European Debt Crisis
The so called “European debt crisis” started in the European Union right after the global subprime crisis that hit the world during the 2008. The crisis started in Greece with a widening of the spread between the Greece sovereign bonds and the German one. Greece entered in a new deep recession (after the one due to the subprime crisis) which is still persistent even today; during the 2010 Greece faced a problem in rerolling its national debt due to a lack of credibility of international investors which were fading away from the auctions of long-term government bonds. Therefore, Greece had to ask a bail-out from European Union in change of a strong austerity plan which is still currently running. Meanwhile also Portugal and Ireland faced a similar problem of financing their debt in the international market and had to ask as well for a bail-out.
The crisis however, continued to spread also to major countries like Spain and Italy, despite those countries can still roll-over their debt even though paying higher interests if compared to the last ten years. Many European countries entered again in recession and many had a change of government due to the crisis (Portugal, Ireland, Greece, Slovakia, Spain, Italy and France).
In order to face this crisis, a “monetarist” strategy has been adopted initially by the ECB, trying to restore faith over the markets by imposing on the countries mostly hit by the crisis a strong austerity plan; in particular the aim of ECB (under a strong pressure of Germany) is to lower the level of deficits and debt in order to fulfill the Maastricht parameters which indicate a ratio of Deficit/GDP of 3% maximum and a Debt/GDP of 60%. However those measures right now worsened the current accounts of countries in difficulties sharpened the recession and caused a credit crunch among European banks. For this reason the new president of ECB, Mario Draghi, decided to opt for a more “expansionist” strategy through the LTRO operation (infinite liquidity to European Banks at an interest rate of 1% for three years) in order to sustain the debt of the peripheral countries and to avoid the credit crunch. However, many economists (i.e. the Nobel Prize Paul Krugman) suggest that European Union should adopt a stronger expansionist strategy which would favor the growth instead of insisting on austerity measures (which tend to depress the economy); moreover European Union should consider adopting a common fiscal policy (i.e. Euro-Bond) that would allow European countries to handle the different level of productivity.
Duthel, H.(2011) European debt crisis. Berlin: Iac Society
Krugman, P. (2012) End this depression now. New York City: Melrose Road Partners.
Lynn M. (2011) Bust: Greece, the Euro and the Sovereign Debt Crisis. Hoboken: Wiley and Sons.
