The Diversity of Debt Crises in Europe

Abstract

The external debts of the European countries are at the core of the current crises. Generally, the crises are attributed to government budget deficits in excess of the values stated in the Stability and Growth Pact (SGP) and the Maastricht Treaty. Proposals for reform involve increasing the powers of the European Union to monitor fiscal policies of the national governments and increasing bank regulation. This chapter seeks to explain the inter-country differences in the debt crisis in Europe. The SGP and the EU focused upon rules concerning government debt ratios and deficit ratios. They ignored the causes of external debt ratios in the entire economy that led to a crisis in the financial markets.