U.K. Prime Minister David Cameron on Monday warned that “time was short” for eurozone leaders bidding to solve a debt crisis. Cameron called on Germany to accept the “collective responsibility” of the euro project and beef up the zone’s 440-billion-euro ($589-billion) bailout fund.
a. How does a large budget deficit that brings a large debt-to-GDP ratio create a “debt crisis”?
b. What are the alternative ways in which a eurozone nation can address its debt crisis?
c. What is the dilemma facing a country with a debt crisis and a recession?