Europe’s central bank thinks it has a good plan to help countries like Greece, Spain and Italy. Those countries are struggling because they took on too much debt. (In other words, they owe too much money.)
The idea is that the European Central Bank* will agree to buy some of the debt (specifically, a type of debt known as bonds).
In return, the troubled countries must agree to spend less money and to put their finances in order.
When countries lend money to other countries, they receive small payments (while they wait for the full amount they loaned to be paid back) called interest.
When a country borrows too much money, some of the people who lent the money begin to worry that they won’t get their money back. So they demand higher and higher interest payments.
This puts pressure on countries that are already having trouble paying back all the money they borrowed. It pushes their debt even higher.
The European Central Bank hopes it can stop this cycle by agreeing to buy some bonds from the troubled countries. The hope is that will make other countries agree to lend money without demanding the high interest payments in return.
The central bank also hopes the bond-buying program will convince the troubled countries to spend less and find better ways to spend the money they have.
The whole plan is aimed at strengthening the weaker countries in the group of 17 European countries that use the same type of money (euros).
Too much government debt is making life hard for people in countries like Greece, Spain, Italy and Ireland because so much of their money is going towards paying down the debt. In addition, other countries no longer want to lend to them.
This has led to fears that the Eurozone may fall apart. That’s one reason people are pinning their hopes on the central bank’s scheme to help out.
*The European Central Bank is backed by countries in Europe with stronger economies and finances, such as Germany.
CURRICULUM CONNECTIONS
By Kathleen Tilly
Writing/Discussion Prompt
Like countries, people can also get into debt. They can get into debt by spending too much money on their credit cards, by buying things they can’t afford or by buying very expensive items, like cars and houses.
What are some ways kids can learn how to save and how to spend money appropriately so they don’t get into too much debt when they are older?
Reading Prompt: Demonstrate Understanding
This article includes a lot of details related to the finances of some countries in Europe. To make sure you understand the article, read it carefully two or three times and summarize what the article is about in two sentences.
Junior
Demonstrate understanding of a variety of texts by summarizing important ideas and citing supporting details (OME, Reading: 1.4).
Intermediate
Demonstrate understanding of increasingly complex texts by summarizing important ideas and citing a variety of details that support the main idea (OME, Reading: 1.4).
Grammar Feature: Brackets (Parentheses)
Brackets (which are also called parentheses) are used several times in this article. How are they used to increase your understanding?
