{"id":3926,"date":"2021-02-27T22:32:40","date_gmt":"2021-02-27T21:32:40","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=3926"},"modified":"2025-02-16T22:58:48","modified_gmt":"2025-02-16T22:58:48","slug":"eurozone-crisis-2011","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/eurozone-crisis-2011\/","title":{"rendered":"Eurozone Crisis 2011"},"content":{"rendered":"

Eurozone Crisis 2011<\/h1>\n

\"Akshit<\/a><\/p>\n

This article written by Akshit Gupta<\/a> (ESSEC Business School, Master in Management, 2019-2022) presents the real life case of the Eurozone Crisis 2011<\/em>.<\/p>\n

Introduction<\/h2>\n

The Eurozone Crisis, also called the European sovereign debt crisis, took place between 2010 and 2012 when several European countries faced an unmanageable increase in their sovereign debts, fall of their financial institutions and a sharp rise in the government bond yield spreads (difference between the yield of bonds issued by a country and the yield of bonds issued by Germany). The crisis was a result of excessive borrowing done by the Eurozone member states and a lowered refinancing or repayment capacity following the financial crisis of 2008.<\/p>\n

Origin of the crisis<\/h2>\n

The Eurozone, also called the Euro area, was formed in 1999 with the primary aim to promote economic integration and have a stable, growth-oriented Europe by means of a unified primary currency across all member countries. Around 2010, Eurozone was comprised of 17 European countries all of which share a unified primary currency named Euro (\u20ac). The monetary policies of the Eurozone member states are governed by a central authority named the European Central Bank (ECB), whereas each country has the power to decide their fiscal and economic policies individually. As a result of a unified monetary framework, countries with weaker economy have access to more debt at a comparatively lower interest rates than before the creation of the Eurozone. Due to the excessive availability of debt, weaker countries increased their spending which resulted in high fiscal deficits. Since, the fiscal policies were controlled by countries individually, no centralized authority could keep a tab on it.
\nThe beginning of the crisis came to light in 2009, when the new Greek government reported irregularities in the accounting system followed by the previous government. The new fiscal deficit showed a sovereign debt amounting to \u20ac300 billion which represented more than 110% of the country\u2019s GDP at that time. The chances of default on the government\u2019s debt started building up and the tension started to soar across the European continent.<\/p>\n

\"Picture<\/center>
Source: im-an-economist.blogspot.com<\/center><\/p>\n

The peak of the crisis<\/h2>\n

After the Greek government reported the higher levels of sovereign debt, rating agencies started downgrading the country\u2019s debt ratings. The creditors started demanding higher yields on the government bonds, leading to higher borrowing costs for the government and a fall in the prices of these bonds (there is an inverse relationship between the price and yield of bonds). The fall in the prices of these securities sparked an outrage when many large European countries, financial institutions and central banks holding these securities started to lose money due to fall in their prices. By 2010, many other countries including Portugal, Italy, Ireland, and Spain reported similarly high level of sovereign debts.<\/p>\n

Causes of the crisis<\/h2>\n

The Eurozone crisis was a result of many policy failures including high fiscal deficits, lack of unified body to monitor fiscal policies, trade imbalances, and also cultural differences. Some of the primary reasons that triggered the crisis are:<\/p>\n