What event in 2009 ignited the euro crisis? What will be an ...

[itsmyluck]

What event in 2009 ignited the euro crisis?
 
  What will be an ideal response?

Question 2

What led to the over-extension of credit by some private banks and central banks in the euro zone prior to the 2009 euro crisis?
 
  What will be an ideal response?

[choc0chan]

Answer to Question 1

Greece elected a new government in 2009 which found that the previous government had been misreporting economic statistics for years and the public debt amounted to more than 100 of GDP. It became apparent that Greece would experience a sovereign default unless bailed out by the European Central Bank or some other source of credit.

Answer to Question 2

Differences in interest rates in euro zone countries did not accurately represent differences in risk and inflation. Consequently banks were able to borrow at very low real interest rates while assuming relatively high levels of default risk. Once it became apparent that sovereign default and private bank failures were not only possible but likely in some countries, borrowing costs skyrocketed in those countries. In some cases, credit was cut off entirely.