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

concentrate on expanding services to consumers and businesses to improve their profitability and sustainability. The European debt crisis impact on insurance companies was due to their debt exposure to European sovereign bonds. Indeed, insurers invest heavily in financial markets and primarily allocate their assets in bonds; therefore they are highly sensitive to interest rates fluctuations. Declining interest rates on the PIIGS sovereign debts resulted in lower investment returns and impacted insurers’ profitability (Willis Market Security, 2011, pp. 2-7). As shown in Figure 13, the major companies’ debt exposure to Italy sovereign debt was the highest, approximately € 200 billion in 2010 and 2011. Source: KPMG Figure 13: Main Insurance Companies Exposure to Sovereign Debt, 2010 and 2011 V. E ffectiveness of P olicies and M easures Several measures have been implemented by financial institutions and European policy makers to respond to the ongoing crisis. The first set of measures relates to government bailouts. Greece was the first country to seek official financial assistance. During 2010 and 2012, emergency loans of over €240 billion were provided to Greece by the EU, the IMF and the ECB. The bailout’s objectives were to enable Greece to restructure its debt and meet its budget targets. Subsequently, two temporary facilities were established in 2010 to provide financial assistance to distressed economies through loans and bond purchases: The European Financial Stabilisation Mechanism (EFSM) and European Financial Stability Facility (EFSF) (Papadimas, 2010). Portugal and Ireland were respectively granted loans of €67.5 billion and €78 billion through the EFSM and the EFSF. The European Stability Mechanism (ESM) was set up in 2012 as a permanent replacement for the EFSF and EFSM (ECB wp, M. D. Paries, R. Santis, 2013). In parallel, the ECB set up conventional and unconventional measures to increase the liquidity, reduce credit risk and restore confidence on financial markets. The ECB first decreased the key interest rate in April 2010 from 1 % to 0.25 % to lower borrowing costs and boost investments. The unconventional measure was to intervene in the financial markets by launching the Securities Market Programme (SMP). The SMP enabled the ECB to purchase securities and aimed at stabilizing the transmission mechanism of monetary policy. As a result of the measures implemented by the European policymakers and financial institutions, Figure 14 shows the bond market regained ground starting from 2013, as the borrowing costs of the PIIGS have fallen to pre-crisis levels (Alderman, 2014). Lessons Learned from European Sovereign Debt Crisis 62 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals