The impact of the European debt crisis

            The impact of the European debt crisis

The European debt crisis has been raging on since 2009. Some experts feel that this crisis was a continuation of America’s debt problems. Other experts feel that it started off with a sovereign debt crisis in Greece, where the government found itself in huge debt. Greece had managed to raise capital on the guarantee that it was part of the Eurozone, and hence had implied creditworthiness.
However, Greece was (and still is) in no position to pay back the debt. Before the crisis began, Ireland, Italy, Portugal and Spain had ambitious growth plans as well. These plans, too, were funded by external parties who found that these countries had low interest rates. Moreover, it appears that these countries were far too bullish about their immediate future, and most growth plans collapsed when they were actually implemented.

Adopting the euro as a common currency for 17 European countries ensured that the debt crisis spread like wildfire. One by one, individual countries in the Eurozone started reporting massive debts, which were unsustainable without the help of a bailout. Countries such as Greece, which have been given a bailout by the IMF and EU, have not been able to commit fully to the strict austerity measures that came as conditions with the bailout. The latest country in Europe to report deep trouble was Spain. In mid-2012, Spain reported that its banking sector needed a bailout. The EU managed to provide the bailout to Spain, but the weaknesses of the Spanish economy makes it difficult to speculate as to whether the bailout will help Spain’s banks tide over their problems or not.

There has been criticism over the EU’s handling of the European debt crisis. The common man in Europe feels that the EU’s approach has been far too cautious. According to a man employed in an Apple mac repair London store, “An exit of Greece from the euro would have been desirable for Europe”. However, analysts point out that the EU has done the best it can, and that Greece exiting the euro would create a further financial burden on EU member states and cause problems for the very integrity of the common European political and economic arrangement.