The eurozone, composed of 17 countries which have adopted the euro as their currency, has been struggling with an apparently-intractable crisis over the enormous debts faced by its weakest economies and by countries impacted by the bursting of the housing boom in the past global recession of 2007-09. “Fiscally-distressed” countries now include Italy and Spain, both too big to bail out, along with Greece, Ireland and Portugal. Major contributing factors are the sizes of net government debt, primary budget deficits and negative current account (trade) balances, each expressed as a percent of GDP.
With potential loss of access to bond markets, inability to devalue and failure of the European Central Bank (ECB) to intervene, stern demands by Germany for adoption of severe austerity programs and reform could lead to a deeper recession, bond restructurings, bailouts, and even defaults on sovereign debt [...]