What Is the European Debt Crisis?

What Is the European Debt Crisis?

The reason for rising bond yields is simple: If investors see higher risk associated with investing in a country’s bonds, they will require a higher return to compensate them for that risk. This begins a vicious cycle. The demand for higher yields equates to higher borrowing costs for the country in crisis, which leads to further fiscal strain, prompting investors to demand even higher yields, and so on.

A general loss of investor confidence typically causes the selling to affect not just the country in question, but also other countries with similarly weak finances—an effect typically referred to as “contagion.”

European Government Response to the Crisis
The European Union has taken action, but it has moved slowly since it requires the consent of all nations in the union. The primary course of action thus far has been a series of bailouts for Europe’s troubled economies.

via thebalance What Is the European Debt Crisis?