The European economy was hit by a confidence shock in 2009 when the Greek government of Papandreou discovered the true amount of public deficit. The subsequent loss of trust in European fiscal governance reduced financial markets' willingness to lend to indebted governments. The European Union...

This paper gives an overview of the causes of the European debt crisis and the consequences for the external relations. It finds that political mishandling has increased uncertainty, which has contributed to a tendency for the euro to become weaker.