Understanding the European Crisis Now
Countries with too much sovereign debt have increasingly found it difficult to raise the money they need at affordable rates in the financial markets. At the same time, banks in many of these countries have come under pressure as deposits have fled to countries with stronger economies. Because the banking systems are much larger than the economies of their home countries, the governments lack the ready resources to prop up banks in trouble. Until recently, Spain’s sovereign debt was roughly the same as Germany’s as a percentage of economic output, according to the International Monetary Fund. But Spain has Europe’s highest unemployment rate and is once again in recession. As its banks have deteriorated, Spain has been forced to seek assistance for them from elsewhere in Europe.
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