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Understanding the European Debt Crisis

The European Debt Crisis occurred when several European countries including Greece, Portugal, Ireland, Italy and Spain were on the brink of financial collapse due to excessive government debt, threatening the stability of the euro currency and the European Union. Cheap credit fueled by lower interest rates after adopting the euro led countries to accumulate large deficits and debts. When global credit markets collapsed in 2008, these countries could no longer borrow money to repay debts, precipitating the crisis.

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42 views2 pages

Understanding the European Debt Crisis

The European Debt Crisis occurred when several European countries including Greece, Portugal, Ireland, Italy and Spain were on the brink of financial collapse due to excessive government debt, threatening the stability of the euro currency and the European Union. Cheap credit fueled by lower interest rates after adopting the euro led countries to accumulate large deficits and debts. When global credit markets collapsed in 2008, these countries could no longer borrow money to repay debts, precipitating the crisis.

Uploaded by

Thomas
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The European Debt Crisis

Questions:
What is the European debt crisis
How did this happen
What can be done to fix it

Sorces:
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What is the European debt crisis


The European Debt Crisis is the failure of the euro the currency that ties
together 17 European countries in an intermit but flawed manner over the
past 4 years Greece, porchigal, Ireland, Italy and Spain have all been on
the brink of financial collapse, Threatening to bring down the entire
cotenant and potenchaly the rest of the world

How did this happen


After world war II the situationd was so dire thet the fastest way to rebuild
Europe was to begin to remove trade barriars Steel and coal teriffs came
down so that a steel mill in one contery could sell to a builder in another.
This gave the survivers an idea a unifyed Europe, a unian accross the
continant that would end all wars. Slowly conterys began to band toggethar
bringing down trade barriars and lowering the cost of dooing buisnes, one
of the last barriers to fall was the berlin wall and with a united Germany
Europe was ready 27 contreys sined the Maastricht treaty and createrd the
European union

This made doing buisnes easyer but the was still one magiar obsticall all
the diferant currencys but a dacade later the was one the Euro Contreys
adopting the Euro discontinued the own currencys and the own monitery
policies, giving control to the European central bank or the ECB. The Euro
zone now had one monitery policy but still had meny different fiscal policies
a key reason for the current debt crisis
Monetary and Fiscal policies
Monetary policie controls how huch mony is in the econimy and what the
intrest rates are for borrowing mony.
Fiscal policie controls how much mony is collected in taxes and how much
a goverment spends.
A goverment can only spend as much mony as it collects in taxes anything
above that has to be borrowed this is called deficit spending. Before the
Euro conterys like Greece not only had to pay high intres rates to borrow
but could only borrow so much because lenders wernt confertabel lending
the to much mony, But now thay were useing the euro the amount thay
could borrow sky roketed Conterys like Greece witch preveisly had to
borrow at rates of about 18% could now borrowr at rates of 2% and theas
conterys acumulated a huge amount of debt but they were abel to repay
theas debts with more borrowed money as long as the borrowing continued
so did the spending. In ireland and spain cheep credit fuled enormous
housing bubbels just as it did in the US. Credid flowed debt acumulated
and the econemys of Europe became tightly linked with one and other,
compenys opend factorys and offices all accross europe geram banks
lending to french compenys french banks lending to spanish compenys and
so on and so on this made doing buisnes very efficiant bus also tied
toggether the fate of the euro zone thing continued this way until 2008
when a collaps in the US housing markes coused a golobal credit crysis
and brung borrowing to a halt everywere

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