Financial Mathematics, Volatility and Covariance Modelling

6Sovereign debt crisis and economic growth

New evidence for the euro area

Iuliana Matei

1. Introduction

The recent economic and financial crisis in Europe and the institutional changes in reaction to the crisis have considerably renewed the debates on the detrimental impact of debt crisis on economic activity. After the 2009 Greek government announcement relying on untenable budget deficits, several euro area (EA) economies faced market concerns of sharp increases in fiscal deficit and government debt. Indeed, public debts strongly increased in some peripheral European countries and this movement became quickly a problem for the entire region sharing the euro currency because of beliefs that high public debts would hurt their economic growth ...