“HENRI COANDA” “GENERAL M.R. STEFANIK” AIR FORCE ACADEMY ARMED FORCES ACADEMY ROMANIA SLOVAK REPUBLIC INTERNATIONAL CONFERENCE of SCIENTIFIC PAPER AFASES 2013 Brasov, 23-25 May 2013 THE SOVEREIGN DEBT CRISIS – DETERMINING FACTOR IN ENHANCING THE INSTABILITY DEGREE AT MACROECONOMIC LEVEL Stelian STANCU*, Alexandra Maria CONSTANTIN*, Oana Madalina PREDESCU(POPESCU)*, Steliana Violeta STANCU (POPA)** *Academy of Economic Studies, Bucharest, ROMANIA **Constantin Brancoveanu University, Pitesti, ROMANIA Abstract: The sovereign debt crisis certainly affects macroeconomic evolution, with its strongest impact being upon economic instability. Thus, the current paper has several specific objectives: to present the theoretical aspects related to sovereign debt crisis; constructing a mathematical model regarding sovereign debt crisis impact and completing an empirical study regarding the impact of the sovereign debt crisis on economic instability in Romania; presenting several measures to decrease the impact of the sovereign debt crisis on economic instability. Keywords: economic instability, sovereign debt crisis, EU, budgetary deficit 1. INTRODUCTION The factors that guide the macroeconomic mechanism are determined by both the international context and the dependency relationships between the countries of the world. Thus, shocks at national and international level can enhance the degree of instability at macroeconomic level, determining, in this way, disorders of the dynamic components of the economic unit. The sovereign debt crisis, determining factor in enhancing the degree of instability, is based on a debtor-creditor relationship between two countries that have constraints regarding the underlying credit payments, the creditor not being able to pay the obligation in time. The current economic situation at global level is determined by the commercial relationships between the countries of the world. In order for each country to reach a balance at macroeconomic level it must finance itself or make a loan as to cover the budgetary deficit. The sovereign debt crisis can be determined by several factors such as the effects of the monetary crisis, the effects of the financial crisis, the fluctuations at macroeconomic level etc. A first aspect is the one regarding the monetary crisis. This concept designates that short period of time when the exchange rate depreciates continuously, this phenomenon leading to the depreciation of the national currency and hence to an increase in the incapacity of payment as the GDP falls. The second aspect is the one related to the financial crisis. The financial crisis refers to “any deviation from the optimal saving-investment plan of an economy that is due to imperfections in the financial sector” (after Haldane, 2004) or to the fact that instability is characterized by an increased loss probability or decrease in the profit (after Goodhart, 2006).