Understanding The European Debt Crisis

In 1958, an organisation called European Coal and Steel union was formed. This evolved into the European Union (EU) which was established by the Maastricht Treaty in 1993. The European Union introduced the euro on January 1, 1999. On this day, 11 division countries of the EU started using euro as their currency. It improvemented countries such as Portugal, Italy, Ireland, Greece and Spain (to stick aroundher care a shot known as the PIIGS), So how did it benefit them? Before these countries started to do the euro as a currency, they had to borrow property at fol humiliateding rates much higher than the rates at which a farming like Germany borrowed. When these countries started to use the euro they could borrow notes at interest rates close to that of Germany, which was economically the scoop up managed country in the EU, As the famous American writer Michael Lewis says in a recent piece, The rest of Europe, in effect, utilize Germanys conviction rating to indulge its material desires. They borrowed as stingily as Germans could to buy stuff they couldnt afford Also early(a) than the hapless interest rates, the inflation in the PIIGS countries was higher than the rate of interest. In au naturel(p) English, that means that if the borrowing rate is 3 per cent darn inflation is 4 per cent youre effectively borrowing for 1 per cent less than inflation.

Youre being paid to borrow. And borrow they did. And the European peripheral countries (PIIGS) racked up enormous amount of debt in euros. plant the case of Greece, their debt currently amounts to close to 160 per cent of their GDP, So, otherwise than the citizens, the politicss also started t o borrow. This helped politicians keep their! constituency of voters happy, Take the case of Greece. A fire hydrant over which now compensations 55,000 euros in Germany, pays 70,000 euros in Greece, even with the accompaniment that Germany is a more productive nation. As Lewis writes, To get around pay restraints in the calendar year the Greek government obviously paid employees a 13th and even...If you want to get a full essay, order it on our website: OrderEssay.net

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