The euro area, which will hereafter be referred to as the Eurozone, remains in a state of post-recession recovery. Following the financial crisis that began in late-2008 in the United States and the ensuing global fallout, the Eurozone had an economic crisis of its own that is known as the sovereign debt crisis. Precipitated by the vast debt a number of Eurozone constituent countries had accumulated with respect to their GDP, the sovereign debt crisis involved risk of default in several countries and a series of bailouts to some. Economies shrank as GDPs declined, unemployment rose, and deflation occurred. To combat this crisis, in addition to the aforementioned bailouts, the European Central Bank, which will henceforth be called the ECB, drastically lowered interest rates and engaged in the unconventional practice of buying securities as one way to accomplish this. Through its program known as Outright Monetary Transactions (OMT), the ECB offered to purchase government debt (from private banks) of member states that request assistance. Due to the associated conditionality, however, it was never implemented across the entire Eurozone. Also created by the ECB was long-term refinancing operations (LTROs) program in which long-term, low-interest loans were made to Eurozone banks and used government bonds and other securities as collateral. However, the Eurozone is a region of great contrast, which has made universal solutions difficult to develop and implement; while a number of countries, perhaps most notably Greece, remain in terrible economic condition, others such as Germany have bounced back strongly. Today, over two years since ECB President Mario Draghi’s famous statement that the bank “is ready to do whatever it takes to preserve the Euro,” it remains to be seen what further steps the Eurozone will take towards recovery.
The sovereign debt crisis, as its name implies, started due to high government debts and deficits. This is still a major problem in the Eurozone. The overall public debt/GDP ratio in the Eurozone is above 90%, which is very high. More troubling than that, however, is some of the individual Eurozone countries. Greece, for instance, had reached the point where debt payments were not met and bailouts were required.
