Many factors have led to the Euro Debt Crisis. First, the US economy remains sluggish, with unemployment rates hovering above 9.1% as of third quarter of 2011. Demand for goods and services remain at an all-time low.
Across the Atlantic, Iceland’s entire banking system collapsed in 2008. The Icelandic recession then sparked a cascade of financial crises that would rock the economies of Ireland, Portugal and, most especially, Greece two years later.
The problem of these economies is that their debts have ballooned to such high levels, their governments couldn’t even pay the interest, much less the principal. Credit default loomed as an inevitable bitter solution.
Sounding the alarm
Fortunately for Ireland, Portugal and Greece, they all belong to a formidable economic block known as the Eurozone. Soon after these countries’ governments sounded the alarm, the EU and the IMF came to their aid with a bail-out package.
Ireland received as much as 85 billion euros to rescue its ailing banks.
Portugal’s economy went on the verge of bankruptcy because of excessive government spending and risky debt creation. These events were further worsened by credit rating agencies’ speculations, which downgraded Lisbon’s rating overnight. The EU and the IMF shelled out 78 billion euros to bail Portugal out of this crisis.
Greek crisis
The case with Greece is much more complicated. Like Portugal, massive budget deficit and failing to pay its debts almost led to a credit default. Athens was given a bailout package amounting to 110 billion euros in 2010. In 2011, a second bailout package of 109 billion euros has been laid out.
The loans came with a heavy price. Greece must now adopt a number of harsh austerity measures to improve its market outlook. Job cuts and high taxes suddenly became the burden of every Greek. Despite all these, there is still no guarantee that Greece will not default in the end.
Ireland and Portugal are still reeling from their credit downgrade.
But there is a silver lining in all of these events.
Property prices: the silver lining
With many businesses closing shop and home rentals going down, property prices have dropped almost instantly. If there is ever a good opportunity for foreign investors to come in, now is the perfect time.
The price of one ritzy villa – complete with swimming pool, sauna, and private gym – in a prime residence area Portugal has been cut by as much as 57%. In fact, property in many areas of Europe has become so affordable, a London-based development and property search company has reported a ten-fold increase in property inquiries in Italy alone.
In Windsor, private equity investor David Hammond bought four properties in Portugal because the prices were so cheap and the properties in such good condition, he just couldn’t resist. He added that he would have had to pay twice as much for the same property had he bought them before the recession.
This has become the trend all over Europe.
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