The Eurozone crisis resulted from a combination of complex factors, including the globalisation of finance; easy credit conditions during the 2002--2008 period that encouraged high-risk lending and borrowing practices; the 2007--2012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 2008--2012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socialising losses. A research report, completed in 2012 for the United States Congress explains, "The current Eurozone crisis has been unfolding since 2009, when a new Greek government revealed that previous Greek governments had been underreporting the budget deficit. The crisis subsequently spread to Ireland and Portugal, while raising concerns about Italy, Spain the European banking system, and more fundamental imbalances within the Eurozone"[18] The underreporting was exposed sometime in the first quarter of 2010. The alarm of 'something smells' spread throughout some of Europe when Greece revealed that its 2009 deficit was revised from 5% of GDP (no greater than 3% of GDP was a rule of the Maastricht Treaty) to more than double that amount: 12.7%. The fact that the Greek debt exceeded $400 billion and France owned 10% of that debt, struck terror into investors at the word "default". Contagion was possible. Greece was bailed out in 2010 with a 110 billion euro direct loan by the European Union and the International Monetary Fund. After 2 years of fiscal austerity and Greek riots, another 130 billion euro loan was made. Greek austerity programs reduced public pensions and public wages, among the most generous in the world. US President Barack Obama stated in June 2012: "Right now, [Europe's] focus has to be on strengthening their overall banking system...making a series of decisive actions that give people confidence that the banking system is solid...In addition, they're going to have to look at how do they achieve growth at the same time as they're carrying out structural reforms that may take two or three or five years to fully accomplish. So countries like Spain and Italy, for example, have embarked on some smart structural reforms that everybody thinks are necessary -- everything from tax collection to labour markets to a whole host of different issues. But they've got to have the time and the space for those steps to succeed. And if they are just cutting and cutting and cutting, and their unemployment rate is going up and up and up, and people are pulling back further from spending money because they're feeling a lot of pressure -- ironically, that can actually make it harder for them to carry out some of these reforms over the long term...[I]n addition to sensible ways to deal with debt and government finances, there's a parallel discussion that's taking place among European leaders to figure out how do we also encourage growth and show some flexibility to allow some of these reforms to really take root."[337] The Economist wrote in June 2012: "Outside Germany, a consensus has developed on what Mrs. Merkel must do to preserve the single currency. It includes shifting from austerity to a far greater focus on economic growth; complementing the single currency with a banking union (with euro-wide deposit insurance, bank oversight and joint means for the recapitalisation or resolution of failing banks); and embracing a limited form of debt mutualisation to create a joint safe asset and allow peripheral economies the room gradually to reduce their debt burdens. This is the refrain from Washington, Beijing, London and indeed most of the capitals of the euro zone. Why hasn't the continent's canniest politician sprung into action?" http://en.wikipedia.org/wiki/Eurozone_debt_crisis

• published: 03 Oct 2013
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