The European sovereign debt crisis : an analysis of the causes & consequences in Greece, Ireland, Portugal and the Eurozone as a whole

Abstract

This study of the European sovereign debt crisis contains an analysis of its causes and consequences, including the policy responses, with particular reference to Greece, Ireland and Portugal. The European debt crisis has been a source for speculation and concern since its outbreak in 2009. The reason is that there has never before been a single currency area that is so diverse and complex in structure. The following study investigates this crisis by looking at the different causes and responses in different countries under the restrictions of a monetary union. The study begins by providing a review of The Optimum Currency Area criteria and their application to the Economic and Monetary Union. The creation of the EMU has motivated renewed interest in the investigation of optimum currency areas. In fact, the latest measures for strengthening fiscal integration will bring the Eurozone even closer to meeting OCA criteria. The study continues by analysing the causes of the debt crisis in Greece, Ireland and Portugal and how their respective governments and the European Union have responded to this crisis. This study also seeks to examine the European Union's decisions and responses to this crisis as a whole, through measures such as the creation of the European Financial Stability Facility (EFSF) as a financing vehicle and the establishment of the permanent European Stabilisation Mechanism (ESM) in mid-2013. It also investigates the measures taken by the ECB and the European Union through long term refinancing operations and legislation such as the Fiscal Pact, which is the latest response to resolving the on-going crisis. Finally the main conclusions and lessons learned are provided by linking the OCA criteria to the actions taken to resolve the crisis.