UGC NET Economy Q46

Question

Read the following passage and answer question :
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, house holds had borrowed heavily to finance a major housing and construction boom. When housing prices collapsed, the two national governments started borrowing heavily form 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 one 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.

Accepted Answer

D