Euro Zone Debt Crises

Abstract

The Euro Zone was established in 1999 as a monetary union area. After the establishment of the Euro Zone, borrowing costs started to decrease in the EU and Euro Zone. The decrease in borrowing costs made economic growth based on borrowing more advantageous in the Euro Area. This situation led to an increase in the public debts of the Euro Area countries. Failure to establish a financial union supporting the monetary union in the Eurozone, weak financial disciplines of some countries in the Euro Area, and their macroeconomic vulnerabilities; Compared to other countries, the ratio of public debts to GDP increased in these countries. With the 2008 global crisis, the financial vulnerabilities of these countries have increased. Increased financial vulnerability caused debt crises in the Euro Area Southern countries, especially in Greece. The purpose of this study; to examine the emergence process of the European debt crisis and to analyze development of crisis. As a result, it was observed that the current account deficit
financed by public debt, due to the real exchange rate appreciated as a result of the inability of the southern countries to suppress inflation, in the Euro Zone. Due to the increasing risk pricing after the global crisis, the existing borrowing dynamics of these countries deteriorated and the European debt crisis emerged.