The Euro-crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro

area to repay or re-finance their government debt without the assistance of third parties. Fears developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. In Greece, unsustainable public sector wage and pension commitments drove the debt increase. The structure of the Eurozone as a monetary union (i.e., one currency) without fiscal union (e.g., different tax and public pension rules) contributed to the crisis and harmed the ability of European leaders to respond. Furthermore, there is also a problem that the euro zone system has a difficult structure for quick response. Eurozone, having 17 nations as its members, require unanimous agreement for a decision making process. This would lead to failure in complete prevention of contagion of other areas, as it would be hard for the Eurozone to respond quickly to the problem. In addition, as of June 2012 there was no "banking union" meaning that there was no Europe-wide approach to bank deposit insurance, bank oversight, or a joint means of recapitalization or resolution (wind-down) of failing banks.[14] Bank deposit insurance helps avoid bank runs. Recapitalization refers to injecting money into banks so that they can meet their immediate obligations and resume lending, as was done in 2008 in the U.S. via the Troubled Asset Relief Program. Since membership of the Eurozone establishes a single monetary policy, individual member states can no longer act independently, preventing them from printing money in order to pay creditors and ease their risk of default. By "printing money", a country's currency is devalued relative to its (eurozone) trading partners, making its exports cheaper, in principle leading to an improved balance of trade, increased GDP and higher tax revenues in nominal terms. Columnist Thomas L. Friedman wrote in June 2012: "In Europe, hyperconnectedness both exposed just how uncompetitive some of their economies were, but also how interdependent they had become. To restore confidence in Europe, EU leaders also agreed to create a European Fiscal Compact including the commitment of each participating country to introduce a balanced budget amendment as part of their national law/constitution. The European Central Bank has taken measures to maintain money flows between European banks by lowering interest rates and providing weaker banks (mostly from crisis countries) with cheap loans of more than one trillion Euros. In June 2012, also Spain became a matter of concern,[21] when rising interest rates began to affect its ability to access capital markets, leading to a bailout of its banks and other measures. Fiscal Compact (expected to enter into force on 1 January 2013), which starting from fiscal year 2014 will require from any ratifying state not involved in a bailout program, to limit its structural deficit to maximum 0.5% of GDP (if the debt level exceeds 60% of GDP) or else maximum 1.0% of GDP. This strict fiscal discipline was evaluated by 25 out of 27 EU member states as being necessary to adhere to, in order to ensure a path with sustainable debt levels in each of the European countries, which in

return was expected to be rewarded by a higher trust from the financial markets resulting in lower interest rates to help prosper growth. Some economists however criticized the Fiscal Compact for being too strict, and not flexible enough to qualify as an instrument for countries believing in Keynesianpolicies. UK and the Czech Republic, the two EU members having decided not to implement the Fiscal Compact, will instead only adhere to the Stability and Growth Pact and its more lax 3.0% limit for the budget deficit Each of the eurozone countries being involved in a bailout program (Greece, Portugal and Ireland), were asked both to follow a programme with fiscal consolidation/austerity, and to restore competitiveness through implementation of structural reforms and internal devaluation, i.e. lowering their relative production costs. The crisis has had a major impact on EU politics, leading to power shifts in several European countries, most notably in Greece, Ireland, Italy, Portugal, Spain, and France. A number of economists have dismissed the popular belief that the debt crisis was caused by excessive social welfare spending. According to their analysis, increased debt levels were mostly due to the large bailout packages provided to the financial sector during the late-2000s financial crisis, and the global economic slowdown thereafter. The average fiscal deficit in the euro area in 2007 was only 0.6% before it grew to 7% during the financial crisis. In the same period, the average government debt rose from 66% to 84% of GDP. The authors also stressed that fiscal deficits in the euro area were stable or even shrinking since the early 1990s.[39] US economist Paul Krugman named Greece as the only country where fiscal irresponsibility is at the heart of the crisis.[40] Unprecedented household debt levels were another cause. The International Monetary Fund (IMF) reported in April 2012 that in advanced economies, during the five years preceding 2007, the ratio of household debt to income rose by an average of 39%, to 138%. In Denmark, Iceland, Ireland, the Netherlands, and Norway, debt peaked at more than 200 percent of household income. By the end of 2011, real house prices had fallen from their peak by about 41% in Ireland, 29% in Iceland, 23% in Spain and the United States, and 21% in Denmark. Household defaults, underwater mortgages (where the loan balance exceeds the house value), foreclosures, and fire sales were endemic to a number of economies as of 2012. Household deleveraging by paying off debts or defaulting on them has begun in some countries, which slows economic growth. Argued that this violated the no bail-out clause of EU Treaty European Stability Mechanism (ESM) - Such a mechanism serves as a "financial firewall." Instead of a default by one country rippling through the entire interconnected financial system, the firewall mechanism can ensure that downstream nations and banking systems are protected by guaranteeing some or all of their obligations. Then the single default can be managed while limiting financial contagion.

Political impact
Handling of the ongoing crisis has led to the premature end of a number of European national governments and impacted the outcome of many elections:

Republic of Ireland February 2011 After a high deficit in the governments budget in 2010 and the uncertainty surrounding the proposed bailout from theInternational Monetary Fund, the 30th Dil (parliament) collapsed the following year, which led to a subsequent general election, collapse of the preceding government parties, Fianna Fil and the Green Party, the resignation of the Taoiseach (PM) Brian Cowen and the rise of the Fine Gael parliamentary party, which formed a government alongside the Labour Party in the 31st Dil, which led to a change of government and the appointment of Enda Kenny as Taoiseach. Portugal March 2011 Following the failure of parliament to adopt the government austerity measures, PM Jos Scrates and his government resigned, bringing about early elections in [494][495] June 2011. Spain July 2011 Following the failure of the Spanish government to handle the economic [498] situation, PM Jos Luis Rodrguez Zapatero announced early elections in November. "It is convenient to hold elections this fall so a new government can take charge of the economy in [499] 2012, fresh from the balloting" he said. Following the elections, Mariano Rajoy became PM. Italy November 2011 Following market pressure on government bond prices in response to concerns about levels of debt, the Government of Silvio Berlusconilost its majority, resigned and [204] was replaced by the Government of Mario Monti. Greece November 2011 After intense criticism from within his own party, the opposition and other EU governments, for his proposal to hold a referendum on the austerity and bailout measures, PM George Papandreou of the PASOK party announced his resignation in favour of a national unity government between three parties, of which only two currently remain in the [88] coalition. Following the vote in the Greek parliament on the austerity and bailout measures, which both leading parties supported but many MPs of these two parties voted against, Papandreou and Antonis Samaras expelled a total of 44 MPs from their respective parliamentary [501] groups, leading to PASOK losing its parliamentary majority. The early Greek legislative election, 2012 were the first time in the history of the country, at which the bipartisanship (consisted of PASOK and New Democracy parties), which ruled the country for over 40 years, collapsed in votes as a punishment for their support to the strict measures proposed by the country's foreign lenders and the Troika (consisted of the European Union, the IMF and the European Central Bank). The popularity of PASOK dropped from 42.5% in 2010 to as low as 7% [502] in some polls in 2012. The extreme right-wing, radical left-wing, communist and populist political parties that have opposed the policy of strict measures, won the majority of the votes. France - May 2012 - The French presidential election, 2012 became the first time since 1981 that an incumbent failed to gain a second term, when Nicolas Sarkozylost to Franois Hollande.

Effect on world
Britain may be in the front line of the Euro crisis, but it is not the only country affected. The Eurozone is a massive market for businesses from the United States, China, India, Japan, Russia and the other major world economic powers. China has considered lending money to Europe, they are that concerned that the Euro may collapse. Meanwhile, the International Monetary Fund (IMF), which was set up to help countries in economic difficulty, set aside hundreds of billions of dollars for a bailout of some of the Eurozone countries. The wider world is so keen to see the Euro survive even if that means it has fewer members for the following reasons.

To preserve the Eurozones massive consumer market. A staggering 322 million Europeans use the Euro every day. Its the currency of seventeen nations. Besides daily activities, these people use the Euro to

buy goods and services from overseas if there was a collapse in its value, then they would be less able to buy imports.

To prevent a global recession. A collapse of the Euro or a situation where some European governments would be unable to repay their debt would have a huge, negative impact on the world economy. It would resemble the financial crisis of 2007 and 2008 (in truth, it could be much worse than that). At the very least, businesses around the globe would think twice about investing and taking on new staff while others might start to trim their operations and cut jobs. A global economic recession would be highly likely.

To protect the world financial system. Banks around the globe have invested in the government debt of Eurozone countries. These banks also hold large amounts of Euros. If the current crisis gets much worse, then the government debt and currency that they hold will fall in value, which could undermine their own financial well being. It could be like the 2007 and 2008 financial crash all over again, with the global banking system under threat. This would be bad news for everyone.

Its not just the 322 million people in the Eurozone whi ch depend on their currency there are 150 million people in African countries whose currencies are pegged to value the Euro. If the Eurozone fragments and the value of the Euro collapses, these African countries will see the value of currency collapse too. The global economy is interrelated, so if major trading blocks like the Eurozone or countries like the US or China go into recession, its likely to affect economic growth around the world.