Financial Crisis And Its Effect On The Stock Crisis

BACKGROUND: The Global Financial crisis started with the burst of US housing bubble, which peaked in 2006. The main reason for this was the subprime lending, deregulation of the financial sector, off book financing and underwriting practices. Loans were issued to the customers with poor credit rating thinking that the price of houses will rise in the future and due to overvaluation. This resulted in decline in credit availability, damaged investor faith, and reduced international trade and an impact on the stock market. As European Union has high trade ties and financial ties with US, the European Union suffered the effects of this financial crisis as well resulting in the Global Financial crisis of 2008 or the Great depression of 2008.†¦show more content†¦In addition monthly allowances were given to the children of these employees. This resulted in increase in debt for every government that came by. (Krajewska, A. 2014) General Government revenues and expenses 2003 2004 2005 2006 2007 2008 2009 2010 General Government Revenues (% of GDP) 39.0 38.1 38.6 39.2 40.0 39.9 37.3 39.1 General Government expenditures (% of GDP) 44.7 45.4 44.0 45.2 46.6 49.7 52.9 49.5 Source: OECD data International factors: †¢ Due to the Global Financial crisis the exports from Greece reduced as it affected other Euro countries as well. The financial assistance from other countries was reduced. (Rady, D.M. 2012) †¢ Greece’s GDP growth rate came to -2.0%. †¢ Due to European integration, Greece was unable to devalue the Euro and reduce the amount of foreign debt and consequently lead to accumulation of debt. (Krajewska, A. 2014) †¢ The involvement of the â€Å"troika† i.e European Commission, European Central Bank and International Monetary Fund has helped Greece for two major bailout loan programs but in exchange has been dictating their domestic policies. Policies ranging from tax reforms, they have controlled wage cuts to the changes in regulations of even small domestic products. Failure to comply with Troika members may lead Greece to face a major default and may also lead to Euro exit but on the other hand upholding their policies is crushing the economic growth