The Eurozone Debt Crisis: A Brief Guide

The Eurozone Debt Crisis Explained Finance 27 Causes Bank Losses During the credit crunch and subsequent global recession, many banks losses lost money due to their exposure to bad debts. Recession The subsequent recession caused a fall in bank lending and investment. This meant that businesses suffered Debt Burden With the collapse in business confidence, and increased unemployment, the tax base of many governments collapsed, meaning that government debts and deficits quickly rose. Fall in house prices European house prices fell considerably in the aftermath of the recession, thereby exacerbating the losses incurred by many European banks. Why was the Eurozone so badly affected? No strategy Markets had no strategy for the Eurozone failure, assuming that there was an implicit guarantee that all Eurozone debt would be risk free. The EU then had no plan for dealing with high levels of debt. Increased scepticism from investors After the credit crunch, investors started to question the state of the Eurozone. No lender of last resort. The European Central Bank made no effort to step in and guarantee liquidity when investors began to sell bonds. Lack of competitiveness European countries with higher debt problems also tend to have problems with higher rates of inflation and higher labour costs. How the crisis is being remedied The ECB plans to buy 60 billion euros in bonds from banks until Sept 2016 This will helpfully increase the money supply, and therebý enčourage people to borrow and spend more. This will hopefully boost jobs and lead to a more buoyant economy. This process has been referred to as quantitative easing 1.5% 1.1. trillion euros What the ECB hopes to inject into the eurozone economies with their quantative easing programme Forecast Eurozone growth for 2015