2010 European Sovereign debt Crisis

2010 European sovereign debt crisis

Main article: 2010 European sovereign debt crisis

One of the long-term worldwide consequences of the economic breakdown is the 2010 European sovereign debt crisis. This crisis primarily impacted the four countries known as the PIGS and of those four countries, primarily Greece. The PIGS are Portugal, Italy, Greece and Spain, and are called that because they habitually run large government budget deficits. Other Eurozone countries include: France, Ireland, Belgium, The Netherlands, Luxembourg, Germany, Finland, Austria, and Italy. Fear that Greece's debt problems would cause lenders to stop lending to it, with the result that Greece would default on its sovereign debt, sparked speculation that such a default would cause lenders to stop loaning money to the other PIGS as well, with the result that they would also eventually default on their sovereign debt. A sovereign default by Spain, Portugal, Italy and Greece would result in bank losses so large that almost every bank in Europe would become insolvent due to the now uncollectible outstanding loans to those four countries.

On Friday, May 7, 2010 a long-desired financial aid package for Greece was constructed; however, it was obvious that other states, because of their extremely large debts, would have - or already had - financial difficulties. Therefore, the following Sunday a large group of ministers of Eurozone gathered in Brussels, decided on a mutual financial aid package of €750 billion; and the European Central Bank announced that in the future it would support by explicit monetary help, if necessary, government bonds of the Eurozone countries (which was not allowed before, because of fears of inflation).

Already on May 21, 2010 the German parliament, only with a slight majority, was the first one to accept the new rules.

While this aid package has so far averted a financial panic, the PIGS continue to have difficulties.^[162