European Debt Crisis

European debt crisis: Explained in SIMPLE terms

Hey Friends, Given below is the story through which you can easily understand that what actually European Debt Crisis is.

"So where were you?" asked my roommate as I came back home very late in the night. "Oh. You know na, Sheena broke up and she just kept crying. So I was trying to pacify her," I replied. "Yeah. But that happened a month back, na?" "Yeah it did." "So? "Arrey, the teddy bear which he had given her on her last birthday fell out of the loft. And this reminded her of all the good times they had spent together and it made her cry." "Yeah. As a line in the song Hotel California goes, ". . . you can check out anytime you like, but you can never leave," she remarked rather philosophically. "Hmmm. You know her situation reminds me of what is happening in Europe." "That is quiet an analogy. Kindly explain!" she said. "In 1958, an organisation called European Coal and Steel Community 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 member countries of the EU started using euro as their

currency. It benefited countries such as Portugal, Italy, Ireland, Greece and Spain (together now known as the PIIGS)," I said. "So how did it benefit them?" she asked. "Before these countries started to use the euro as a currency, they had to borrow money at interest rates much higher than the rates at which a country like Germany borrowed. When these countries started to use the euro they could borrow money at interest rates close to that of Germany, which was economically the best managed country in the EU," I explained. "As the famous American writer Michael Lewis says in a recent piece, 'The rest of Europe, in effect, used Germany's credit rating to indulge its material desires. They borrowed as cheaply as Germans could to buy stuff they couldn't afford,'" I added. "Ah, sounds like...