Eurozone Debt Crisis

The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the centre of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.

The Eurozone debt crisis has been and continues to be a hot button topic in the economic and financial world with Greece at its center. As the possibility of the first default by a country in modern history looms over Greece there are a multitude of questions to be answered. This paper will focus on the effect joining the euro had on the Greek current account deficit. Was there a deficit problem before Greece joined the Eurozone in 2001? How did Greece’s deficit change after joining the Eurozone?

The European sovereign debt crisis, which made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.

How is it possible for an economy, associate of the Eurozone, that was considered to be an achievement of junction in Europe for more than a decade to turn out to be considered a deep fiasco in the early 2010 and undergo a profound and exceptional financial catastrophe, in which it vanished nearly 25% of its GDP in a time frame of 5 years. Observation of the Greek economy by global policy makers and markets changed significantly in a period of a few months. It was an uncommon episode in financial history that merits a closer analysis in order to evade alike conditions in the future. The understanding or the perceptions about the reasons of the crisis define to a great degree the policy answer to the crisis. The debate about the policy mix develops a more complex issue when the origins of the crisis are both national and European. The policies that were applied in order to challenge it and particularly about the strength of the affiliation among the roots of the disaster and the policy reaction mix. Finally, it would definitely benefit us all to know if there was a substitute policy response track.

The European financial crisis has been an economic struggle for quite some time now. Because Europe’s economies are interdependent, when one gets out of balance the others are affected as well. One can argue, that the growing current account imbalances within the Euro area indicates an ongoing process of economic divergence rather than convergence. This is the foundation for why this debt crisis has been so difficult to solve. European officials and the best economist the world has to offer still have no viable solution for the matter at hand. We will look at several different aspects of the debt crisis, such as the

With the collapse of the Wall street financial market in 2008, Greece become the center of Europe’s economic crisis. With employment rates more than 25 percent, Greece is suffering from a financial crisis equivalent to if not greater than the U.S. Great Depression. The source of the crisis originated in the inefficient management of the Greece’s economy and government finances. Additionally, Greece’s involvement in the euro zone reflected a monetary policy that was at odds with its fiscal policy. The crisis resulted in troika providing emergency funds to pay off Greece international loans.

The continued existence of the Eurozone is in question, as demanded bond yields in Italy and Greece ascend to new heights, and governments are unable to budget their future outlays. Austerity is often proposed as a means to allow these troubled governments to pay back their debts in the future, but many question whether it can truly lead to growth. The breakup of the Eurozone, while very possible, threatens to spread financial instability to other European nations and even the United States. Originally designed to ensure financial stability, the common currency area appears to restrain policymakers both fiscally and monetarily in these times of economic depression when they might benefit most from expansionary policies. A key problem

There was a downgrade of the Greek government in April 2010 that alarmed the financial markets. Bond yields rose so high that private capital markets were no longer an option for Greece as a support foundation. In May 2010, the Eurozone countries and the International Monetary Fund gave Greece a “bailout loan” of $110 billion, conditional on compliance with 3 conditions 1.)restore fiscal balance 2.) privatization of government assets worth $50 billion by the end of 2015 to be sustainable 3.) to improve competitiveness and growth prospects. Sadly, Greece worked slower than expected and they needed another year offer and more

Europe's debt crisis is a continuation of the global financial crisis and also the result of how Europe attempted to solve the global financial crisis that brought an end to a decade of prosperity and unrestricted debt. European attempts at defending itself against a deep recession, has now created a new crisis of unsustainable and un-serviceable sovereign debt. In early 2010 fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning some European states including European Union members Portugal, Ireland, Italy, Greece,  Spain,(affectionately known as the PIIGS) and Belgium. This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between

The sovereign Euro crisis inflicting the Euro zone nations have both internal integration significance and international economic. It rarely truncated the internal integration of economic crisis but also accentuate effects to immediate distant nations including Australia (Malcolm Edey, 2011). The Euro zone member states experienced sovereign debt crisis which largely affected international economic and European integration. Regional economic crisis had immediate and clear effects on the far off nations including Australia. The sovereign debt crisis emanated from Euro zone governments facing bond market rates and unsustainable to repayments. These culminated in low resolution measures and high public debt (Prideaux, 2000) This meant potential decline in the GDP and decreased levels of exports. The EU summit was seen as a hope to a resolution of the European crisis but the agreement by the European leaders lacked focus on resolving the immediate issues. Its great attention was guaranteeing the survival of the Euro zone in its current form. There is a real possibility of departure of one or more countries from the Euro zone. Financial markets geographically distant from Europe to face European crisis.

In 2010, the IMF, along with European Central Bank and the then-sixteen members of the European Union, drew up an economic bailout package in the form of €110 billion loan to ‘rescue’ Greece from “sovereign default”—i.e. Greece’s inability to pay back its existent debt. This action was a response to the growing fear of default from (mostly private) investors around the time of the Great Recession and resultant European debt

The Euro Crisis is the failure of the Euro, the currency that binds all 19 countries of the Eurozone together. The tightly knit nature of this economy means that if even one country’s economy fails, Europe as a whole goes with them. This currency, which was originally created to stimulate economic growth, has become the cause of much accumulated debt.

Greece’s case was somewhat peculiar. While the crisis in Europe progressed from banking system crises to sovereign debt crisis, in Greece it happened the other way. In 2010 the Greek government revealed that the deficit of Greece in 2009 had made the public debt no longer viable. The country tried to regain the trustworthiness of the global markets by reducing its expenditures. This didn’t work and the government of George Papandreou, in April 23, 2010, requested the help of the IMF. (Προσφυγή της Ελλάδας στο μηχανισμό στήριξης ανακοίνωσε ο πρωθυπουργός, 2010). Greece was the first country in the euro area to request financial support from the IMF.

The debt crisis and fear of contagion is and will be a problem in sever economic stress times in the EU Zone. There has been improvement over the last 5 years due to various fiscal reforms, domestic austerity measures and other unique economic factors, but with Brexit on the horizon there is risk (FT, 2016)

The crisis has hit European economies unprecedentedly hard and its effects have occurred in two phases. The first phase is the economic recession following the global economic downturn. The second phase is the so-called sovereign debt crisis which started in Greece firstly and then appeared in Ireland and Portugal. Like many other countries and organizations, European Union (EU) has also developed strategies in order to tackle the challenges of the crisis (Yurtsever, 2011).