9. What are the economic causes and consequences of the Eurozone deficit and debt crisis 2010 – 2013 and does the survival of the euro prove that the crisis has been contained?
There are four main reasons to explain the economic causes of Eurozone deficit and debt crisis 2010-2013. The European deficit and debt crisis is not a typical crisis, like empire is no longer affordable for the debts or military deficit in war. The Eurozone deficit and debt crisis is domestic, internal and more difficult to deal with. Firstly, the 3% deficit limit and 60% debt/GDP ratio were always over-optimistic because so many participants in the Eurozone had never met these targets even in good times, and of course in bad times. Greece had a budget deficit of 12%, which was much higher than the 3% limit. Secondly, Social Model had been promoted since 1980’s, was a long-term cause of the 2010-2013 crisis. The EU countries have high level of child benefit, high level of retirement benefits and a lot of public sectors, requiring a large government spending. It is OK if the countries have strong economy to afford the spending. However, many countries in Southern Europe do not have the ability to afford the Social Model. As a result, the governments chose to borrow money to support the expensive Social Model and the 3% limit was broken, deficit and borrowings went out of control. The third one is banking crisis. There is a 3-6-3 rule, which means 3% interest of deposit, 6% on borrowing, leaves 3% profits. This implies the importance of deposit. However, many of the European banks made 70% of their funds from borrowing of other banks and only 30% from deposit. There were too much risk lending and too much bonds purchasing that turned out to be worthless. There was an interesting statement from the president of European commission-‘Introduction of the euros had been a sleeping pill to the EU economy’ Euro reduced the ability and intention of European government get economic in...