CRS – The Eurozone Crisis: Overview and Issues for Congress, February 29, 2012
“What started as a debt crisis in Greece in late 2009 has evolved into a broader economic crisis in the Eurozone that threatens economic stability in Europe and beyond. Some analysts view the Eurozone crisis as the biggest potential threat to the U.S. economic recovery. The Eurozone faces at least four major, and related, economic challenges. These challenges include: 1) high debt levels and public deficits in some Eurozone countries; 2) weaknesses in the European banking system; 3) economic recession and high unemployment in some Eurozone countries; and 4) persistent trade imbalances within the Eurozone. European leaders have undertaken several rounds of unprecedented policy measures to resolve the crisis. Key policy measures focus on: austerity measures and structural and economic reforms in countries facing severe market pressure, including Greece, Ireland, Italy, Portugal, and Spain (often referred to as the Eurozone periphery); financial assistance from other Eurozone governments and the IMF to Greece, Ireland, and Portugal; plans for debt restructuring in Greece; European Central Bank (ECB) liquidity support to private banks and purchases of sovereign bonds on secondary markets; and a commitment by most countries in the European Union (EU) to balance national budgets, the so-called fiscal compact. Although the ECBs infusion of cash into the banking system in December 2011 and February 2012 through long-term refinancing operations appears to have calmed markets, significant risks and policy questions remain.
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