European Debt Crisis Arturo Peguero Pei-ling Liu Nilar Thein

European Debt Crisis Euro as Common Currency Adopted in 1999 Economies on the Brink of Financial Collapse: Greece Portugal Ireland Italy Spain Eurozone is an economic and monetary union of 18 countries

European Debt Crisis Discontinued Individual Monetary Policies: Now under control of the European Central Bank (ECB) Different Fiscal Policies

Monetary Policy: Controls Money Supply Interest Rates Fiscal Policy: Taxes Government Spending

European Debt Crisis After Euro Adoption: Small Economies (E.G. Greece) could borrow more and at lower rates Led to new fiscal policies Huge spending deficits Generous public sector salaries Welfare Retirement benefits Paid debts by borrowing more Cheap credit fueled housing bubbles, etc.

European Debt Crisis Global Financial Crisis of 2008 Started with the housing bubble burst in the U.S. Credit shortage spread worldwide (Euro Governments couldn’t borrow more) Crisis severely affected Euro Countries with large fiscal deficits

European Debt Crisis Emergency Loans IMF & Germany step up Demanded Implementation of Austerity Measures Increase taxes Reduce Salaries & Pensions

European Debt Crisis Mainly Small Economies Affected Dragged down the rest of Euro zone Economic Interdependency