You are on page 1of 1


If you have been closely following the economic news, then their are chances that you have
heard something about the Euro zone debt crisis. The European sovereign debt crisis is one of
the most pivotal issues happening today. The tremors from this crisis are being felt not only
throughout Europe but all over the world.
The European Union, as its currently configured, consists of 27 member states. Seventeen
member states of the EU, including Germany, France, Italy and Greece, belong to the euro
zone; they share the euro currency and a common monetary policy set by the European
Central Bank (ECB).
The Euro Debt Crisis traces its history when Greece was granted euro zone membership in
January 2001 after implementing a series of economic reforms on paper .With its
admittance into the euro zone, Greece gained access to virtually unlimited credit at low
interest rates. Greeces continued access to artificially cheap credit, even after officials
confessed to rising fabricating figures, enabled the government to ignore surging domestic
costs and corruption (including widespread tax evasion) for far too long.
Thus, the Euro zone debt crisis began in late 2009 with some of
the European countries especially Greece having too much debt to the point where they
became unable to repay them. While a few Euro zone countries remain stable and competitive
from an economic viewpoint, other countries are a way over leveraged which then caused
them to acquire excessive debt that is relative to the size of their economies. Economists
regard Greece as the biggest contributor to the debt with its unsustainable public sector wage
and pension commitments to its citizens. Since 2010, the sovereign debt continued its
intensity. The Euro zone officials have been working hard to pacify the effects, approving a
rescue package worth 750 billion Euros and implementing more measures to prevent the
collapse of member economies. However, these measures have come at the price of austerity
measures for the affected economies. For Greece, this meant exponential increases in
pensions and taxes, budget cuts and structural modifications in the public service sector as
well as widespread public dissatisfaction.
By 2010, many national economies started to buckle under the strain of the global financial
crisis. In additional to the global downturn, Greece also faced widening bond spreads. The
news only got worse that October, when the newly elected Socialist Prime Minister George
Papandreou released a new government budget for 2009, which revealed an existing deficit of
12.7 percent of GDP, three times the EU limit.
The severe debt crisis in Euro zone nations would spill over, affecting the financial health of
developed economies and impeding the economic recovery of developing nations. A slump in
domestic industrial growth, unaddressed agricultural woes, rising interest rates and escalating
fuel costs are some of the compounded the results. A series of scandals emerging from under
the carpet have diluted the faith of foreign investors resulting in high inflation and downside
economic growth with more to come.