What caused the Eurozone crisis?

There are many different opinions and theories explaining why the Eurozone is in crisis. I have looked at some of these and have decided to share the most probable causes, along with another reason I have come up with.

In 1999, the Eurozone introduced a Fiscal Compact to ensure that total borrowing was limited to a maximum of 3%. The problem that occured was that some of the countries did not keep to this rule. Italy was the worst offender as it regularly broke the rule and Germany were the first to break the rule. This gradually increased the Government debt.

Another problem was with the increased amounts of private debt accumulating. Spain didn’t break the Fiscal Compact until 2008, but they increased their private borrowing by 96% between 2000 and 2010. This was also a big problem for Italy and France.

Greece regularly broke the Fiscal Compact and increased their private borrowing, giving rise to the huge crisis they are having to deal with. No-one wants to lend to anyone, especially not Greece.

This increase in Government and Private debt as a result has caused a massive lack of confidence within the Eurozone. Greece are a major impact on the state of the Eurozone, along with Spain who are to be bailed out (€100bn).

Fundamentally, the accumulation of both private and Government debt is a major cause, which has been increasing at a faster rate since 2008. The PIIGS (Portugal, Italy, Ireland, Greece, Spain) are also a major cause. They are the countries within the Eurozone with the weakest economies, which is a reason why all but one have been bailed out (Greece, Spain, Ireland, Portugal). They are all overly debt-ridden which is having a major impact on the Eurozone.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s