Euro zone Crisis : Introduction

        Most of you must have some idea about what the "Euro zone Crisis" is from it being a constant feature of the news, but like me didn't quite understand the causes and depth of the problem. The problem began in late 2008 , where at first most European countries seemed to be doing well , however were soon hard hit by the credit crunch. Excessive spending around Europe due to easily available credit meant that banks began to lose control of their balance sheets. This eventually led to a fall in bank lending , meaning that Consumer spending and investment fell rapidly, thus Growth declined and many countries entered a recession. This caused catastrophic problems for countries such as Spain , Ireland and Greece ; increasing government  debt , as they received even less tax due to fewer people in work, and ended up paying even more in welfare benefits. Infaltion also soared in these countries worsening their current account deficits by making them internationally uncompetitive.

    Fiscal Austerity was not a real option in these countries as a reduction in spending and high taxes to control the debt would slow down what demand was left in the economy and hinder any chance of growth. Greece in particular became dependent on a "Bailout" as there only option, This involved  50% cut in Greek debt and and an Increased size of the "European Financial stability facility"which helps struggling European countries, hoping that the Indian and Chinese economies would invest in them.