What Are The Causes Of The Eurozone Economic Crisis?

In 2009, the Eurozone along with most of the world was struck with a severe economic crisis. An economic crisis that the European Union (EU) or the European Central Bank (ECB) has never seen. This crisis affected every aspect of the lives of its citizens and caused the European Union and ECB to respond in ways that we have never saw. These responses by the EU and the ECB is still being felt today and has sparked intense debate on the role and purpose of the Eurozone, the EU and the ECB. In this paper, the causes of the Eurozone economic crisis, the responses by the EU and ECB to the crisis and the outcome so far on these responses is going to be addressed in this paper.

The Eurozone economic crisis was primarily caused by the interconnectedness

The ECB to prevent a complete collapse of the banking system, rescued their banks and 1.6 trillion euros, the equivalent of 13 % of the EU’s annual GDP were committed (European Commission 2). This was done to protect bank runs and European savings. The ECB also set up financing facilities quickly for euro area countries experiencing severe financing problems (European Commission 2). For example, when Greece lost access to affordable financing in the market, the EU moved quickly to help Greece by pooling bilateral loans from European governments with the European Commission (European Commission 2). Then the EU preceded to set up two temporary funds, the European Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF). These two funds had a total lending capacity of E500 billion (European Commission 2). This economic crisis has demonstrated that the EU’s banking system is vulnerable and need reforms. In response, the EU and ECB introduced economic reforms. First, 3 supervisory bodies were set up to help coordinate the work of regulators and make sure the EU rules were applied consistently everywhere (European Commission 3). The first body, the European Banking Authority (EBA), was form to deal with bank supervision, including the supervision of the recapitalization of

The Greek government committed itself to far-reaching spending cuts, equal to 1.5% of its output (BBC). Greece also pledged to cut the minimum wage and make labor markets more flexible. Greece also introduced a new property tax and suspended 30,000 civil servants on partial pay (BBC). These measures were deeply unpopular with the Greek people, and lead to a wave of protests and crippling strikes (BBC). In Italy, they increased healthcare fees, and cut regional subsidies, family tax benefits and the pensions of high earners. Italy has also cut public sector pay and frozen new employee recruitment (BBC). The new plan is only one employee will be replaced for every five who leave. In the Irish Republic, Government spending was slashed by 4 billion euros (BBC). All public servants ' pay was cut by at least 5% and social welfare reduced. Also, benefits for children was cut and police stations were closed (BBC). In Portugal, the government introduced a 5% pay cut for top earners in the public sector and income tax hikes for high-earners (BBC). The budget for the military was also slashed and there has been widespread privatization. As a result of these cuts, public sector workers staged massive protest against these measures (BBC). In Spain, public sector workers ' salaries were froze and departmental budgets were reduced 16.9%. As a result of these cuts, there has