European Union countries are trying to fix the crisis in the euro zone. 

What has caused the crisis?

A major problem was that, some years back, the value of housing went right down and banks which had lent people too much money to buy their homes lost a lot of it and had to be helped – or “bailed out” – by governments. This banking crisis triggered money problems and a recession around the world.

Some countries weren’t prepared for this and soon ran out of money. For years, some European governments had been breaking the rules on spending money and ended up owing more money than they were getting in from taxes. Tax is the money that the Government takes from people’s wages, and the things they buy, which they use to run the country. For example, the Government uses taxes to pay for hospitals, schools and roads. Countries also borrow money to pay for their country’s needs but, because of the problems, weaker countries found that they couldn’t borrow enough money any more. So all they could do was cut spending.

The debt crisis has deepened and the value of the euro has changed against other currencies. You might have noticed this if you’ve been on European holidays when changing your pounds and pence into euros. The value of the euro is suffering because some of the countries that use it are in crisis.

Why do we keep hearing about Greece?

Some countries have ended up getting into debt, meaning they owe money. The biggest problem is a huge hole in Greek finances. Now other countries have to watch their step if they don’t want to fall into the hole as well, especially countries which aren’t performing well financially either. So other European countries are trying to fill the big Greek crater. They are doing this because, if one member of the euro zone went bankrupt, it would badly affect all the others because the countries trade with one another, buying and selling goods and services. And some are owed money by Greece.

To put countries’ finances back on track, the European Parliament wants a stronger European commission that Governments HAVE to listen to with decisions taken out in the open so that everyone knows what is going on. It’s time to stick to the rules to try to stop future problems.

What will happen to countries in debt?

There have been arguments lately about how to treat countries that didn’t stick to the rules and got into such bad debt. There was a bail-out package agreed for Greece of €110billion which was put together by other European countries in 2010. But this wasn’t enough and more measures needed to be taken. The European Central bank has lent Greece money, and a “parachute”, seven times bigger than the rescue package, was created. This isn’t only for the Greeks but also for other countries showing signs of financial weakness. The money making up this parachute will have to be paid back. And countries can only use the parachute if they promise to behave better in the future and obey the rules.

The Greek government has also come up with its own spending cuts but people who live there are protesting because they don’t see why they should have to pay for their government’s mistakes. More decisions were being made this week about how to get Greece out of trouble. The question is, how far will stronger countries go to help?

There are fears that all of these efforts may still not be enough and that Greece may go bankrupt anyway which may mean that other countries that use the euro follow.

What does that mean? 

The EUROPEAN UNION is a union of 27 countries that are mainly located in Europe.

The EURO ZONE is made up of 17 countries that use the euro for their money. The UK decided not to join the euro zone, even though it is part of the EU. 

The EUROPEAN COMMISSION is an organization that is responsible for the day-to-day running of the European Union.