The European debt crisis has seriously affected the economies of the European Union in the past five years, imperiling the very existence of the continent’s groundbreaking monetary union and tarnishing the reputation of the economic block that was considered a competitor to the United States for global dominance just a few years ago. Mihaylo Economics Professor Huiran Pan, author of the 2012 study, Government Debt in the Euro Area – Evidence from Dynamic Factor Analysis, shares insight into the state of the European economies for business students.
In the past five years, many countries in Europe have been suffering through a debt crisis that has jeopardized the future of European economic integration and has at the very least provided a reality check about the feasibility of a common currency. Beginning in Greece in 2009, the debt crisis spread to Spain, Portugal, Italy, Ireland and other countries by 2011, driving a wedge between the economically healthy nations of Europe, such as Germany, with their troubled neighbors. While the Euro Zone has demonstrated a rebound in the past two years, the clouds of the recent crisis hang over the economic union that once was considered a serious rival to the United States as an economic superpower.
Mihaylo Economics Professor Huiran Pan authored a 2012 study, Government Debt in the Euro Area – Evidence from Dynamic Factor Analysis, in which she examined the pattern of burgeoning government debt levels, as compared to GDP, in the European economies since integration, eventually leading to the debt crisis.
Pan says that government debt is not always a bad thing; only when it reaches unsustainable levels is there cause for concern. “Reasonable government spending accelerates economic growth by creating more jobs or improving public infrastructures to facilitate production,” she says. “Too much government spending or outstanding government debt causes debt crises and economic downturn if the government is unable to repay the debt.”