EUROZONE

The European debt crisis is a multi-year debt crisis that has been taking place in the European
Union since the end of 2009. Several eurozone member states (Greece, Portugal, Ireland, Spain
and Cyprus) were unable to repay or refinance their government debt or to bail out over-
indebted banks under their national supervision without the assistance of third parties like other
eurozone countries, the European Central Bank (ECB), or the International Monetary Fund
(IMF).
The detailed causes of the debt crisis varied. In several countries, private debts arising from a
property bubble were transferred to sovereign debt as a result of banking system bailouts and
government responses to slowing economies post-bubble. European banks own a significant
amount of sovereign debt, such that concerns regarding the solvency of banking systems or
sovereigns are negatively reinforcing.
WHAT CAUSED THE ECONOMIC CRISIS?
While the headlines of the crisis focus on the fiscal problems in many of the vulnerable
countries, in fact the deeper roots of the crisis go back to the establishment of the euro and the
loss of competitiveness that ensued in many of these economies. The loss of competitiveness
was, in part, a result of a big confidence boost and the demand boom that raised wages in
accessible activity in the vulnerable countries and partly a result of rigid labour markets in
some of these countries. Another important element in the loss of competitiveness was the fact
that following its reunification, Germany did a magnificent job of restructuring its economy,
increasing productivity and without increasing wages very much.
HOW EFFECTIVELY HAS EUROPE ADDRESSED THE FINANCIAL TURMOIL?
Europe is getting to the point where it is pushing the right buttons to deal with the very deep
crisis of the euro. Unfortunately, it took too long getting there and as the result of this, the cost
is going to be significantly higher. This is most clearly evident in the case of Greece where
assembling the rescue package—including the IMF contribution—took too long attributed by
divisive politics in Germany and Greece, particularly, which delayed and reduced the incentive
on the policy makers to act in a more decisive way.
HAS GREECE TAKEN THE APPROPRIATE MEASURES TO REFORM ITS
ECONOMY?
The adjustment measures that Greece has agreed to and has already began to enact in quite an
aggressive way are very far reaching, some have described them as brutal adjustment measures.
There is a very significant reduction in wages, in the government sector in Greece—perhaps
that is the clearest example. There are changes to their pension laws. There are a number of
structural reforms that have been agreed. We would further conduct our research in a detailed
and comprehensive manner.
References:
https://carnegieendowment.org/2010/06/03/causes-and-consequences-of-euro-in-crisis-pub-40916

https://res.mdpi.com/d_attachment/socsci/socsci-07-00009/article_deploy/socsci-07-00009.pdf

http://www.mpi-fg-koeln.mpg.de/pu/mpifg_dp/dp13-3.pdf