European sovereign-debt crisis2mid-November 2011, the Euro was even trading slightly higher against the bloc's major trading partners than at thebeginning of the crisis,
before losing some ground in the following months.
Three countriessignificantly affected, Greece, Ireland and Portugal, collectively accounted for 6% of the eurozone's gross domesticproduct (GDP).
In June 2012, also Spain became a matter of concern,
when rising interest rates began to affectits ability to access capital markets, leading to a bailout of its banks and other measures.
To address the deeper roots of economic imbalances most EU countries agreed on adopting the Euro Plus Pact,consisting of political reforms to improve fiscal strength and competitiveness. This has forced weaker countries todraw up ever more austerity measures to bring down national deficits and debt levels. Such non-Keynesian policieshave been criticized by various economists, many of which called for a new growth strategy based on additionalpublic investments, financed by growth-friendly taxes on property, land, wealth, and financial institutions, mostprominently a new EU financial transaction tax. EU leaders have agreed to moderately increase the funds of theEuropean Investment Bank to kick-start infrastructure projects and increase loans to the private sector. Furthermore,weaker EU economies were asked to restore competitiveness through internal devaluation, i.e. lowering their relativeproduction costs.
It is hoped that these measures will decrease current account imbalances among Euro-zonemember states and gradually lead to an end of the crisis.The crisis has had a major impact on EU politics, leading to power shifts in several European countries, most notablyin Greece, Ireland, Italy, Portugal, Spain, and France.
Public debt $ and %GDP (2010) for selected European countries
The European sovereign debt crisis resultedfrom a combination of complex factors,including the globalization of finance; easycredit conditions during the 2002
2008period that encouraged high-risk lendingand borrowing practices; the 2007
2012global financial crisis; international tradeimbalances; real-estate bubbles that havesince burst; the 2008
2012 global recession;fiscal policy choices related to governmentrevenues and expenses; and approaches usedby nations to bail out troubled bankingindustries and private bondholders,assuming private debt burdens or socializinglosses.
One narrative describing the causes of thecrisis begins with the significant increase in savings available for investment during the 2000
2007 period when theglobal pool of fixed-income securities increased from approximately $36 trillion in 2000 to $70 trillion by 2007.This "Giant Pool of Money" increased as savings from high-growth developing nations entered global capitalmarkets. Investors searching