Understanding The European Debt Crisis

In 2007, European economies were at their strongest in decades due to the favourable economic conditions at the time.  The onset of the global financial crisis brought heavy and long lasting impacts on these economies. The main reasons for this down turn were connectivity and contagion of the financial systems, a drop in trade activities on a global scale and the effects of confidence and wealth on demand. Most of the losses initially originated from the American sub-prime crisis on mortgage. The global nature of most of Europe’s biggest insurance and banking corporations made them vulnerable to the American crisis. Year 2009 projections from the UK audit firm Ernst &Young showed that 51% of banks and 70% of insurance firms in 10 of Europe’s biggest economies had lost significant value with some institutions experiencing a deep of up to 96% in market capitalization.

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