Euro Crisis- What Went Wrong in the Eurozone?

Topics: Euro, European Union, Greece Pages: 3 (1219 words) Published: April 22, 2013
Euro Crisis- What went wrong in the Eurozone?
The euro was launched in 1999 and the idea was to reduce trading costs, boost tourism, and smooth the economy. However, instead of running a budget deficient, most governments spent more than they were earning. Many countries such as Spain, Ireland, Portugal, UK and worst hit was Greece have plummeted into debt gradually since then, and if lenders do not believe that countries can pay back their debts interest rates will begin to soar and borrowing will become unaffordable, which they did and continue doing. As this happened these countries had to ask for emergency loans, as Greece were worst hit, the debts they could not pay back not only affected their country itself but also other countries in and out of Europe including the UK, Japan, Germany, the U.S, Italy and Switzerland. The worry from governments now is that if one country leaves the euro, the contagion could spread. The crisis began as the global economy has experienced a slow growth since the U.S. financial crisis of 2008-2009, which brought to light the unsustainable fiscal policies of countries in Europe and around the globe. Greece were one of the first countries to feel the pinch of the weaker growth as they had spent heartily for years without gaining to undertake fiscal reforms. When growth slows, so do tax revenues, making high budget fiscals unsustainable. This resulted in the new prime minister of Greece George Papandreou being forced to reveal the size of the nation’s deficits in 2009; this was something that former governments had failed to announce. Greece’s debts were so large that they actually exceeded the size of the nation’s entire economy, and the country could no longer hide the problem. Investors responded by demanding higher yields on Greece’s bonds, this raised the cost of the country’s debt burden, and forced them to ask for a series of bailouts by the European Union and European Central Bank. The markets also began driving up bond...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Eurozone Crisis Essay
  • The Eurozone Crisis Essay
  • Essay on euro crisis
  • The Eurozone crisis Essay
  • Eurozone Crisis Essay
  • Euro Crisis Essay
  • Euro Crisis Essay
  • Euro Crisis Essay

Become a StudyMode Member

Sign Up - It's Free