A financial problem that started in Greece has now spread to several other nations such as Italy, Ireland and Spain. The problem is like a virus moving throughout Europe. Even the giant European countries such as France and Germany are not unscathed. The problems have been created by debt. When Greece’s debt was maturing, people realized that a large percentage of Greek debt was due. The debt was in the form of government bonds, which had been given mainly to key European banks, who had sold the bonds to investors. Suddenly, the investors did not feel confident that Greece would pay back their debt. The lack of confidence triggered a debt crisis, which is in reality a confidence crisis. As people talked, the lack of confidence gained momentum. More and more investors chose to get rid of their bonds. The banks that bought the bonds had to pay back the investors who had purchased the bonds from them, with virtually no guarantee that Greece will reimburse. If Greece failed to pay, the banks would collapse.
President of France Nicolas Sarkozy (L), German Chancellor Angela Merkel (C) and European Commission President Jose Manuel Barroso (R) chat during the EU summit in Brussels, Belgium, 09 December 2011. EPA/BGNES
Several big European banks were in danger of collapsing. The European Union decided to take action, not only to stop the demise of the banks but to help retain the image of the Euro zone. As there are many countries in the European Union, each with their own priorities, political power and ideas, it took a long time for them to agree on a strategy. Eventually on 9 May 2010, Europe’s Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe. In October 2011, they agreed to additional measures which they hoped would prevent the collapse of member economies. This included an agreement with banks to accept a 50% write-off of the Greek debt.
The EU leaders continue to meet, to develop treaties which they hope will increase confidence and stabilise the Union. David Cameron, the British Prime Minister, refused to sign the latest EU treaty, which has isolated Britain from the other European countries. But that, as they say, is another story.