The Eurozone crisis - what, why and how it will affect you
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We are constantly being reminded that the EU is in crisis. Greece, Spain, Portugal, Ireland - all weighed down by debt and instability. Questions are starting to circulate concerning England’s future in the EU, with mentions of a referendum possible. But what is happening? How did it happen? And, what could it mean in the future?
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- In 1999, the EU adopted the single currency of the Euro, with only Sweden, Denmark and England opting out.
- Greece’s debts were first acknowledged in 2009. Finance minister Giorgos Papaconstantinou was adamant Greece would not need a bail out, promising reduction by 2010. Later that year Greece admitted its debt had reached the highest in modern history – 300bn euros, 113% of its gross domestic product (GDP) – nearly double the 60% accepted by the EU.
- ‘Severe irregularities’ in Greece’s accounting procedures were discovered, leading to a series of austerity measures. Following protests and worsening markets, Eurozone countries agreed to raise 30bn euros in emergency loans.
- Meanwhile, concern started to grow for other countries in debt: Spain, Portugal and Ireland. Portugal soon admitted they couldn’t handle their finances and a 78bn euro bailout was agreed.
- On the 2nd May, the Eurozone and the International Monetary Fund (IMF) agreed to raise 110bn euros for Greece in a bailout package, provided it kept to austerity measures.
- Things remained gloomy throughout the Eurozone as unemployment reached a high and the private sector shrank. G20 meetings took place to address the situation and prevent Greece from defaulting.
- Greece agreed to meet new austerity plans, including 15,000 public-sector job cuts and minimum wage pay cuts – an agreement met with protests by the Greeks. A 130bn euro second bailout was given. Pro-austerity party New Democracy got most votes after the Greeks went to the polls, delaying fears the country was leaving the Eurozone.
- On June 9th Spain also said it will soon formally ask for a loan of 100bn euros.
- Upheaval in the Eurozone would force banks to be careful about lending, making it harder for first-time buyers to get on the property ladder and leading to rising rent. Those deemed unreliable to make mortgage repayments may struggle to get one. However, if Greece were to leave the single currency the effects would be less felt than the collapse of Lehman Brothers in 2008.
- Trouble in the Eurozone means danger for the banks, but there are forms of protection. Overseen by the Financial Services Compensation Scheme, the first £85,000 in a bank, building society or credit union is protected and this doubles to £170,000 for joint accounts.
- Job cuts appear undeniable. The Eurozone is the UK’s biggest trading partner and therefore a decline in European economies would mean less demand.
- However, holidays in Europe will suddenly become more profitable, with the pound buying more euros than any time in the last three years – that party holiday suddenly got a lot cheaper!