Euro-ohh, no

Unless you have been living under a rock, you would have heard news of the "European debt crisis" (no offence if you have been under a rock; that cliché has more relevance following a massive earthquake). This is an event threatening the entire world economy, which has ramifications for pretty much everyone in the world. However, in most cases the media uses too much financial jargon, making no attempt to make this understandable to anyone with less than a bachelor's degree in the subject. Most people don't know what a "bond spread" is, and frankly, don't give a fuck.

If you read this article you should finish with a basic idea of what is actually happening to Europe at the moment, even if your understanding of a bond is "that thing you lost playing 'throw the hammer inside the flat'". Having a critical opinion on foreign financial issues makes you look sophisticated; chicks love that shit.*

*Chicks probably don't love that shit.

The euro (€), as most will know, is the currency used across Europe – in 17 of the 27 European Union states, to be precise. This currency was not just adopted to take away the hassle of currency exchange for tourists, rather it creates an optimal currency area, which is basically a way to maximise economic efficiency. It was born in 1995 and had a strong start to its life, eventually becoming the world's second largest reserve currency (a reserve currency is a one that other countries hold in their reserves to back the value of their own currency – this was traditionally done with gold). The euro also has the world's largest amount of physical cash in circulation at €890 billion.

The euro's proudest moment in its meteoric rise as a currency was when Jay-Z ditched US dollars and repped a wad of euros in his video "Blue Magic" in late 2007. This could have been seen as a lack of confidence in the USD at the time; his guess was really as good as any economist's. The most world's then-most prominent economist, Alan Greenspan, shared Jay-Z's optimism in the euro, stating "It is absolutely conceivable that the euro will replace the US dollar as reserve currency, or will be traded as an equally important reserve currency". This was n unusually clear statement for a man who once said "I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said."

However, the euro did not turn out to be an economic fairytale as planned. From the early 2000s Greece experienced an economic boom, and as a new member of the Eurozone (the states using the euro as their currency), it was able to borrow at low interest rates because of the strength of its fellow Eurozone members, mainly Germany (in the same way a gold-digger can apply for a better credit card based on her rich husband's stable income). Greece then began to run a "structural deficit", which is basically the same as when you crack into your student overdraft to buy chicken nuggets, because you expect to get a job after exams and pay for them then. Combine this with a government who promises you a whole lot of free welfare in order to get voted in, and the end result is going to be a shit-storm if the economy begins to slow down even a little bit. The Greeks became spoilt and came to expect governments to borrow money to pay for things instead taxing its citizens. It even used the investment bank Goldman Sachs to help hide the massive debt it was accumulating from the rest of the Eurozone.

The global financial crisis started by US investment bankers in late 2008 resulted in less being spent on shipping and tourism in Greece. This slowed the economy and its income fell 15% in 2009. Countries can borrow money from individuals or companies by issuing bonds, which is basically an IOU from the state to the individual investor with a set interest rate in a number of months or years. In general terms, the lower the interest rate, the lower the risk of the country defaulting and being unable to repay the IOU with additional interest, often referred to as "going bankrupt" (there is debate as to whether a country can actually go bankrupt).

The interest rate attached to a bond is known as a "bond yield". Rating agencies (such as the infamous Standard & Poors) warn investors of the risks of investing in a certain bond by giving it a rating similar to the marks you get at university, ranging from AAA down to D. Anything below BBB are not considered investment grade, and are termed "junk bonds". For all those who spent too much time at The Foundry, let's hope employers don't take a similar attitude towards Bs.

The rating agencies downgraded Greek bonds because they believed Greece would eventually be unable to repay up to 40% of its debt. Following a downgrade to junk status, the Greek bond yield went up dramatically as it struggled to raise money to pay for welfare promises to its citizens and repay its bond debts.

Subsequently, bond spreads increased. A bond yield spread is the difference in yields between two bonds. The health of Greek bonds was marked against German bonds, as Germany is a stable and healthy economy with no debt. When you hear of Greek bond spreads increasing, this means they are in trouble.

Fearing this panic would spread to other irresponsible Eurozone states, mainly Portugal and Ireland, the European Central Bank (ECB) guaranteed that it would continue to loan money to Greece despite its bond rating. This is often referred to a providing "liquidity", that is an ability to generate cash to pay for something when it comes up. This calmed the panic slightly and lowered bond yields.

In mid-2010 the International Monetary Fund and the European Union agreed to a bailout with Greece, giving them money to keep them paying their debt obligations. A total of €110 billion was agreed to. This would be a stupid thing to do if Greece continued to use borrowed money to spoil its citizens, so the deal included "austerity measures"- basically cutting spending where possible. This included tax rises, retirement age increases, lower bonuses to government employees, and the sale of state assets. In short, the citizens of Greece lost their shit, resulting in large-scale rioting.

However, the bailout wasn't enough to calm the storm. The ECB now continues to buy junk bonds off the Greek government in order to continue funding them. The majority of funding to the ECB comes from Germany. As you may imagine, the German people are getting fed up with loaning money to their unreliable cousins, and things have reached that awkward stage. On top of this, the ECB is overstepping its legal boundaries in doing this because its purpose is to control inflation, not bail out failing financial systems.

At the end of 2015 Greece has a €330 billion in debt to repay. There are really only three options: continue to seek bailouts and borrow money indefinitely, in the hope of bringing things under control; bite the bullet and default on the full amount of the debt, preventing a much larger default in the future, euphemistically known as "debt restructuring"; or the final option would be to leave the Eurozone, in which case it would have control of its own currency and be able to lower its value until it is able to repay the loans. This would cut the cancer off the Eurozone, preventing a spread to other sick Eurozone economies, and eventually to the healthy ones – this is good news if you plan on going on a holiday to Greece with New Zealand dollars.

It's far from over yet: Ireland Portugal, Italy and Spain are all almost in a similar situation. This poses a major threat to the credibility and value of the euro, which has worldwide implications because of its use as a reserve currency.