16466 Chapter Notes - Chapter 26: Government Debt, Quantitative Easing, Currency Union
Document Summary
Sovereign debt crisis bailouts and quantitative easing. Compounded by differential growth rates: large and overleveraged banks, and many bad loans. Especially spain: fiscal and financial trouble in the small, southern euro-zone states destabilised the much larger northern economies, countries with high debt became insolvent when gdp growth dropped (greece, portugal, spain). Also an issue for france and italy: countries with very large financial sectors became insolvent when their banks collapsed as property prices fell (ireland, iceland). In the past, a combination of low interest rates and weak growth would see a surge in infrastructure investment. High debt levels prevent this, so private finance is being sought and a range of measures have been tried to increase it. The combination of indebted governments running significant deficits, and weak banks restricting lending to restore balance sheets, leads to low growth. An extraordinary policy ease has now been in place for about six years.
