The global financial crisis that began in 2008 hit Europe almost immediately with a major debt crisis. Borrowers in a number of Eurozone countries had built up large debts and appeared to be unable to service them. The four principal Eurozone debtors were Greece, Ireland, Portugal and Spain.
In Spain and Ireland, households had borrowed heavily to finance a major housing and construction boom. When housing prices collapsed, the two national governments started borrowing heavily from abroad to finance national bank bailouts and to stimulate their economies. Greece, however, had been running budget deficits ever since the creation of the Eurozone, with the government relying heavily on foreign borrowing to cover the shortfalls.
Portugal was somewhere in between; both households and the government had been borrowing heavily. The difficulties of the Eurozone debtors were not just a problem for them, since major northern European financial institutions and investors were the ones that had made most of these loans.
If the debtors defaulted, trillions of dollars in loans on the books of northern European banks, investors and pension funds would go bad. The weight of so many bad loans and investments endangered the very integrity of the financial systems of even the richest European countries, especially Germany and France. The sovereign debt crisis threatened both the sovereign debtors and their creditors, and, in fact, the entire European economy.
Given below are two statements, one labelled as Assertion (A) and the other as Reason (R). In the light of the above statements, choose the most appropriate answer from the options given below.
Both are correct and the reason explains the assertion, so the answer is both correct and R is the correct explanation of A.
The passage says the crisis hit Europe almost immediately with a major debt crisis.
So Europe was indeed very susceptible to the global crisis, making the assertion correct.
This susceptibility is shown by how the crisis at once led to a major debt crisis there.
So the reason states this immediate effect and is also correct.
The immediate debt crisis explains why Europe is said to have been so susceptible.
So both are correct and the reason correctly explains the assertion.
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