In this report, we outline how the eurozone crisis has evolved. We discuss how European Monetary Union (EMU) membership shaped both the economic crisis itself and the crisis response.
The peripheral countries are at very different stages of economic recovery and rebalancing. Growth has returned and private and public balances have improved. Unemployment and public debt levels remain high, whilst part of the rebalancing may just be cyclical.
The build-up of large private sector imbalances related to a housing boom and the financial sector were the prime cause of the crisis. Ireland has successfully reformed its banking sector and economic performance is strong, but challenges remain.
Both high private and public sector debt prior to the crisis are to blame for the country’s deep recession and public debt crisis. It remains to be seen whether Portugal’s low growth problem has been addressed, with unemployment and indebtedness still very high.