European Union Crisis

The main aim of EU was to establish economic Integration but due to some reasons it had led Global Economic Crisis. Eurozone Debt crisis has resulted from a combination of complex factor.The reason for Euro zone crisis are discussed as follows:

1: Rising government debt levels

Government debt of Eurozone, Germany and crisis countries compared to Eurozone GDP Government deficit of Eurozone compared to USA and UK In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, a number of EU member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures.

2: Monetary policy inflexibility

Since membership of the eurozone establishesable to "print money" in order to pay creditors and ease their risk of default. (Such an option is not available to a state such as France.) By "printing money" a country's currency is devalued relative to its (euro zone) trading partners, making its exports cheaper, in principle leading to an improving balance of trade, increased GDP and higher tax revenues in nominal terms.

3: Trade imbalances

 During 1999-2007, the  countries (Portugal, Ireland, Italy and Spain) had far worse balance of payment positions. Whereas German trade surpluses increased as a percentage of GDP after 1999, the deficits of Italy, France and Spain all worsened. More recently, Greece's trading position has improved in the period November 2010 to October 2011 imports dropped 12% while exports grew 15% (40% to non-EU countries in comparison to October 2010).

4: Loss of confidence

Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the eurozone was safe. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. As the crisis developed it became obvious that Greek, and possibly other countries, bonds offered substantially more risk. 

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