European/Eurozone Debt Crisis (341)

The European Debt Crisis, also known as the Eurozone Crisis, is the economic recession that has hit the Eurozone, which is made up of the 17 countries using the Euro as their currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. (BBC) This crisis is an issue that has international implications because the economics of all countries are intertwined, so this economic crisis will eventually affect us all.

            When the Euro became the currency for most of the Eurozone, all lending and borrowing costs became the same throughout the zone. Weaker countries had the same interest rates as larger ones. Banks hurried to lend money to weaker countries to lower borrowing costs for everyone. (Goldstein) At the same time, the global recession that occurred during that time hit some countries hard. Greece especially was affected, and in 2009 revealed, after shadowing their problems, that their debt was 12.7% that of their GDP (previous limitations only allowed 3%) (Park). Now that it was evident that there was a problem, countries began to realize that the money that they lent to others might not be able to be paid back. Stronger countries started raising the borrowing costs towards the weaker countries, which also hurt the banks that originally lent money. (Goldstein) In attempts to keep Greece out of bankruptcy, the Eurozone countries have lent $316 billion to Greece since 2010. (Baetz) Many other countries, such as Italy, Spain, and Ireland have also had similar problems.

            Although it might seem that the European Debt Crisis is an issue confined to Europe, it actually will affect the economies of countries around the world. The economies of the world are all very closely connected. If one country suffers, all other countries feel the effects. For example, the United States has millions of dollars invested in European banks. (Eichler) As global economist Richard Clarida explains, “The U.S. is tied into the global economy through interest rates, through trade, through exchange rates, through credit spreads, through bank borrowing costs, and so if Europe spirals downward, it will certainly impact us.” If the European banking system completely fails, then the US will suffer dramatically.

Bibliography:

Baetz, Juergen. Euro Official: Greece to Need More Aid After 2014. Global News. 5 Sep 2013. Web. 5 Sep 2013.      <http://globalnews.ca/news/820378/euro-official-greece-to-need-more-aid-after-2014/>

British Broadcasting Corporation. Greece in Crisis: How European Debt Problems Affect You. BBC. 27 Nov 2012. Web. 5 Sep 2013. <http://www.bbc.co.uk/newsbeat/13856153>

Clarida, Richard. The Euro Crisis and the U.S. Economy. Council on Foreign Relations. 25 May 2012. Web.  6 Sep 2013. < http://www.cfr.org/united-states/euro-crisis-us-economy/p28361>

Eichler, Alexander. European Debt Crisis. Huffington Post. 27 Dec 2011. Web. 5 Sep 2013. <http://www.huffingtonpost.com/2011/12/21/european-debt-crisis_n_1147173.html>

Goldstein, Jacob. The Crisis in Europe, Explained. NPR. 4 June 2012. Web. 5 Sep 2013. <http://www.npr.org/blogs/money/2012/06/04/154282337/the-crisis-in-europe-explained>

Park, Jeanne. The European Debt Crisis. PBS. 18 Mar 2013. Web. 5 Sep 2013. <http://www.pbs.org/wnet/need-to-know/five-things/the-european-debt-crisis/12287/>