What Caused It?
Some countries in the Eurozone have maintained relatively sound economies while others have overdrawn the credit extended to them, beyond their capacity to pay it back. Their excess debt is affecting the financial health of the rest of the Eurozone. There are 5 countries that go by the acronym PIIGS – Portugal, Ireland, Italy, Greece and Spain – and these are the main culprits responsible for European debt crisis.
Portugal – Started to panic the moment Greece started to sink in debt. It affected Portugal because the country was incapable of long-term growth, then there was the forecasts of higher deficit. The productivity was real low, legal structure considered outdated by some and the market regulations too strict. In 2010, the nation began to feel under pressure, because of the interest rates. As a result, they requested a bailout. Portugal is still in better shape financially compared to other PIIGS nations.
Ireland –had a balanced budget before the crisis struck. They had big bucks in real estate, but as a result of the 2008 crisis they started seeing losses. To calm the markets the government promised to cover the losses of banks. It didn’t help. And, in 2010, they requested a bailout, which they received.
Italy – The likelihood of debt crisis in Italy is speculated for months, because of its heavy debt load and slow growth. The Eurozone may have problems bailing them out, since they have a large economy.
Greece – The Greeks have had bad debt right from 2001. Joining the Eurozone helped reduce the interest on its debt, which was good for a while till they started borrowing again. They even had Wall Street firms cover up their debts so that they don’t run a foul with the E.U. rules. By 2010, they requested an emergency package from the IMF and E.U. Recently the Greeks held a referendum to decide whether the country should accept the bailout terms and conditions. The Greek PM vehemently advocated to his countrymen to vote a “No” and that’s what happened in when the results were declared.
Spain – This Mediterranean nation experienced the same issues as Ireland. It caused a great amount of damage to the country’s financial sector and has been instrumental in slowing down growth.
