Economics
2010. As a result, it became more costly to hedge a Greek bond against default. On April 27th 2010, Greek debt was downgraded to junk status. Thus, yields on 2 year Greek bonds rose 13% up from 6.3% a few days before. Also, the yield for 10 year bonds went above 10%. Speculators used this as an opportunity to bet on the downfall of the Euro & the fact that richer northern European countries will try to rescue the smaller countries. They speculated using Credit Default Swaps (CDS), which is an instrument that lets you buy insurance for a vehicle or house you don’t own. there is damage to that vehicle or house you get compensated for it even though you do not own it. Speculators used CDS to bet that Greek bonds would lose value. If that happened investors would get compensated for it. To avoid further damage, European Central Bank (ECB) started buying more of Greek bonds. Thus, ECB ended up owning a lot of junk bonds which increased its risk. In countries such as Greece where economic assistance was provided, the assistance came with a lot of austerity requirements which led to unrest within the country. The root cause of the crisis was the idea to have a monetary union within the member countries without the presence of a fiscal union. As a result, monetary policy is designed by the central bank but fiscal policy is designed by the member countries independently. So if a country does not manage its finances with responsibility it does not have the option to devalue its currency, make its exports more competitive, and find a way to earn money. Another outcome of the monetary union was that countries such as Spain could not increase interest rates even though they saw a huge real estate bubble building up. One more outcome of the Euro has been that it has increased the friction between states as the Southern states feel that Northern states are imposing unreasonable austerity measures on them. The way forward Let Germany, Finland, France, Austria & the Netherlands exit the euro & have their own common currency. This currency could have a higher value due to higher competitive nature of the ??????????Q??????????????????????T???????????????????????????????????????????????????????????????????????????????????????????????????????9???????????????? ?????????????????????????????????????????????????????????????????M???????????????? ??????%?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????9?????????????????????????????????????????????????????????????????Q????????????????????????????????????????????????????1???????5????????Q?????????????????e?????????????????Q????????????????????T???????????????????????????????????????????????????()?94???5?????((??((0