Relation between debt and crisis in the eurozone

Abstract

As it is usually suggested, the crises are a part of the economic cycles. In their growth stage the imbalances are disguised by the economic goodness and then to be corrected in a recession period and so start a new cycle. For years the economists and the responsible of economic policies have made a great effort to succeed softening the cycles, to lengthen the growth stages and to reduce the intensity and duration of the depressions. At the end of the 90s, after a long worldwide economic growth period, it was thought that a low unemployment taxes and a continuous increase of the international economic resources were achieved. But contrary to what was thought, the collapse of the housing bubble in USA in 2007 brought about one of the biggest economic crises in history, which began to spread worldwide in the financial sector and to deteriorate alter the fall of Lheman Brothers. It took us to a loss of trust in the balances of the financial intermediaries and the subsequent aversion to take any risk among them, to an almost totally disappearance of some markets of banking financing, cash shrinkage on a global level and therefore to a credit decrease, and living way to a crisis in the real economy, manifesting on a drastic price decline of the real and financial assets, a sharp contraction of the world production and a reduction of the international trade flows. All this affected specially some countries in the world like the European region, which was said to be particularly vulnerable due to the fact that some emerging economies of the eurozone had a high level of overheating and credit expansion by the time the crisis sparked (which would lead some of them to have their own housing bubbles), limiting significantly the possibilities of many governments to build fiscal policies of contractive character that could compensate for the private investment and expense falls, and in some cases it was necessary to turn to a greater pubic indebtedness, which threatened the public finances sustainability and therefore the health of an already weakened economy. This would lead to a doubt about the capacity of some governments to cope with their respective payment transactions.