Question

Question 3.

About the European Debt Crisis. Do you think that it is over? What have we learned so far from it? Could something like this happen again and will countries be better prepared for it?

Answer 1

The European debt crisis was that countries which had weaker economies such as Greece, Portugal etc. faced a huge debt burden because of continuous deficit financing of their budget. Also due to slowing economic growth in these countries, raising debts to finance the budget was becoming more and more difficult and became unsustainable. Moreover, because they had a common currency, the currency devaluation, and driving growth through export competitiveness also did not work out. Ultimately the problem was solved to an extent through fiscal tightening which led to hardships for the citizens and write-off of some amount of debt.

So the debt crisis is largely over and the worst fears of sovereign default is a thing of past. We have learned that the unsustainable level of public debt could create great hardships for generations of a country and could slow down the economic growth very badly.

Today most countries have a better balance sheet and are thus slightly better prepared to face such a crisis if they arise in the future.