The Euro Crisis Bailout Fund - dummies

By Julian Knight

Over the past year, the Eurozone crisis has grown worse because investors have become increasingly spooked by the possibility that some Eurozone governments may not be able to repay their debt. As a result, some Eurozone countries have found it very difficult to find investors to buy the debt that they want to issue. And some Eurozone members that can still sell their debt at the regular bond auctions are only doing so because they are agreeing to pay a much higher rate of interest, reflecting the increased risks that the investor is taking on.

As a result of this, the European Central Bank, which is responsible for the management of the Euro currency and economic stability in the Eurozone, has been stepping in and buying up unsold government debt. The richer countries like Germany are supporting this Euro bailout fund — but this is only a temporary solution meant to keep the countries who can’t sell their debt afloat.

The big danger of the bailout fund — which is, by the way, worth hundreds of billions of Euros — is that eventually, the richer nations that are paying the bill will start to run out of money, and that nations benefitting from the bailout may become complacent and don’t make the necessary cuts to their expenditure to balance their government finances.