In the aftermath of the financial crisis triggered by the bankruptcy of the American bank Lehman Brothers, Europe was living one of its most unstable moments. Facing the scams of the financial crisis, many countries experienced doubts about the benefits of a monetary union, adding a systemic crisis to the already existing economic one.

Before diving into what is called the Euro crisis, it’s worth mentioning its link to, apparently, a “local” financial crisis.

On  15th of September2008, the American bank Lehman Brothers declared bankruptcy, causing a global panic. Among the several reasons for the crisis, there is the involvement of opaque financial products that had been circulating in the economy since the 1990s. Trading these products all over the world, many banks found themselves with assets of uncertain value, with governments and central banks obliged to step in and try to mitigate the situation. The global circulation of these products is the first reason why the local crisis is not local at all. As for the second one, it is worth mentioning that if the US is facing a crisis, its entire economy will probably spend less, diminishing the demand for foreign products. With this regard, exporting countries to the US will lose money, not being able to export as before, causing a vicious circle. 

So how is the financial crisis linked to the European one? 

European countries have been living in very different situations since their entrance in the monetary union. While some countries boosted their economic growth, other countries were slowing down, giving a sluggish growth rate to the entire Euro area. A financial crisis is a shock which, in turn, amplifies the already existing cracks in the system. In fact, the differences among European countries, especially between northern and southern countries, reinforced themselves. Two of the main differences rely on the unemployment rate, low in northern countries, pretty high in southern ones, and GDP growth, usually higher for northern countries with respect to southern ones.  The shock just amplified the difficulties some countries were already experiencing. As a result, some southern European countries suddenly faced an unexpected high debt, like Greece. These conditions posed questions over the framework and the benefits of the monetary union, with the mechanism initially triggered and amplified by the shock, the financial crisis. Consequently, the derived systemic crisis prevented European countries from enjoying sustained and stable growth in the aftermath of 2008. Comparing some data between the US and the Euro Area from 2010 to 2014, on the one hand, we see the US coming up with a 2.2% of output growth rate, an 8% of unemployment rate (which will come back to pre-crisis levels just one year after, in 2015 is 5.4%) and an inflation rate of 1.5% (IMF). On the other hand, the values in Europe are sluggish. From 2010 to 2014 output growth rate is registered as an average of 0.7%, 1.5% less than US; Unemployment rate is an average among countries stopping at 11.1%, with Greece and Spain tripling their rates, while Germany diminishing it. Lastly, the inflation rate remained low, at 1% (IMF).

In essence, the systemic crisis derived from the financial crisis triggered a double-dip recession, characterized by the name “The Euro Crisis”. In April 2011, the economic sentiment in Europe started deteriorating, the clouds over the real benefits of a monetary union influenced people, investors, and expectations in the market. As a result, in July 2012, the former ECB President, nowaday Italian Prime Minister, Mario Draghi was obliged to step in with the famous “Whatever it takes”. In his speech, Draghi was appointing the markets, promising that the ECB would have done everything to preserve the Euro. Following this, the answer to these problems included structural reforms, greater coordination of economic, fiscal and financial policies, followed by the provision of widespread ECB liquidity measures (Darvas 2013).  In January 2013, Herman Van Rompuy, President of the European Council, followed by declaring that “the worst is behind us, in particular the existential threat to the euro”. 

To conclude, analyzing the effects of the Great Recession of 2008 in Europe is very different from looking at other regions of the world. The financial crisis was only the first problem faced by European countries. In addition, the threat to the existence of the monetary union scared not only policy makers, but also the entire European economic system. Without the dark clouds over its head, Europe went on for the rest of the decade. However, new shocks came up: Brexit and the pandemic, with the Euro Crisis that can surely help us in learning something about shocks and how to cope with them.



Darvas, Z. (2013). The Euro Crisis: Mission Accomplished? World Policy Journal, 30(1), 87–94.

Arestis, P., & Sawyer, M. (2011). The Ongoing Euro Crisis. Challenge, 54(6), 6–13.

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