Euro Crisis Case

The European crisis started in January of 2010, during this period there was increased worry regarding high national debt. Worried investors demanded increased interest rates from a number of countries with high debt amounts or deficits. These countries then faced hardship in servicing their debt, hence suffering additional budget deficits (Wearden, 2011). The political leaders in these countries took austerity measures for example higher taxes and reduced government expenses, resulting in social unrest. However, Valentina (2011) points out that there are other countries like Germany, which made billions of Euros from this crisis since investors moved to Germany because it was taught to be safer. Similarly, Switzerland benefited from the crisis because of its lower interest rates.

There are a number of complex factors that have contributed to the European debt crisis; they include globalization of financial institutions, international trade imbalances, slow economic growth, easy credit condition that existed from 2002 to 2008 among other factors. According to Moody (2011) the reasons behind the crisis stem from the high increase in savings present for investment in the course of 2000 to 2007. In the course of this period, the international pool for fixed income increased by nearly $36 trillion. The temptation presented by this readily high saving led to countries overlooking their regulatory when it came to borrowing and lending money. A number of politicians like Angela Merkel, the Germany Chancellor have attributed hedge funds and other speculators as one of the reasons for the crisis (Donahue, 2010).

Solutions to the euro crisis require both political and diplomatic measures. Economic as well as financial solutions that should have implemented quickly in order to react to market pressures and increasing distrust have usually been overruled or postponed due to political considerations. In spite of continued assurances that maintaining the monetary