The Eurozone crisis resulted from a combination of complex factors,
including the globalization of finance; easy credit conditions during
the 2002--2008 period that encouraged high-risk lending and borrowing
practices; the 2007--2012 global financial crisis; international trade
imbalances; real-estate bubbles that have since burst; the 2008--2012
global recession; fiscal policy choices related to government revenues
and expenses; and approaches used by nations to bail out troubled
banking industries and private bondholders, assuming private debt
burdens or socialising losses.
A research report, completed in 2012
for the United States Congress explains, "The current Eurozone crisis
has been unfolding since 2009, when a new Greek government revealed that
previous Greek governments had been underreporting the budget deficit.
The crisis subsequently spread to Ireland and Portugal, while raising
concerns about Italy, Spain the European banking system, and more
fundamental imbalances within the Eurozone"[18]
The underreporting
was exposed sometime in the first quarter of 2010. The alarm of
'something smells' spread throughout some of Europe when Greece revealed
that its 2009 deficit was revised from 5% of GDP (no greater than 3% of
GDP was a rule of the Maastricht Treaty) to more than double that
amount: 12.7%. The fact that the Greek debt exceeded $400 billion and
France owned 10% of that debt, struck terror into investors at the word
"default". Contagion was possible. Greece was bailed out in 2010 with a
110 billion euro direct loan by the European Union and the International
Monetary Fund. After 2 years of fiscal austerity and Greek riots,
another 130 billion euro loan was made. Greek austerity programs reduced
public pensions and public wages, among the most generous in the world.
US
President Barack Obama stated in June 2012: "Right now, [Europe's]
focus has to be on strengthening their overall banking system...making a
series of decisive actions that give people confidence that the banking
system is solid...In addition, they're going to have to look at how do
they achieve growth at the same time as they're carrying out structural
reforms that may take two or three or five years to fully accomplish. So
countries like Spain and Italy, for example, have embarked on some
smart structural reforms that everybody thinks are necessary --
everything from tax collection to labour markets to a whole host of
different issues. But they've got to have the time and the space for
those steps to succeed. And if they are just cutting and cutting and
cutting, and their unemployment rate is going up and up and up, and
people are pulling back further from spending money because they're
feeling a lot of pressure -- ironically, that can actually make it
harder for them to carry out some of these reforms over the long
term...[I]n addition to sensible ways to deal with debt and government
finances, there's a parallel discussion that's taking place among
European leaders to figure out how do we also encourage growth and show
some flexibility to allow some of these reforms to really take
root."[337]
The Economist wrote in June 2012: "Outside Germany, a
consensus has developed on what Mrs. Merkel must do to preserve the
single currency. It includes shifting from austerity to a far greater
focus on economic growth; complementing the single currency with a
banking union (with euro-wide deposit insurance, bank oversight and
joint means for the recapitalisation or resolution of failing banks);
and embracing a limited form of debt mutualisation to create a joint
safe asset and allow peripheral economies the room gradually to reduce
their debt burdens. This is the refrain from Washington, Beijing, London
and indeed most of the capitals of the euro zone. Why hasn't the
continent's canniest politician sprung into action?"
http://en.wikipedia.org/wiki/Eurozone...