Causes And Effect Of The Debt Crisis Essay - 1297 Words

What is the European Debt Crisis? The European Debt Crisis is the failure of the Euro, a currency that ties seventeen European countries together. In this paper, I will be describing the cause and effect of the debt crisis along with what would happen if the European Union stayed with the economy they have. Then what I believe is the best solution to fixing the debt crisis. Causes †¢ Formation of European Union †¢ Adoption of the Euro †¢ Increasing Debts †¢ Large Amounts of Borrowing †¢ High Interest Rates †¢ Large Government spending †¢ High Taxes †¢ Paying Debts with Barrowed Money †¢ Monetary Inflexibility †¢ Greece on the brink of defaulting There are many causes for the debt crisis to start. Before world war II Europe had very strict trade barriers between countries examples being currency exchange fees and trade tariffs. Then World War II happened and was so detrimental to Europe they couldn’t continue to have such strict trade barriers. The barriers were then slowly removed with the first barrier removal being steel and coal. This worked well enough that it caused twenty-seven countries to sign the Maastricht Treaty thus forming the European Union (UN). This made trading throughout all Europe easier which caused more trade to occur within Europe. In 1999 seventeen countries in the European Union adopted the Euro forming a Euro Area. With the adoption of the Euro these seventeen countries discontinued their old currencies and monetary policies. Monetary PoliciesShow MoreRelatedAn In-Depth Analysis of the European Debt Crisis908 Words   |  4 Pagesanalysis of the nature, causes, economic consequences, prevention as well as control of the European Debt crisis. A definition of the debt crisis is also provided. Recommendations on the way forward are also provided. Introduction Debt crisis is noted by Pescatori and Sy (306) to be a term that had before 1990s been used to typically refer to defaults in debt serving. 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