By now you’ve probably heard a lot about the many troubles plaguing the European economy. Either that or the rock you’re living under hasn’t yet been picked up and thrown through the window of a furniture store in downtown Athens. Politicians and economists alike will probably spend the next several decades quarreling over the cause of the Eurozone’s current predicament. Here is my take on how the European Union’s problems came to be.

Since its adoption in 1999, the euro has been the official currency of the “Eurozone,” a monetary amalgamation which by now includes 17 of the 27 member nations of the European Union. Many of the EU’s ailments are inherent consequences of the adoption of the euro as a common currency. When an economic powerhouse like Germany shares a currency with a much smaller economy, such as Greece or Portugal, the smaller country inevitably faces a lot of trouble competing in the world marketplace. Many economists argue that politics trumped economics in the 2001 decision to allow Greece to join the EU. When a small economy finds itself unable to trade its goods with the rest of the world, their currency naturally decreases in value, making their goods cheaper and more attractive to the rest of the world. Essentially, countries like Greece, Portugal, and Ireland were forced by the common currency to fight above their weight class and the fundamentals of their economies suffered.

Additionally, the adoption of the euro allowed countries like Ireland, Greece, and Portugal to borrow money at unnaturally low interest rates. Southern European countries, therefore, developed a dependence on deficit spending—funded by low-rate borrowing—as a means of maintaining a high standard of living for their populations. The rules regulating government spending contained in the Maastricht agreement were flouted by nations like Greece. Larger Eurozone powers took no punitive action against their smaller peers, despite the fact that fundamental rules, like the one allowing “no member to exceed its yearly budget deficit by the equivalent of 3% of GNP,” were broken literally hundreds of times.

The second half of the Eurozone’s story begins on Wall Street. In 2008, the collapse of the American housing bubble led to a global recession, hitting European economies particularly hard. Government budget deficits exploded worldwide as widespread unemployment caused tax revenues to drop off and spending to increase. The resulting sovereign debt crisis began to affect the value of the euro. Large European banks found themselves woefully under-capitalized, as dollars—still the world’s most useful reserve currency—became more and more expensive relative to euros. Large bailouts of Portugal, Greece, and Ireland were executed by the Eurozone’s most powerful economies with the help of the International Monetary Fund. And while Portugal and Ireland have made great strides toward reducing their deficits, Greece has continually refused to get its fiscal house in order. The price of insurance against Greek default has risen to appalling heights, suggesting that a Greek default on at least some debt is a near-certainty.

2011 saw the Eurozone’s sovereign debt crisis devolve into a full-on banking crisis. The IMF’s stress tests of Europe’s banks revealed that they were still woefully under-capitalized, and heavily exposed to losses due to large sovereign debt holdings. The stock prices of large European banks like Société Générale, Credit Agricole, and BNP Paribas tumbled by as much as 50 percent in September. In an unprecedented move, the European Central Bank enlisted the help of several other central banks, including the American Federal Reserve, to help pump dollars—not euros—into stumbling European banks. The European Union now faces two very distinct crises: a Eurozone plagued by sovereign debt and a banking system stuck with too many overvalued government securities and too few American dollars.

Though the problems faced by the Eurozone have become clear, many questions still remain. However, it is clear that in our modern globalized economy, what happens in Europe will have repercussions in the United States. In this time of uncertainty, one thing is obvious: the Eurozone’s banking and sovereign debt crises currently represent the greatest threat to the global economic recovery. Struggling Eurozone economies are in need of increased fiscal and monetary stimulus. However, the European Central Bank and the governments of the largest Eurozone economies appear to be doubling down on their strategy of monetary contraction and austerity, a strategy that will create conditions conducive to neither economic growth nor deficit reduction. Barring a major shift in European economic policy, the global economy will, at best, fail to achieve a meaningful recovery and, at worst, fall back into recession.