The common perception held by many is as follows, the Eurozone Crisis was sparked by excessive private and public debt holdings. However, with further examination David Beckworth, an economist with the Mercatus Center, would argue that prior to the 2010-2011 decline the European central bank was exercising tight monetary policy (contractionary policy that requires the limiting of money supply in circulation). The general understanding is that periphery European countries such as Italy, Ireland, Portugal, and Greece accumulated too much debt on their balance sheets and thus defaulted. Therefore, causing a contagion of toxic debt obligations throughout the Eurozone. As a result the European Central Bank (ECB) imposed austerity measure on those particular troubled economies.

There is a contrasting view that the crisis was actually caused by early tight monetary policy initiatives. In 2008 the Eurozone was just beginning to experience an economic contraction. And in an attempt to remedy the situation, the ECB increased the target interest rate by 0.25%. Note, when the target interest rate is increased, this deters individuals from borrowing thereby diminishing spending and growth as the money supply has contracted. Thus creating a shock and triggering the first crisis. In 2010 the ECB then raised rates again, only to further intensify the recession in 2011. Often the initial instinct of the central bank regulator is to decrease interest rates in order to spur consumption under an economic slowdown, this policy was enacted because at that point in time prices were surging on commodities such as energy. As a result, the intention was to avoid what appeared to be inflation.

Beckworth argues that inflation should not be the target of Federal Reserve interest rate policy, rather the level of total money spent on finished goods within that economy should be the focus. I.e. the nominal GDP rate (total output of goods and services where inflation is not accounted for). He argues that if the European central bank targeted NGDP, then the actual growth levels could be maintained rather than manipulating the interest rate, and hoping for an optimal result.