What caused the eurozone crisis?

The eurozone crisis grew out of heavy borrowing by countries on the euro area's edge, funded by cheap credit after the euro arrived. When lenders took fright from late 2009, those countries could neither devalue nor draw on a shared budget, and five needed rescue loans.

How the euro led to cheap borrowing

Eleven EU countries adopted the euro on 1 January 1999, and Greece joined in 2001. Borrowing costs in Spain, Portugal and Greece dropped to near Germany's, and money poured in, much of it from German and French banks. Between 1999 and 2007 the yearly gap between what Ireland, Spain, Portugal and Greece paid abroad and what they earned widened by roughly 6 per cent of GDP or more.

Greece, Portugal and Italy had mainly a government debt problem. In Ireland, Spain and Cyprus households, firms and banks did the borrowing, feeding property booms and oversized banks. That split is one reason the causes are still disputed.

How the crisis started and spread

In October 2009 Greece's new government revised its planned deficit for that year from 3.7 to 12.5 per cent of GDP. Lenders demanded more interest, and since the euro had no rescue fund, euro area governments and the IMF had to assemble a 110 billion euro loan in May 2010. Ireland followed. Having promised to cover its banks' debts, it injected about 46 billion euros into them, and its 2010 deficit hit 32.1 per cent of GDP.

Banks and governments dragged each other down. Banks held government bonds that lost value as doubts grew, and governments that rescued banks took on their losses. Spain's public debt climbed from 35.7 per cent of GDP in 2007 to 100 per cent by 2013, and Italy's ten-year borrowing cost averaged 7.06 per cent in November 2011.

Why sharing a currency made recovery harder

A euro member cannot set its own interest rate or cheapen its currency to help exporters, and there was no shared budget to send it money in a slump. Budget cuts became the main tool. Output fell further than forecasters expected, and by 2013 Spain's unemployment rate stood at 26.1 per cent and Greece's at 27.8 per cent.

How the crisis was brought under control

The turning point came on 26 July 2012, when Mario Draghi, president of the European Central Bank, said it was ready to do "whatever it takes to preserve the euro". The bank then offered to buy bonds from any country that signed up to a rescue programme. Italy's ten-year borrowing cost dropped from 6.00 per cent in July 2012 to 4.54 per cent in December, without a single bond bought under the offer.

Private holders of Greek bonds accepted a 53.5 per cent cut in 2012, and in Cyprus in 2013 uninsured depositors helped pay for the banks' losses. Greece's crisis flared again in 2015, when over 60 per cent of voters turned down its lenders' terms. Within weeks it accepted a third programme worth up to 86 billion euros.