eunion1-7, Exercise 1: Greece and austerity

Model answer:

A shared currency made the crisis hard because members cannot devalue their own currency to recover competitiveness, and the system had no common budget to help a member in trouble. When Greece's deficit was revealed to be far larger than reported, lenders lost confidence and its borrowing costs soared.

Creditor view: countries that borrowed beyond their means had to reform, lenders could not simply write off the debt, and rules had to be kept or the system would lose credibility.
Debtor view: austerity deepened the recession and made the debt harder to repay, the burden fell on ordinary people while banks had been rescued, and lenders shared responsibility for the lending.
Economists disagree about how much austerity was needed and how much it hurt.