European stresses and the euro

As a result of the global financial crisis of late 2008 the euro zone entered into its first recession since the inception of the continental currency. The aftermath of that recession and the slow recovery of developed market economies (principally the Atlantic economies of the US and the European Union) saw regional stresses come to the fore because previously tolerated fiscal imbalances and high sovereign debt loads in a new world of credit rationing are no longer being tolerated.

In early 2010 fears of sovereign debt crisis developed around concerns about the peripheral euro zone countries of Portugal, Ireland, Italy, Greece and Spain (called, unflatteringly, the PIIGS countries). Greece was by far the weakest, with a 15.5 per cent budget deficit and a government debt-to-GDP ratio of about 130 per cent. This weak fiscal position in the context of a continuing global credit crunch saw private lenders desert Greece, making the cost of its national debt soar into double-digit percentage levels, forcing the ‘troika’ of IMF, ECB and the EU to come to its assistance several times in 2010 and 2011.