Striking the eurozone balance

A key challenge in resolving the crisis is to reduce the debt burdens of southern countries, writes Kemal Dervis

THE eurozone crisis unfolded primarily as a sovereign debt crisis mostly on its southern periphery, with interest rates on sovereign bonds at times reaching 6% to 7% for Italy and Spain, and even higher for other countries.

And, because eurozone banks hold a substantial part of their assets in the form of eurozone sovereign bonds, the sovereign debt crisis became a potential banking crisis, worsened by banks’ other losses, owing, for example, to the collapse of housing prices in Spain. So a key challenge in resolving the eurozone crisis is to reduce the debt burdens of southern countries.