Eurozone debt crisis
EUR/USD had partially recovered from the effects of the 2008 recession by late 2009 – that is, until it was revealed that Greece had been using creative accounting techniques to hide its debt levels, circumventing the strict rules imposed by the EU’s Stability and Growth Pact (SGP).
In fact, Portugal, Ireland, Italy, Greece and Spain (PIIGS) had all over-leveraged themselves, either as a result of the financial crisis or poor fiscal policy in the build-up. This undermined confidence in Europe and investors began to sell their bonds in affected countries to invest in currency elsewhere. As a result of these revelations, EUR/USD fell to 1.20 by 5 June 2010.
The European Central Bank (ECB) was unable to respond quickly because it knew that any action it could take would affect the entire eurozone. There was also little appetite in more prosperous countries to increase their own debt levels (or tax rates) to fund bail outs.
Various international bodies – including the World Bank, International Monetary Fund (IMF) and ECB – spent over €544 billion in the years since 2009 to deal with the debt crisis. These funds have required certain countries to accept strict austerity measures, which have hindered economic growth in Greece, Italy and Spain.
These measures helped to improve the situation in the eurozone but fragile investor confidence impacted EUR/USD. Between 2009 and 2014, the pair saw major price changes in response to political and economic events – including interest rate adjustments on both sides of the Atlantic, political unrest in Greece, and fears over Ukraine.