Thursday, September 29, 2011

European Debt Crisis FAQ

by Matthew Yglesias

September 28, 2011

Why does Greece need a bailout?

This is pretty simple. The Greek budget is way out of whack and Greece can’t repay what it owes.

Why don’t the other Euro countries just let Greece default?

The concern is that if one Euro country defaults, this will increase the perceived riskiness of all European countries. The higher interest rates will be bad for everyone, but in particular could push countries like Ireland, Portugal, Spain, and Italy into default.

Well so what?

That many defaults would call other countries (Belgium, even France) into question. What’s more, the losses to banks would be enormous. Countries would then either need to choose between witnessing massive bank failures, or else engaging in bank bailouts much larger than the cost of just bailing Greece out.

Is this all caused by high taxes and socialism?

No. Sweden’s not on the Euro and they’re fine, notwithstanding high taxes. Even within the Eurozone, relatively high tax countries such as Finland and Austria are doing okay on their own terms.


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