European Sovereign Debt Crisis Explained

WHAT is the European sovereign dept crisis ?

European Sovereign Debt Crisis is an unstable situation in which the 17-nation euro zone will not be able to pay the entire debt obligation. It began in Greece in 2009, and has spread to Portugal, Ireland, Italy, Spain, threatening to push Europe into recession.

WHY did the European debt crisis occur ?

  • Changing structure of the economy, from production-related to sales and service sectors.
  • Euro – the common currency of EU allowed governments to borrow money at lower rates, and easier than if they had their own sovereign currency.
  • The governments create new debt to pay off old debt : continue borrowing money to pay for the money they have borrowed, and ignore the real problem. As a result, it makes the problem worse.
  • Revenue can’t keep up with expenses and they’re living beyond their means.
  • Running trade deficits for a long time.
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