Impact of European Debt Crisis on Countries and Interventions of Troika

Running head: MANAGERIAL ECONOMICS
Managerial economics
Name of the student
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Table of Contents
Introduction................................................................................................................................3
Central Problem.........................................................................................................................3
Aim of the Report.......................................................................................................................4
Literature Review.......................................................................................................................5
The situation of the economic crisis in the European countries.............................................5
Impact of Crisis in Greece......................................................................................................6
Impact of Crisis in Ireland......................................................................................................7
Impact of Crisis in Spain........................................................................................................7
Interventions of Troika...........................................................................................................8
Increase in the Government debt..............................................................................................10
Inflexibility of the monetary policy.........................................................................................10
European Crisis and its further effect.......................................................................................11
Intervention made by Troika....................................................................................................12
Conclusion................................................................................................................................21
Reference list............................................................................................................................22

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Introduction
The economic recession along with the financial crisis seemed to have a huge impact
on the countries within the European Union or the Eurozone. Countries such as Spain,
Ireland, Netherlands and Greece were some of the most affected areas. It took combined
efforts of the European Union, IMF and ECB for structuring a mechanism which are aimed at
offering the financial aid and guidance back to the path of recovery for the largely affected
countries. The report in the below section states the reasons behind the financial crisis in the
European crisis and the result after the crisis.
Central Problem
The European debt crisis took place when the several countries of Europe experienced
the collapse of the financial institutions. The crisis took place when the financial institution of
Iceland had collapsed. The debt crisis resulted in loss of confidence of the business and
economies of Europe. The crisis also took place with the evolution of the great recession. In
order to fight the crisis the government started to raise tax and also lowered the expenditure.
The government expenditure also started to increase because of the crisis. The Eurozone
states in the time of crisis therefore have been rescued by the sovereign bailout programs
which had been jointly provided by the International Monetary Fund and European
Commission. The European States at that time were unable to pay back their huge amount of
government debt. Therefore, the European Central Bank and the International Monetary Fund
had helped them during the crisis. The ECB and IMF together formed Troika which intended
to bailout the countries that have been affected by the European crisis.

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Aim of the Report
The aim of the paper is to find out how the countries affected by the European crisis
and how the European Commission, IMF and ECB have financially supported a large number
of countries. The paper also states the situation during the global recession which is also lead
to financial crisis in Europe. The research also shows the changes in demand and supply
which have affected the countries during the crisis. After the introduction of the research
questions, the paper further discusses about the situation of the economic crisis in the
European crisis. It also states the various impacts of the crisis specially in Greece, Spain,
Ireland and Netherland. The paper also states about the housing scheme of Netherlands.
Therefore, the research questions will be: Why did Spain, Ireland, Greece and Netherlands
need financial support?
The sub questions which will be following the research questions are
How was the starting situation of the crisis?
What was the impact on the Netherlands housing market deductible interest amount declines?
How Ireland reacted when there was a massive increase in VAT?
What happened to Greece when the transport license had been abolished which was imposed
on the citizens of the economy of the country?
What was the general pay cut for Spain?
Literature Review
The situation of the economic crisis in the European countries
The recession of Europe is the part of Great Recession which stated from United
States. The crisis had started spreading I Europe rapidly and affected a lot of countries which
were already in recessions. The recession took place only in Europe and most of countries

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had suffered from economic setbacks. The recession in Eurozone have affected the European
countries. Most of the countries in this particular region wet into complete financial crisis and
the governments who are the main victims of the whole crisis. The rise in the global savings
had mostly resulted by the high growth of the developing nations which will be entering in
the global capital markets. The financial crisis mostly resulted from the rise in the economic
bubbles across various sectors of the global markets.
The global financial crisis between the year 2007 and 2012, saw several economies in
the region to plunge into complete financial c rises where governments and banks were the,
main victims of the whole crisis. There also had been a significant rise in the savings which
availed to the potential investors for investment. The rise in the global savings had been
partially caused by the high growth in the developing nations which will enter in the global
capital market which will be offering an alternative for the investors who were searching for
high yields that those availed by the US Treasury bonds. The European financial crisis as
therefore resulted of the bursting of the bubbles from the housing market of the banking
industry across Europe as the asset prices will be declining the way.

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Figure 1Real GDP and price level.
(Source: Parkin 2016)
Impact of Crisis in Greece
The crisis in Greece had started taking place in the late 2009 which had been also
triggered by the Great Recession. The crisis in Greece was accompanied by the great
recession, structural weakness of the economy and inflexibility of the monetary policy. The
crisis also took place since t66he previous data of the deficits had been not reported by the
government itself. In the year 2009, the government debt had been further raised from
€269.3 bn to €299.7 bn. These factors had led to crisis in Greece. They crisis had also led to
rise in the cost of the risk insurance on the credit default swaps. The crisis in 2008 and 2009
had been the world’s worst financial crisis in almost more than eighty years which lead to the
global recessions. Most of the European countries had huge amount of government debt,
however only Greece had been worsely affected with the spiralling spending deficit. Greece
was known to borrow much more money than it could make in revenue with the help of