Europe's debt crisis

On the surface, Greece was crippled by a heavy reliance on short-term debt and a huge fiscal deficit. However, the root cause of Greece's problem can be traced to its accession to the euro area, which deprived the country of the flexibility to use independent monetary and currency policies to cope with its own economic needs. If the gap in economic power among members in the area is not narrowed, similar crises may reoccur again and again. Such structural change could thwart the momentum of economic recovery in Europe and even throw it into deeper recession. Also It has set alarm-bells over possible cuts to the EU's budget for 2011, as member states attempt to rein in their spending in the face of the EU's debt and deficit crisis.

By setting aside differences in euro zone and to save Greece from financial crisis, The 27 euro zone leaders with the help of IMF agreed to a $1-trillion rescue package to restore confidence in the euro, including standby funds, loan guarantees and commitment from the ECB to buy government bonds in the open markets, to defend euro.

Analysts said the measures had put out the fire for now by eliminating fears that governments would lack funds to pay off their debts. But several raised long-term worries about spreading debt of budget sinners to more responsible governments, and pointed to the lack of tough rules to keep debt from piling up again.

This might in turn affect Asia's economic performance, which relies heavily on exports to Europe. Furthermore, Asian countries also need to guard against asset bubbles that are likely to be created by a fresh wave of global liquidity reallocation.

Rescue Plan

EU-IMF brought together $1tn (€ 750) plan to contain spreading of soverign debt related financial crisis within eurozone and outside. The leaders agreed on the significance of strengthening fiscal discipline & establishing a crisis resolution framework.

€440 billion in loan provisions from eurozone countries

€60bn in EU loans with the EU budget as collateral

€250b Contribution of IMF for the euro fund

How this crisis would help the emerging markets?

It is worth noting that this global financial turbulence may be a blessing for emerging markets such as India as international investors would invest their cheap money in these nations to capture high economic growth. Their central banks may keep interest rates at record lows to prevent the financial systems and economies from collapsing. Thus the loose monetary policies adopted by the these nations would lead to a flood of hot money into Asia.

Nations Most Exposed To the PIIGS

The European sovereign debt crisis continues to rattle global markets and the recent proposed stimulus package start people questioning whether the Eurozone will be able to survive more financial trauma.

At the centre of concerns are the "PIIGS" nations - Portugal, Italy, Ireland Greece and Spain - heavily indebted countries in danger of default that could trigger an economic domino effect around the globe. These debt-ridden countries if default on debt it could lead to catastrophic consequences for the country's economy