The eurozone sovereign debt crisis: an in-depth analysis of the effectiveness and sustainability of the crisis response measures adopted

Abstract

The Eurozone sovereign debt crisis has had a severe impact on the economy of the euro area. This crisis mainly hit Eurozone countries due to several fiscal deficiencies. The main implication was excessive sovereign debt, which ultimately led to a deterioration of other basic fundamentals of the European Union as a whole. The objective of this dissertation is to analyse and assess the effectiveness of the measures taken by the countries that were worst affected by the Eurozone crisis to date, namely Greece, Ireland, Portugal, Spain and Italy. These austerity measures were backed by the International Monetary Fund (IMF), together with the European Commission (EC) and the European Central Bank (ECB) in the hope of helping each country cut their expenditures, increase their revenues and ultimately be able to pay off their debts. This study begins by analysing the main macroeconomic variables of each of the subject countries in order to highlight the specific vulnerabilities which led to this crisis. The author then assesses the effectiveness of the austerity measures, and any financial assistance provided by European leaders, in relation to the causes of the crisis and the objectives which were set as a framework for these measures. Until the end of 2011 and the beginning of 2012, these measures did not prove to be enough to solve this crisis. In fact, these short-run responses did not actually lead to an immediate recovery of economic fortunes. The author concludes that the late overdue responses by these Eurozone countries might have eliminated the possibility to resort to any other alternatives. However, apart from the fact that these measures were not applied in a sustainable and effective manner, austerity packages and bailouts are not the ideal solutions when countries are suffering from a deep recession.