance and gross savings. Variation in most of our variables is
highly explained by our variables itself, with the exception of current account balance where
variation is explained mostly by general government debt. The response of general government
debt to itself is positive. Gross government debt to government deficit and general government
debt to current account balance is negative. General government debt to inflation is positive. A
shock of gross government debt has an increasing negative effect on gross savings over the study
period. Among the causes of the Eurozone sovereign debt crisis is the rapid growth of
government debt levels, trade imbalances, monetary policy inflexibility, and loss of confidence.
Consequences of this crisis involve disrupted bond markets and the banking sector, depreciation
of the Euro, reduced economic growth, loss of confidence, reduced remittances and tight fiscal
measures. Some measures were taken and many are proposed as a cure for this crisis. This
dissertation recommends that policies aimed at decreasing the level of general government debt
should increase expenditure hence deficit in an income generating investment, increase inflation
while decreasing current account balance. / Thesis (M.Com.(Economics) North-West University, Mafikeng Campus, 2012
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/15784 |
| Date | January 2012 |
| Creators | Mah, Gisele |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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