The This development in the Eurozone government

The Economic and Monetary
Union can be regarded as a successful economic integration despite the various
criticisms from the year it was established until the end of 2009. However, the
structural and macroeconomic problems that existed in European economies but
were ignored due to the successful economic performance of EMU in the early
years, began to feel its presence together with the global economic crisis of
2008 and led to the turning of attention to peripheral countries in particular
in the euro area in 2009. Richard Baldwin and Francesco
Giavazzi stated the period of 2008 as “Till 2007, the Eurozone was widely
judged as somewhere between a good thing and a great thing. The rose-garden
feeling, however, started to disintegrate with the fall of Lehman Brothers in
September 2008” (Richard Baldwin and Francesco Giavazzi, 2015).  After the Lehman Brothers investment banking
business in the US in September 2008, the gap between the interest rates of
long-term deposits of eurozone countries and the interest rates of German state
deposits started to open for the first time. This development in the Eurozone
government bond interest was influenced by the global uncertainty in the first
step and the Irish government’s inability to save the Irish banks. The
situation was somewhat improved as the turbulence in the global markets
remained relatively low in 2009 and the Irish government explained the package
of fiscal measures in February 2009. However in October 2009, the debt crisis
in the eurozone was fired with the announcement that the Greek government had
misinformed the public on the budgetary accounts of the previous government and
that the 2009 budget deficit would actually double the previously announced
figure. According to the article called “The euro zone
crisis Its dimensions and implications”, in late 2009, Greece admitted that its
fiscal deficit was understated (12.7 % of GDP, as against 3.7 % stated
earlier), therefore; ratings agencies downgraded Greek bank and government debt (M R Anand, GL Gupta, Ranjan Dash, 2012). The rise of
Greece’s financial situation has raised concerns about the country’s ability to
pay off its debts. Credit downgrades and rising interest rates at the expense
of the disclosure made it impossible for Greece to borrow from the capital
markets and to reverse its debts. As Rebecca M. Nelson stated Greece was the
first Eurozone member to come under intense market pressures and the first to
turn to other Eurozone member states and the IMF for financial assistance (Rebecca M. Nelson, Paul Belkin, Derek E. Mix , 2011). As a result, after
November 2009, the rate of interest on government bonds has started to rise
steadily, and Greece has come to the brink of bankruptcy. In November 2010,
Ireland raised its long-term government bond interest rates to 8% and signaled
further increases in the future. In the same period, a similar situation was
experienced in Portugal and Portugal’s long-term state treasury interest rates
reached 6.9% in November 2010 and 10% in June 2011. In the following months,
the interest rates of state treasuries in Italy and Spain also tended to
increase Crisis signals have also started to be taken from countries. Following
ongoing developments, EU and IMF-backed financial aid packages were given to
Ireland in December 2010 and to Portugal in May 2011. In July 2011, speculative
movements towards Italian state treasuries resulted in 5.5% rise in interest
rates, and the Italian government announced fiscal measures in July and August.
On March 8, 2012, a second aid package for Greece entered into force. In July
2012, the financial aid package was adopted for reforming the banking system in
Spain and overcoming the problems in the sector.

But in fact, this Eurozone crisis was exposed to a domino effect.
The first trigger behind these events was different. Since the second half of
2008, the mortgage crisis that occurred in 2007 with the speculative ballooning
in the US housing market has affected the investment and commercial banking
sectors and the insurance industry, and has become a global financial crisis by
spreading on a global scale, especially in Europe and Japan. The article called
as “The Financial and Economic Crisis of 2008-2009 and Developing Countries”
stated that the crisis spread to developing countries, many of which were
forced to provide rescue package to bolster their respective financial systems
and/ or to implement expansionary monetary policy (Sebastian Dullien,
Detlef J. Kotte, Jan Priewe, 2010). As you can see, the
crisis that started with Greece spread to other countries over time and turned
into a debt crisis that enveloped the eurozone. Since the establishment of EMU
with the debt crisis, the Euro Area and the EU have given their first serious
test; that the mechanisms at the level of the Union are insufficient, that EMU
can not be a full economic union, that there are serious structural problems in
EMU member countries, and that there is a great division between these
countries.

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