The aim of this document is provide empirical evidences and theoretical knowledge about how the compelling current Sovereign Debt Crisis in the periphery Euro-zone countries was triggered in accordance with Moral Hazard theory, because the implicit and explicit externalization of risk cost for commercial financial institutions. Different from traditional working papers that concentrated only on weak macroeconomic fundamentals and contagion effects as the main origins of the previous financial crises. This research is dealing with the question how moral hazard problem in the Euro-zone periphery after the introduction of the Euro currency as a global competitor of the U.S.A. Dollar caused and/or nurtured their Fiscal and External unbalances. This after a short period of euphoria and wellbeing, with reduction of the interest rate and easily access of fresh capital to finance unprofitable and risky biased businesses without appropriate banking regulation; ending up in a vicious circle between weak banking system and fiscal imbalances. After assessing different economic and financial statistics from the Euro-zone, as the ratio Short Term External Debt/Foreign Exchange Reserve as a Moral Hazard index and Fiscal and External unbalances Accounts, making a comparison with North-core Euro countries. The first evidence is that the Sovereign Debt Crisis was originated in the awkward circle between weak financial system and implicit guarantees provided by negligent governments without financial regulation and supervision; while politicians differed necessary reforms as Fiscal Union.
Hernán Ricardo Briceño Avalos,
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