... The economies of the PIIGS were not as sound as Germany’s—but the lenders treated them as if they were. Not only that, the lenders assumed that, if any country got into trouble—i.e., if any one of the PIIGS couldn’t pay back their loans—the eurozone as a whole would be good for the debt...
... This in a nutshell is what happened between 1999 and 2010, when the Greek crisis first erupted: During those “boom” years (which were really no more than junior going crazy with the credit card), the various countries of the eurozone went into massive debt, in order to both fund a social safety net, and cut taxes on their citizens...
... Though they now don’t want to admit it, the Germans encouraged this over-indebtedness, by the way—as did the French. Why? Because with this false sense of prosperity, the over-indebted nations bought German and French goods and services. German and French banks were at the forefront of lending money to the PIIGS—which essentially made the whole scheme nothing more than vendor financing on a massive scale: I lend you money so that you can buy my products.
Just like a junkie setting up an addict, or a predatory credit card company giving you teaser rates, the Germans and the French—via their banks and government institutions—gave the weaker economies all the incentive in the world to go into massive debt, and then go out and buy German and French products...
/... http://gonzalolira.blogspot.com/2011/11/beginners-guide-to-european-debt-crisis.html?utm_source=BP_recent
I'd point out though that where Lira refers to the borrowed money being spent (or splurged) on social services and tax cuts and consumer spending, countries like Spain (which I know something about because I've been living here since the late 'eighties) also invested considerable sums in developing much vital infrastructure, modernizing the country at an almost developing-country pace. This can be expected to have improved competitiveness and continue to provide dividends in the future.
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