Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 22 Issue 2

The European stock markets also experienced a downward trend as a result of the financial crisis. According to Figure 7, stock markets remained volatile between 2008 and the beginning of 2012 because of the political and economic uncertainty. However, when the newly appointed ECB President, Mario Draghi, pledged “to do whatever it takes to preserve the euro” in July 2012, the German and British equity markets improved (Randow, 2012). In addition, as the federal funds rate was kept at the historical low of 0.25%, investors shifted to equities as they were more lucrative investments. Source: Bloomberg, 2014 Figure 7: Most liquid European Stock Markets Consequently, risk averse investors sought safer asset classes such as gold. Figure 8 depicts the upward trend of gold price since 2009. Gold price started to decrease in September 2012 when the European economy seemed to recover. Source: Bloomberg, 2014 Figure 8: Gold Price Increases in Uncertain Time Periods, 2007-2014 IV. I mpact on F inancial I nstitutions The main effects of the debt crisis on financial institutions, such as commercial banks, investment banks and insurance companies were lower profitability and rising insolvency risk. In the last quarter of 2009, foreign and European banks had a debt exposure of € 560 Billion to the PIIGS’s debts. Figure 9 illustrates banks’ exposure to PIIGS’ debts. Europe financing systems are interconnected so even though the PIIGS are relatively small countries their risk of default caused a threat to the whole banking system (Bloomberg, 2013). Lessons Learned from European Sovereign Debt Crisis 59 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals