So what is the Euro Crisis?

The Euro crisis may seem a bit baffling to some but actually the Euro crisis is no different from the debt crisis being faced by millions of people today. Credit was made far too available and lent to people who couldn’t really afford to pay it back. Throw in some dodgy accounting and you have a perfect economic storm for the Euro.

The Eurozone crisis has dragged on for years now and we seem to be bouncing from one country to another to try and rescue it. Today for example Greece has voted in its second round of elections on what was supposed to be a vote of whether Greece will stay in the Euro but has also been reported as a vote on the survival of the Euro. Lets finally be honest about things though!

The truth is we are only back where we were months ago but in a worse position! Just a few months ago Greece’s government had agreed to tough austerity measures and the people seemed to be against them but getting on with it. Yes today Greece’s people seem to have voted for austerity but only on the basis that the terms of the austerity will likely be watered down by Germany. So we are actually in a worse position now than we were a few months ago because Greece is going to some extent, be let off the austerity hook and on top of that Spanish banks have had to be bailed out which will eventually lead to a Spanish and then Italian bailout!

So why is the Eurozone crisis still with us after years of desperate attempts to try and solve it? It’s because it can’t be solved!

The Eurozone as a whole is so indebted that it is beyond repair. Europe can only raise enough money to attempt to sort the problem out in one of three ways, all of which are flawed.

Austerity

I know this is slightly different to raising money, more like saving it, but

Spain has today finally swallowed its pride and turned to European institutions for a $125 billion bailout of its banking system. We all know this has been on the horizon for some time but things have finally reached a pinnacle this week as Spain has seen its 10 year bond yields soar nearer to the critical 7% level! Spain has been struggling to cope with its sovereign debt levels in their current state and has finally acknoledged that adding the cost of a bank bailout to this debt will make it unsustainable!

With Spain now becoming the largest euro area economy to seek a bailout, how long can Europe continue to play pass the debt bomb before it blows?

Over the last week some prominent UK finance journalists and even the head of the IMF Christine Lagarde have been opening up the argument for a further cut in UK interest rates. Since the financial crash in 2009 Bank Of England interest rates have been held at a record low of 0.5%, preventing our debt laden economy from collapsing down around us!

What could a further rate cut mean for you? Will it make a difference to the economy? Are there any dangers in dropping rates to 0%?