HISTORY OF EUROZONE DEBT CRISIS
Anyone who hasn’t been living in a cave for the last 6 months is probably aware of the fiscaldisaster that has surfaced in Europe. It’s being billed as the Greek Debt Crisis by the media, but
intelligent analysts, investors, and traders, understand that it is far beyond Greece. It is theEuropean Debt Crisis. Let me give you a super basic history lesson on the Euro and how we gotto where we are today, which is the possible demise of the Euro and the break-up of theEuroZone.
When the EuroZone formed in the late 90’s, Germany and France were the economic powers and
every other country was clearly in a subservient position, economically speaking. Whencountries want to build roads, fund schools, and do various otherlarge-scale projects,they fundthis activity by issuing debt in the form of government bonds. Countries that are economicpowers are able to borrow this money for pretty cheap. However, countries that are not inexcellent financial shape have to pay more to finance their debt by offering investors a higheryield. Is it more expensive to borrow $100 for 1% interest or 2% interest. Of course, 1%.Economically-weak countries such as Greece, Portugal, Italy, Ireland, and Spain were payingquite a bit to be able to borrow money. By joining the EuroZone, they were magically allowed toborrow money at very close to German bond yields. This means that because Joe is friends withBob, even though Joe is financially irresponsible, he is able to borrowmoneycheaply and easilybecause he is friends with Bob. You get the picture.So the grand idea when the EuroZone started was that these weak countries like Greece would beable to borrow money at cheap rates in order to economically develop their countries in aresponsible manner. This would help them close the gap with stronger countries like Germanyand France, and then all of Europe would grow more powerful. But, oh how the idealistic plansof man often fail in reality.What went wrong you ask? Well, of course Greece, Portugal, Spain, Italy, and Ireland borrowed