ABSTRACT
After an enormous boom period spanning a quarter of a century beginning in the mid-1980s, Europe began to show the first signs of an economic crisis in 2007-8. In September of 2007, Britain’s Northern Rock Bank tottered at the brink of collapse and was saved only by a guarantee of coverage by the Bank of England, with a $4.4 billion credit line. But a year later, in September 2008, the major American mortgage bank, Lehman Brothers, collapsed, shocking the entire international financial system. Banks stopped extending credit, and a global liquidity crisis paralyzed financial markets worldwide. Financial panic engulfed Europe. The first victim was trust: banks and companies began hoarding their money and neither spent nor lent it. Bank loans were no longer available. The crisis began to feed itself. Euro-zone banks wrote down $500-800 billion, about 10 percent of the aggregate GDP of the euro-zone. The International Monetary Fund (IMF) estimated that no less than $1.2 trillion dollars were lost in the euro-zone and Britain. The Union’s debt level was around 60 percent of the aggregate GDP, only to rise to more than 82 percent by 2011. Because of panic selling, the value of stocks in the euro-zone was cut in half.
