"History doesn't repeat, but it often rhymes," is a famous saying attributed to American author Mark Twain. When you read today's news about the French government and its debt situation, it's not unlikely that the saying comes to mind.

The European Debt Crisis Revisited

It has been about 15 years since the European Union faced its first severe crisis. As a result of the aftermath of the Great Financial Crisis in 2008, the continent stumbled into a multi-year debt crisis that brought enormous economic hardship to many members of the Eurozone. 

Back then, it was the so-called PIIGS states (Portugal, Ireland, Italy, Greece, and Spain) that got into the spotlight of financial markets. After the euro was implemented in 2002, these countries were able to issue government debt at rates they had never seen before. Unsurprisingly, politicians couldn't withstand the pressure and issued more and more debt in an attempt to bring their countries into prosperity. 

As always, things that sound too good to be true turn out not to be true. And when the appetite for new debt and risky credit abated after the US housing bubble started to burst, it was only a matter of time before the crisis would spread and affect European countries that piled up debt under the low-interest rate regime. 

Interest rate spreads of government bonds compared to German Bunds (figuratively the "US treasury bond" of the Eurozone) widened significantly. Mario Draghi, then the head of the ECB, intervened verbally with his famous "Whatever It Takes" speech, and interest rate spreads began to narrow again. Greece suffered extraordinarily under the crisis. Things deteriorated to the point of requiring financial support from the EU and the IMF. 

The EU also put political instruments in place, which somehow wiggled around the "no-bailout" clause from the Maastricht Treaty.  In the end, one could say that the crisis wasn't solved, but instead covered up by political actions aimed at alleviating the nervousness of financial markets.