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2007–2012 global financial crisis
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Long-term interest rates of all eurozone countries except Estonia (secondary market yields of government bonds with maturities of close to ten years) A yield of 6% or more indicates that financial markets have serious doubts about credit-worthiness.
The European sovereign debt crisis (referred to by analysts and investment banking professionals as The ESDC) is an ongoing financial crisisthat has made it difficult or impossible for some countries in the euro area to re-finance their government debt without the assistance of third parties. From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising government debt levels around the worldtogether with a wave of downgrading of government debt in some European states. Concerns intensified in early 2010 and thereafter, leading Europe's finance ministers on 9 May 2010 to approve a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). In October 2011 and February 2012, the eurozone leaders agreed on more measures designed to prevent the collapse of member economies. This included an agreement whereby banks would accept a 53.5% write-off of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion, and requiring European banks to achieve 9% capitalisation. To restore confidence in Europe, EU leaders also agreed to create aEuropean Fiscal Compact including the commitment of each participating country to introduce a balanced budget amendment. While sovereign debt has risen substantially in only a few eurozone countries, it has become a perceived problem for the area as a whole. Nevertheless, the European currency has remained stable. As of
mid-November 2011, the euro was even trading slightly higher against the bloc's major trading partners than at the beginning of the crisis. The three countries most affected, Greece, Ireland and Portugal, collectively account for 6% of the eurozone's gross domestic product (GDP).
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1.1 Rising government debt levels 1.2 Trade imbalances 1.3 Monetary policy inflexibility 1.4 Loss of confidence
2 Evolution of the crisis
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2.1 Greece 2.2 Ireland 2.3 Portugal 2.4 Cyprus 2.5 Possible spread to other countries
2.5.1 Italy 2.5.2 Spain 2.5.3 Belgium 2.5.4 France 2.5.5 United Kingdom
3.1 EU emergency measures
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3.1.1 European Financial Stability Facility (EFSF) 3.1.2 European Financial Stabilisation Mechanism (EFSM) 3.1.3 Brussels agreement and aftermath
3.2 ECB interventions 3.3 European Stability Mechanism (ESM) 3.4 European Fiscal Compact 3.5 Economic reforms and recovery
3.5.1 Increase investment 3.5.2 Increase competitiveness 3.5.3 Address current account imbalances
4 Proposed long-term solutions
4.2 European Monetary Fund 4.3 Drastic debt write-off financed by wealth tax
5.1 EU treaty violations 5.2 Actors fueling the crisis
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5.2.1 Credit rating agencies 5.2.2 Media 5.2.3 Speculators
5.3 Speculation about the breakup of the eurozone 5.4 Odious debt 5.5 National statistics 5.6 Collateral for Finland
6 Political impact 7 See also 8 References 9 External links
Public debt $ and %GDP (2010) for selected European countries.
 The European sovereign debt crisis has resulted from a combination of complex factors. He argues that the European Union only takes action after the facts. and approaches used by nations to bailout troubled banking industries and private bondholders. easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices. assuming private debt burdens or socializing losses.Government debt of Eurozone. international trade imbalances. They only address a situation when it has already become a problem. real-estate bubbles that have since burst. researchers have to conduct and analyze financial records dated many years and possibly decades old. fiscal policy choices related to government revenues and expenses. Germany and crisis countries compared to Eurozone GDP. One narrative describing the causes of the crisis begins with the significant increase in savings available for investment during the 2000–2007 period when the global pool of fixed income securities increased from . the financial crisis was destined to happen due to the way the European Union deals and make their trade policies. According to Zdenek Kudrna. a political economist. including the globalization of finance. Government deficit of Eurozone compared to USA and UK. To find the origin of the financial distress. slow economic growth in 2008 and thereafter. Many contributing factors to the ongoing European financial crisis exist.
Treasury bonds sought alternatives globally.g. Although some financial institutions clearly profited from the growing Greek government debt in the short run. . there was a long lead up to the crisis. the French banking system and economy could come under significant pressure. were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures.S. Iceland's banking system grew enormously. Rising government debt levels In 1992. housing and commercial property) to decline. who received substantial fees in return for their services. But. it is unclear what exposure each country's banking system now has to CDS. the government increased its commitments to public workers in the form of extremely generous pay and pension benefits. Investors searching for higher yields than those offered by U. This "Giant Pool of Money" increased as savings from high-growth developing nations entered global capital markets. members of the European Union signed Maastricht Treaty. While these bubbles have burst causing asset prices (e. which in turn would affect France's creditors and so on. Ireland's government and taxpayers assumed private debts. In Greece. in October 2011 Italian borrowers owed French banks $366 billion (net). How each European country involved in this crisis borrowed and invested the money varies. generating questions regarding the solvency of governments and their banking systems. Greece hid its growing debt and deceived EU officials with the help of derivatives designed by major banks. When the bubble burst.approximately $36 trillion in 2000 to $70 trillion by 2007. under which they pledged to limit their deficit spending and debt levels. Ireland's banks lent the money to property developers. including Greece and Italy. since multiple CDS's can be purchased on the same security.Another factor contributing to interconnection is the concept of debt protection. For example. the banking systems of creditor nations face losses. However. the liabilities owed to global investors remain at full price. The temptation offered by such readily available savings overwhelmed the policy and regulatory control mechanisms in country after country as global fixed income investors searched for yield. Institutions entered into contracts called credit default swaps (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds).investment banks. generating bubble after bubble across the globe. Should Italy be unable to finance itself. This is referred to as financial contagion. For example..S. a number of EU member states. The structures were designed by prominent U. generating a massive property bubble. creating debts to global investors ("external debts") several times GDP. The interconnection in the global financial system means that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk.
privatesector indebtedness across the euro area is markedly lower than in the highly leveraged Anglo-Saxon economies. The average fiscal deficit in the euro area in 2007 was only 0. and the global economic slowdown thereafter.  Either way. The authors also stressed that fiscal deficits in the euro area were stable or even shrinking since the early 1990s. Germany had a . rather better than that of the US or the UK. high debt levels alone may not explain the crisis.6% before it grew to 7% during the financial crisis. According to The Economist Intelligence Unit. Commentators such as Financial Times journalist Martin Wolf have asserted that the root of the crisis was growing trade imbalances. Trade imbalances Current account balances relative to GDP (2010). He notes in the run-up to the crisis. In the same period the average government debt rose from 66% to 84% of GDP." The budget deficit for the euro area as a whole (see graph) is much lower and the euro area's government debt/GDP ratio of 86% in 2010 was about the same level as that of the US. the position of the euro area looked "no worse and in some respects. According to their analysis.Public debt as a percent of GDP (2010). from 1999 to 2007. increased debt levels are due to the large bailout packages provided to the financial sector during the late-2000s financial crisis. A number of "appalled economists" have condemned the popular notion in the media that rising debt levels of European countries were caused by excess government spending. Moreover.US economist Paul Krugman named Greece as the only country where fiscal irresponsibility is at the heart of the crisis.
For example by the end of 2011. individual member states can no longer act independently. Italy and Spain) had far worse balance of payments positions. in principle leading to an improved balance of trade. Greece's trading position has improved. these countries (Portugal. Monetary policy inflexibility Since membership of the eurozone establishes a single monetary policy. increased GDP and higher tax revenues in nominal terms. Ireland. Whereas German trade surpluses increased as a percentage of GDP after 1999. locked in to euro exchange rates. eurozone investors in Pound Sterling. France and Spain all worsened. following a 25 percent fall in the rate of exchange and 5 percent rise in inflation. Loss of confidence . preventing them from printing money in order to pay creditors and ease their risk of default. In the reverse direction moreover. In the same period. assets held in a currency which has devalued suffer losses on the part of those holding them. By "printing money" a country's currency is devalued relative to its (eurozone) trading partners. the deficits of Italy. had suffered an approximate 30 percent cut in the repayment value of this debt.considerably better public debt and fiscal deficit relative to GDP than the most affected eurozone members. making its exports cheaper. in the period November 2010 to October 2011 imports dropped 12% while exports grew 15% (40% to non-EU countries in comparison to October 2010). More recently.
 Rating agency views On 5 December 2011 S&P placed its long-term sovereign ratings on 15 members of the eurozone on "CreditWatch" with negative implications. financial. we expect output to decline next year in countries such as Spain. deficits and current account deficits. as opposed to the U.S.Sovereign CDS prices of selected European countries (2010–2011). indicating market expectations about countries' creditworthiness (see graph). Further. Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the eurozone was safe. Since countries that use the euro as their currency have fewer monetary policy choices (e. they cannot print money in their own currencies to pay debt holders). certain solutions require multi-national cooperation. longer term. This in turn made it difficult for some governments to finance further budget . bonds offered substantially more risk. and 5) The rising risk of economic recession in the eurozone as a whole in 2012. which has a dual mandate. there was renewed anxiety about excessive national debt. Federal Reserve. the crisis "is as much political as economic" and the result of the fact that the euro area is not supported by the institutional paraphernalia (and mutual bonds of solidarity) of a state. The loss of confidence is marked by rising sovereign CDS prices. a level of 1. but we now assign a 40% probability of a fall in output for the eurozone as a whole. investors have doubts about the possibilities of policy makers to quickly contain the crisis.g. Currently. According to the Economist. Furthermore. As the crisis developed it became obvious that Greek. and possibly other countries'." Evolution of the crisis See also: 2000s European sovereign debt crisis timeline In the first few weeks of 2010. the European Central Bank has an inflation control mandate but not an employment mandate.000 means it costs $1 million to protect $10 million of debt for five years.. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. Frightened investors demanded ever higher interest rates from several governments with higher debt levels. 2) Markedly higher risk premiums on a growing number of eurozone sovereigns including some that are currently rated 'AAA'. 3) Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and. The left axis is in basis points. and fiscal convergence among eurozone members. how to ensure greater economic. S&P wrote this was due to "systemic stresses from five interrelated factors: 1) Tightening credit conditions across the eurozone. Portugal and Greece. 4) High levels of government and household indebtedness across a large area of the eurozone. Contributing to lack of information about the risk of European sovereign debt was conflict of interest by banks that were earning substantial sums underwriting the bonds.
Germany was estimated to have made more than €9 billion out of the crisis as investors flocked to safer but near zero interest rate German federal government bonds (bunds). the crisis also harmed its export sector due to a substantial influx of foreign capital and the resulting rise of the Swiss franc. While Switzerland equally benefited from lower interest rates. Elected officials have focused on austerity measures (e. particularly when economic growth rates were low. a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on CDS between these countries and other EU member states. This is the biggest Swiss intervention since 1978. . most importantly Germany. In September 2011 the Swiss National Bank surprised currency traders by pledging that "it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.deficits and service existing debt. higher taxes and lower expenses) contributing to social unrest and significant debate among economists. many of whom advocate greater deficits when economies are struggling. Greece Main article: Greek government-debt crisis Greece's debt percentage since 1999 compared to the average of the eurozone. Especially in countries where government budget deficits and sovereign debts have increased sharply. By the end of 2011.20 francs". and when a high percentage of debt was in the hands of foreign creditors. as in the case of Greece and Portugal.. effectively weakening the Swiss franc.g.
 Stock markets worldwide and the Euro currency declined in response to this announcement. ECB and IMF). As a result.4% lower than in 2005. but with the activation being conditional on implementation of further austerity measures and a debt restructure agreement. the seasonal adjusted unemployment rate also grew from 7. to appoint non-MP technocrat Lucas Papademos as new prime minister of an interim national union government. Greece's economy was one of the fastest growing in the eurozone and the government took advantage of it by running a large structural deficit. the Greek government announced a series of austerity measures to secure a three year €110 billion loan.9%.100.000 Greek companies going bankrupt (27% higher than in 2010). from €24. to cover its financial needs for the remaining part of 2010.This was met with great anger by the Greek public.000 people protest against the harsh austerity measures in front of parliament building in Athens. A bit surprisingly. the Greek prime minister George Papandreou first answered that call.9% in . On 23 April 2010. who threatened to withhold an overdue €6 billion loan payment that Greece needed by mid-December.6% of GDP) in 2009 to just €5. On 10 November 2011 Papandreou instead opted to resign. A few days later Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "junk" status amid fears of default.5% in September 2008 to a record high of 19. and with 111. As a result. by announcing a December 2011 referendum on the new bailout plan. a year where the seasonal adjusted industrial output ended 28. following an agreement with the New Democracy party and the Popular Orthodox Rally.  but as a side-effect they also contributed to a worsening of the Greek recession. offered Greece a second bailout loan worth €130 billion in October 2011.The Troika (EU. in which case investors were liable to lose 30–50% of their money. Greece was hit especially hard because its main industries — shipping and tourism — were especially sensitive to changes in the business cycle. the Greek government requested an initial loan of €45 billion from the EU and International Monetary Fund(IMF). riots and social unrest throughout Greece. but had to back down amidst strong pressure from EU partners. Overall the Greek GDP had its worst decline in 2011 with −6. As the world economy cooled in the late 2000s. On 1 May 2010. have so far helped Greece bring down its primary deficit before interest payments.4% of GDP) in 2011.7bn (10. with responsibility for implementing the needed austerity measures to pave the way for the second bailout loan. leading to massive protests.2bn (2. the country's debt began to increase rapidly. All the implemented austerity measures. which began in October 2008 and only became worse in 2010 and 2011. 29 May 2011 In the early mid-2000s.
while the Youth unemployment rate during the same time rose from 22.November 2011.4%). partly in new Greek bonds with lower interest rates and the maturity prolonged to 11–30 years (independently of the previous maturity). Altogether Greece received aid worth €380bn or €33. The figure was measured to 27. According to Forbes magazine Greece’s restructuring represents a default. While the market price of the portfolio proposed in the . and send inflation soaring to 40%-50%. For the first time. an IMF official negotiating Greek austerity measures admitted that excessive spending cuts were harming Greece.6% in 2009 and 27. including a ―GDP-linked security‖.600 per capita. 150€ in ―PSI payment notes‖ issued by the EFSF and 315€ in ―New Greek Bonds‖ issued by the Hellenic Republic.0% to as high as 48. This equals 177% of Greece's GDP. the economic and political impact would be devastating. and caused the Greek debt level to fall from roughly €350bn to €240bn in March 2012. To prevent this from happening.1%. if Greece were to leave the euro. which amounted to 2. but for 2011 the figure was now estimated to have risen sharply above 33%. the bailout deal also included a debt restructure agreement with the private holders of Greek government bonds (banks.5% nominal write-off. IMF and ECB) eventually agreed in February 2012 to provide a second bailout package worth €130 billion. would be to engineer an ―orderly default‖.1% of GDP. to "voluntarily" accept a bond swap with a 53. It is the world's biggest debt restructuring deal ever done. increase Greece's debt-to-GDP ratio to over 200%. a bank run and even "military coups and possible civil war that could afflict a departing country". On 9 March 2012 the International Swaps and Derivatives Association (ISDA) issued a communique calling the PSI/debt restructuring deal a "Restructuring Credit Event" which will cause credit default swaps. partly in short-term EFSF notes. with the predicted debt burden now showing a more sustainable size equal to 117% of GDP. Some economic experts argue that the best option for Greece and the rest of the EU.7% in 2010 (only being slightly worse than the EU27-average at 23. affecting some €206 billion of Greek government bonds.3bn in 2012 and another €10bn in 2013 and 2014. In February 2012. somewhat lower than the originally expected 120. However. According to Japanese financial company Nomura an exit would lead to a 60%devaluation of the new drachma. for 1000€ of previous notional. insurers and investment funds). reducing the Greek spendings with €3. the troika (EU. conditional on the implementation of another harsh austerity package. Also UBS warned of hyperinflation. The debt write-off had a size of €107 billion. This credit event implies that previous Greek bond holders are being given. Overall the share of the population living at "risk of poverty or social exclusion" did not increase noteworthy during the first 2 year of the crisis. The latter represents a marginal coupon enhancement in case the Greek growth meets certain conditions. Analysts at French bank BNP Paribas added that the fallout from a Greek exit would wipe 20% off Greece's GDP. allowing Athens to withdraw simultaneously from the eurozone and reintroduce its national currency the drachma at a debased rate. much larger than the funds Western Europe received through the Marshall Plan after the Second World War.5%.
Jnr issued a one-year guarantee to the banks' depositors and bondholders. Finance Minister Brian Lenihan. a body designed to remove bad loans from the six banks. He renewed it for another year in September 2009 soon after the launch of the National Asset Management Agency (NAMA). Mid May 2012 the crisis and impossibility to form a new government after elections led to strong speculations Greece would have to leave the Eurozone shortly due.exchange is of the order of 21% of the original face value (15% for the two EFSF PSI notes – 1 and 2 years – and 6% for the New Greek Bonds – 11 to 30 years). This phenomenon became known as "Grexit" and started to govern international market behaviour. . Ireland Main article: 2008–2012 Irish financial crisis Irish government deficit compared to other European countries and the United States (2000–2013) The Irish sovereign debt crisis was not based on government over-spending. but from the state guaranteeing the six main Irish-based banks who had financed a property bubble. the duration of the set of New Greek Bonds is slightly below 10 years. On 29 September 2008.
is expected to fall further to 4 per cent by 2015.5 billion loan coming from the European Financial Stability Mechanism. while the federal budget went from a surplus in 2007 to a deficit of 32% GDP in 2010. of which€34 billion were used to support the country's ailing financial sector. As a result of the improved economic outlook. despite all the measures taken. and civil service-related wages were frozen. the IMF and three nations: the United Kingdom. Portugal In the first half of 2011.Irish banks had lost an estimated 100 billion euros. expecting the country to stand on its own feet again and finance itself without any external support from the second half of 2012 onwards. Unemployment rose from 4% in 2006 to 14% by 2010. Ireland could have guaranteed bank deposits and let private bondholders who had invested in the banks face losses. After the bailout was announced. Portugal requested a €78 billion IMF-EU bailout package in a bid to stabilise its public finances. The economy collapsed during 2008.59 per cent – which is the interest rate the EU itself pays to borrow from financial markets.8 percent. the government received €85 billion. These measures were put in place as a direct result of decades-long governmental overspending and an over bureaucratised civil service. the government started negotiations with the EU. down to 2.5% and 4% and to double the loan time to 15 years. The Euro Plus Monitor report from November 2011 attests to Ireland's vast progress in dealing with its financial crisis. the unemployment level rose to over 14. On 14 September 2011. taxes were increased. resulting in a €67. As a result. the European Commission announced it would cut the interest rate on its €22. much of it related to defaulted loans to property developers and homeowners made in the midst of the property bubble. which has already fallen substantially since mid July 2011 (see the graph "Long-term Interest Rates"). the cost of 10-year government bonds. Moody's downgraded the banks' debt tojunk status. In return the government agreed to reduce its budget deficit to below three percent by 2015. In July 2011 European leaders agreed to cut the interest rate that Ireland was paying on its EU/IMF bailout loan from around 6% to between 3. Denmark and Sweden. despite austerity measures. on top of the government's spending cuts. with severe negative impact on Ireland's creditworthiness. the Portuguese government headed by Pedro Passos Coelho managed to implement measures to improve the State's financial situation and the country started to be seen as moving on the right track. which burst around 2007. the highest in the history of the eurozone. in a move to further ease Ireland's difficult financial situation. In April 2011. shifting the losses and debt to its taxpayers.According to the Centre for Economics and Business Research Ireland's export-led recovery "will gradually pull its economy out of its trough". .5 billion coming from Ireland's own reserves and pensions. The move was expected to save the country between 600–700 million euros per year. but instead borrowed money from the ECB to pay these bondholders. However.5 billion "bailout" agreement of 29 November 2010 Together with additional €17.
 According to the Portuguese finance minister. From the perspective of Portugal's industrial orders. On 16 May 2011. had demonstrated that in the period between the Carnation Revolution in 1974 and 2010. due to a one-off transfer of pension funds. This allowed considerable slippage in statemanaged public works and inflated top management and head officer bonuses and wages. it was reported that Portugal's estimated budget deficit of 4. in the New York Times article "Portugal's Unnecessary Bailout". Moody's also launched speculation that Portugal could follow Greece in requesting a second bailout. 4. The country would therefore meet its 2012 target a year earlier than expected. after Ireland and Greece. all public servants had already seen an average wage cut of 20% relative to their 2010 baseline. which became the third eurozone country. On 6 July 2011. the democratic Portuguese Republic governments encouraged over-expenditure and investment bubbles through unclear public-private partnerships and funding of numerous ineffective and unnecessary external consultancy and advisory of committees and firms. Prime Minister Sócrates's cabinet was not able to forecast or prevent this in 2005. To bring down the . As part of the deal. and the International Monetary Fund. Robert Fishman. Despite the fact that the economy is expected to contract by 3 percent in 2011 the IMF expects the country to be able to return to medium and long-term debt sovereign markets by late 2013. In December 2011. Risky credit. the European Financial Stability Facility. many looking for better positions in the private sector or in other European countries. rating agencies and speculators. exports. the country agreed to cut its budget deficit from 9. In the first quarter of 2010.9 percent in 2011. the eurozone leaders officially approved a €78 billion bailout package for Portugal. the average interest rate on the bailout loan is expected to be 5. and European structural and cohesion funds were mismanaged across almost four decades. In 2012. with cuts reaching 25% for those earning more than 1. Persistent and lasting recruitment policies boosted the number of redundant public servants. Any deficit means increasing the nation's debt.A report released in January 2011 by the Diário de Notícias and published in Portugal by Gradiva. The Portuguese government also agreed to eliminate its golden share in Portugal Telecom to pave the way for privatization. points out that Portugal fell victim to successive waves of speculation by pressure from bond traders. Portugal had one of the best rates of economic recovery in the EU. public debt creation. the ratings agency Moody's had cut Portugal's credit rating to junk status. The bailout loan was equally split between the European Financial Stabilisation Mechanism. before pressure from the markets.5 percent in 2012 and 3 percent in 2013. and later it was incapable of doing anything to improve the situation when the country was on the verge of bankruptcy by 2011.1 percent.500 euro per month. the country matched or even surpassed its neighbors in Western Europe.8 percent of GDP in 2010 to 5. entrepreneurial innovation and high-school achievement. This led to a flood of specialized technicians and top officials leaving the public service. to receive emergency funds.5 percent in 2011 would be substantially lower than expected.
5bn emergency loan from Russia to cover its budget deficit and re-finance maturing debt. the EU and the eurozone for 2009. Italy. warning that the Cyprus government will have to inject fresh capital into its banks to cover losses incurred through Greece's debt swap. Cyprus is relying on a € 2. Cyprus's banks were highly exposed to Greek debt and so are disproportionately hit by the haircut taken by creditors. Since January 2012. Ireland. Spain. Economic data from Portugal. yields on Cyprus long-term bonds have risen above 12%. . Cyprus In September 2011. On 13 March 2012 Moody's has slashed Cyprus's credit rating into Junk status.5 years though it is expected that Cyprus will be able to fund itself again by the first quarter of 2013. The loan has an interest rate of 4. Possible spread to other countries Total financing needs of selected countries in % of GDP (2011–2013). Greece.5% and it is valid for 4.000 people was downgraded by all major credit ratings agencies following a devastating explosion at a power plant in July and slow progress with fiscal and structural reforms.debt to sustainable levels will require a 10% budget surplus for several years according to some estimates. since the small island of 840. United Kingdom. Germany.
other countries such as Spain with 9." Besides Ireland.4% of GDP.1%. with a government deficit in 2010 of 32. and Portugal at 9. both relative to GDP for selected European countries. According to the UK Financial Policy Committee "Market concerns remain over fiscal positions in a number of euro area countries and the potential for contagion to banking systems.2% are also at risk. Romania) lack the sharp rise in interest rates characteristic of weak eurozone countries. Long-term interest rates of selected European countries.The 2010 annual budget deficit and public debt.  Note that weak non-eurozone countries (Hungary. One of the central concerns prior to the bailout was that the crisis could spread to several other countries after reducing confidence in other European economies. .
74 percent for 10-year bonds. a twoyear increase in the retirement age to 67 by 2026. On the other hand. and more than 60 points less than Italy. and Japan has ¥213 trillion of government bonds to roll over.6 trillion.6 percent of GDP in 2010 was similar to Germany’s at 4. Italy's government passed austerity measures meant to save €124 billion. About 300 billion euros of Italy's 1. Germany and the UK.S.S. $2.5 to 6. Spain has most of its debt controlled internally. Overall this makes the country more resilient to financial shocks. As in other countries. Greece has been the notable example of an industrialised country that has faced difficulties in the markets because of rising debt levels but even countries such as the U. The interim government expected to put the new laws into practice is led by former European Union Competition Commissioner Mario Monti.K. and France. while the U. Italian 10-year borrowing costs fell sharply from 7. The country's public debt relative to GDP in 2010 was only 60%.9 trillion euro debt matures in 2012. Spain See also: 2008–2011 Spanish financial crisis Spain has a comparatively low debt among advanced economies. its debt has increased to almost 120 percent of GDP (U. .4 trillion in 2010) and economic growth was lower than the EU average for over a decade. more than 20 points less than Germany. have had fraught moments as investors shunned bond auctions due to concerns about public finances and the economy. On 15 July and 14 September 2011.For 2010. France or the US. the OECD forecast $16 trillion would be raised in government bonds among its 30 member countries. Italy even has a surplus in its primary budget.3 percent and less than that of the U. ranking better than France and Belgium. Ireland or Greece.Nonetheless. It will therefore have to go to the capital markets for significant refinancing in the near-term.S. opening up closed professions within 12 months and a gradual reduction in government ownership of local services. climbing above the 7 percent level where the country is thought to lose access to financial markets. However.. The measures include a pledge to raise €15 billion from real-estate sales over the next three years. which excludes debt interest payments. with child labour even re-emerging in poorer areas. Italy Italy's deficit of 4.7 percent after Italian legislature approved further austerity measures and the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi. On 11 November 2011.7 trillion more Treasury securities in this period. is expected to issue US$1. by 8 November 2011 the Italian bond yield was 6. This has led investors to view Italian bonds more and more as a risky asset. Financing needs for the eurozone come to a total of €1. Like Italy. the public debt of Italy has a longer maturity and a substantial share of it is held domestically. the social effects have been severe.
Belgium's public debt was 100% of its GDP—the third highest in the eurozone after Greece and Italy and there were doubts about the financial stability of the banks. Due to the European crisis and over spending by regional governments the latest figure is higher than the original target of 6%. Belgium In 2010.2%). though exceptions would be made in case of a natural catastrophe. In November 2010 financial analysts forecast that Belgium would be the next country to be hit by the financial crisis as Belgium's borrowing costs rose.3 percent in 2012 and 3 percent in 2013. To build up additional trust in the financial markets. other European countries and the European Commission to cut its deficit more aggressively. making a default unlikely unless the situation gets far more severe. shortly after the announcement of the EU's new "emergency fund" for eurozone countries in early May 2010. As one of the largest eurozone economies. Spain succeeded in trimming its deficit from 11. Belgium's long-term sovereign credit rating was downgraded from AA+ to AA by Standard and Poor and 10-year bond yields reached 5. Portugal. the Belgian Government financed the deficit from mainly domestic savings.2%).  Rumors raised by speculators about a Spanish bail-out were dismissed by then Spanish Prime Minister José Luis Rodríguez Zapatero as "complete insanity" and "intolerable". but weak economic growth as well as domestic and international pressure forced the government to expand on cuts already announced in January. $820 billion in 2010. Spain's public debt was approximately U. the IMF.7% were still below those of Ireland (9. making it less prone to fluctuations of international credit markets. in order to signal financial markets that it was safe to invest in the country. and Ireland combined. the government amended the Spanish Constitution in 2011 to require a balanced budget at both the national and regional level by 2020. by November 2011 the country still had only a caretaker government as parties from the two main language groups in the country (Flemish and Walloon) were unable to reach agreement on how to form a majority government.  Under pressure from the EU the new conservative Spanish government led by Mariano Rajoy aims to cut the deficit further to 5. However the government deficit of 5% was relatively modest and Belgian government 10-year bond yields in November 2010 of 3.2% in 2010  and 8.and both countries are in a better fiscal situation than Greece and Portugal. the condition of Spain's economy is of particular concern to international observers. The amendment states that public debt can not exceed 60% of GDP. .66%. The Spanish government had hoped to avoid such deep cuts. Nevertheless. economic recession or other emergencies.2% of GDP in 2009 to 9. Nevertheless on 25 November 2011. thanks to Belgium's high personal savings rate.S. Portugal (7%) and Spain (5. Spain had to announce new austerity measures designed to further reduce the country's budget deficit. Furthermore. and has faced pressure from the United States.5% in 2011. roughly the level of Greece. After inconclusive elections in June 2010. following the country's major financial crisis in 2008–2009.
Germany had widened 450% since July. which is closely connected with both the United States and the eurozone.3 trillion.18%. Bank of England governor Mervyn King stated in May 2012 that the Euro zone is "tearing itself apart". $2. King advised British banks to pay bonuses and dividends in stock to hoard cash. France's bond yield had retreated and the country successfully auctioned €4. but refused to discuss them to avoid adding to the panic. contract value rose 300% in the same period.1 trillion and 83% GDP. United Kingdom Main article: United Kingdom national debt According to the Financial Policy Committee "Any associated disruption to bank funding markets could spill over to UK banks. however. with a 2010 budget deficit of 7% GDP. which should bring the budget deficit down to 2.S. By 16 November 2011. the 27 EU member states agreed to create the European Financial Stability Facility. Belgian negotiating parties reached an agreement to form a new government. €117.580 per person) due in large part to its highly leveraged financial industry. The deal includes spending cuts and tax rises worth about €11 billion.8% of GDP by 2012. France France's public debt in 2010 was approximately U. France's bond yield spreads vs. The EFSF can issue bonds or other debt instruments on the market with the support of the German Debt Management Office to raise the funds needed to provide loans to eurozone countries in financial troubles. and other Europeans buying property with capital moved out of their home countries.6%. A Euro collapse would damage London's role as a major financial center because of the increased risk to UK banks." The UK has the highest gross foreign debt of any European country (€7. The London real estate market has similarly benefited from the crisis. a legal instrument aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty.Shortly after. On 1 December 2011. France's C. Following the announcement Belgium 10-year bond yields fell sharply to 4. as investors seek safer investments. and a Greek exit from the Euro would likely increase such transfer of capital.D. Greeks. By early February 2012. He acknowledged that the bank. and to balance the books in 2015.84%. .S. well below the perceived critical level of 7%. and the British government were preparing contingency plans for a Greek exit from the Euro or a collapse of the currency.  Solutions EU emergency measures European Financial Stability Facility (EFSF) Main article: European Financial Stability Facility On 9 May 2010. the Financial Services Authority. yields on French 10 year bonds had fallen to 2.3 billion worth of 10 year bonds at an average yield of 3. with French. recapitalize banks or buy sovereign debt. The pound and gilts would likely benefit. 2011.
5 billion more than the European Financial Stabilisation Mechanism(EFSM). with a €5 billion issue in the first week of January 2011. and to create investment vehicles that would boost the EFSF’s firepower to intervene in primary and secondary bond markets. The facility eased fears that the Greek debt crisis would spread. before falling to a new four-year low a week later. Commodity prices also rose following the announcement. Shortly after the euro rose again as hedge funds and other short-term traders unwound short positions and carry trades in the currency. The EFSF issued €5 billion of five-year bonds in its inaugural benchmark issue 25 January 2011. The euro made its biggest gain in 18 months. As a result Greek bond yields fell sharply from over 10% to just over 5%. Asian bonds yields also fell with the EU bailout. On 29 November 2011.) Usage of EFSF funds .5 billion. and €24. This amount is a record for any sovereign bond in Europe. The VIX closed down a record almost 30%.Emissions of bonds are backed by guarantees given by the euro area member states in proportion to their share in the paid-up capital of the European Central Bank. Default swaps also fell. the member state finance ministers agreed to expand the EFSF by creating certificates that could guarantee up to 30% of new issues from troubled euro-area governments. attracting an order book of €44. The €440 billion lending capacity of the facility is jointly and severally guaranteed by the eurozone countries' governments and may be combined with loans up to €60 billion from the European Financial Stabilisation Mechanism (reliant on funds raised by the European Commission using the EU budget as collateral) and up to €250 billion from the International Monetary Fund (IMF) to obtain a financial safety net up to €750 billion. a separate European Union funding vehicle. Reception by financial markets Stocks surged worldwide after the EU announced the EFSF's creation. after a record weekly rise the preceding week that prompted the bailout.The agreement is interpreted as allowing the ECB to start buying government debt from the secondary market which is expected to reduce bond yields. The dollar Libor held at a nine-month high. and this led to some stocks rising to the highest level in a year or more.
it financed €17. This leaves the EFSF with€250 billion or an equivalent of €750 billion in leveraged firepower. the European Commission and the IMF).  European Financial Stabilisation Mechanism (EFSM) Main article: European Financial Stabilisation Mechanism On 5 January 2011.7 billion of the total €67. and maintained the top credit rating for Finland.4bn remaining from Greek Loan Facility) throughout 2014. the European Union created the European Financial Stabilisation Mechanism (EFSM). Germany. As part of the second bailout for Greece. As of the end of December 2011. The EFSF is set to expire in 2013. and the Netherlands. running one year parallel to the permanent €500 billion rescue funding program called theEuropean Stability Mechanism (ESM). S&P also downgraded the EFSF from AAA to AA+. Luxembourg. In November 2010. According to German newspaper Sueddeutsche.5 billion rescue package for Ireland (the rest was loaned from individual European countries. an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by . amounting to €164 billion(130bn new package plus 34. Italy (and five other) euro members further. On 13 January 2012. Standard & Poor’s downgraded France and Austria from AAA rating. lowered Spain. This is expected to be in July 2012. In May 2011 it contributed one third of the €78 billion package for Portugal. it has been activated two times. shortly after. which will start operating as soon as member states representing 90% of the capital commitments have ratified it. in case necessary. this is more than enough to finance the debt rollovers of all flagging European countries until end of 2012.Debt profile of Eurozone countries The EFSF only raises funds after an aid request is made by a country. the loan was shifted to the EFSF.
. an expert on that country's banking crisis. leaders of the 17 eurozone countries met in Brussels and agreed on a 50% write-off of Greek sovereign debt held by banks. Beyond equity issuance and debt-to-equity conversion. Under the EFSM. at least. Also pledged was €35 billion in "credit enhancement" to mitigate losses likely to be suffered by European banks.the European Commission using the budget of the European Union as collateral. Final agreement on the second bailout package In a marathon meeting on 20/21 February 2012 the Eurogroup agreed with the IMF and the Institute of International Finance on the final conditions of the second bailout package worth €130 billion. The Commission fund. an increased mandatory level of 9% for bank capitalisation within the EU and a set of commitments from Italy to take measures to reduce its national debt.. has the authority to raise up to €60 billion and is rated AAA by Fitch.  Like the EFSF.. and specialist in balance sheet recessions. at a borrowing cost for the EFSM of 2. they will move faster to cut down on loans and unload lagging assets" as they work to improve capital ratios. one analyst "said that as banks find it more difficult to raise funds. On 3 November 2011 the promised Greek referendum on the bailout package was withdrawn by Prime Minister Papandreou. Thomas quoted Richard Koo. a fourfold increase (to about €1 trillion) in bail-out funds held under the European Financial Stability Facility. Reduced lending was a circumstance already at the time being seen in a "deepen[ing] crisis" in commodities trade finance in western Europe. When all banks are forced to raise capital at the same time. Moody'sand Standard & Poor's. not the last resort. Brussels agreement and aftermath On 26 October 2011... Landon Thomas in the New York Times noted that some. an economist based in Japan. the EFSM will also be replaced by the permanent rescue funding programme ESM.  The package's acceptance was put into doubt on 31 October when Greek Prime Minister George Papandreou announced that a referendum would be held so that the Greek people would have the final say on the bailout. then. the result is going to be even weaker banks and an even longer recession – if not depression. In late 2011. Government intervention should be the first resort.59%. The lenders .. It runs under the supervision of the Commission and aims at preserving financial stability in Europe by providing financial assistance to EU member states in economic difficulty. European banks were maintaining high dividend payout rates and none were getting capital injections from their governments even while being required to improve capital ratios. which is due to be launched in July 2012. the analyst said. This latter contraction of balance sheets "could lead to a depression‖. as saying: I do not think Europeans understand the implications of a systemic banking crisis. José Manuel Barroso characterised the package as a set of "exceptional measures for exceptional times". upsetting financial markets. the EU successfully placed in the capital markets a €5 billion issue of bonds as part of the financial support package agreed for Ireland. backed by all 27 European Union members.
there is a ―natural limit‖ of €300 billion the ECB can sterilize. governments of Member States where central banks currently hold Greek government bonds in their investment portfolio commit to pass on to Greece an amount equal to any future income until 2020. It changed its policy regarding the necessary credit rating for loan deposits. reaching €219.agreed to increase the nominal haircut from 50% to 53. Altogether this should bring down Greece's debt to between 117% and 120. making it difficult for the government to raise money on capital markets. The European Central Bank (ECB) has taken a series of measures aimed at reducing volatility in the financial markets and at improving liquidity. though it simultaneously absorbed the same amount of liquidity to prevent a rise in inflation. EU Member States agreed to an additional retroactive lowering of the interest rates of the Greek Loan Facility to a level of just 150 basis points above the Euribor. In May 2010 it took the following actions: It began open market operations buying government and private debt securities. accepting as collateral all outstanding and new debt instruments issued or guaranteed by the Greek government. . Furthermore. According toRabobank economist Elwin de Groot. ECB interventions ECB Securities Markets Program (SMP) covering bond purchases from May 2010 till May 2012. which had just been downgraded to junk status.5%.5 billion by February 2012.5% of GDP by 2020. The move took some pressure off Greek government bonds. regardless of the nation's credit rating. It reactivated the dollar swap lines with Federal Reserve support.
out of a total of €256 billion existing ECB lending (MRO + 3m&6m LTROs). He and Stark were both thought to have resigned due to "unhappiness with the ECB’s bond purchases. statistics showed a growth trend in the M1 "core" money supply. the former Deutsche Bundesbank president.5 billion February auction was around €313 billion. the ECB started the biggest infusion of credit into the European banking system in the euro's 13 year history. Federal Reserve. and at the same time keep operating and loaning to businesses so that a credit crunch does not choke off economic growth... Jürgen Stark became the second German after Axel A. six and twelve months.. Britain and the Swiss National Bank provided global financial markets with additional liquidity to ward off the debt crisis and to support the real economy. On 29 February 2012.On 30 November 2011. Weber to resign from the ECB Governing Council in 2011." While attributing the money supply growth to ECB's LTRO policies. 2012. providing 800 Eurozone banks with further €529. Under its Long Term Refinancing Operations (LTROs) it loaned €489 billion to 523 banks for an exceptionally long period of three years at a rate of just one percent. Weber was replaced by his Bundesbank successor Jens Weidmann.The by far biggest amount of €325 billion was tapped by banks in Greece. heading the ECB's economics department. It also hoped that banks would use some of the money to buy government bonds. three-year lending adventure (LTRO)". "'It is still early days but a further recovery in peripheral real M1 would suggest an end to recessions by late 2012.  Resignations In September 2011. Having fallen from an over 9% growth rate in mid-2008 to negative 1% +/. effectively easing the debt crisis. Ireland. which critics say erode the bank’s independence". the U. They also agreed to provide each other with abundant liquidity to make sure that commercial banks stay liquid in other currencies. the ECB held a second auction. an analysis in The Telegraph said lending "continued to fall across the eurozone in March [and] . LTRO2.S. the central banks of Canada. Stark was "probably the most hawkish" member of the council when he resigned. Japan. [t]he jury is out on the .5 billion in cheap loans. European Stability Mechanism (ESM) Main article: European Stability Mechanism .. Weber. the ECB.for several months in 2011. Previous refinancing operations matured after three. Money supply growth In April.  Long Term Refinancing Operation (LTRO) On 22 December 2011. This way the ECB tried to make sure that banks have enough cash to pay off €200 billion of their own maturing debts in the first three months of 2012. €215 billion was rolled into LTRO2. M1 core has built to a 2-3% range in early 2012. was once thought to be a likely successor to Jean-Claude Trichet as bank president. Net new borrowing under the €529. The central banks agreed to lower the cost of dollar currency swaps by 50 basis points to come into effect on 5 December 2011.' said Simon Ward from Henderson Global Investors who collects the data. while Belgium's Peter Praet took Stark's original position. Italy and Spain.
26 countries had agreed to the plan. All other non-eurozone countries apart from the UK are also prepared to join in. In March 2011. rather than EU states. Originally EU leaders planned to change existing EU treaties but this was blocked by British prime minister David Cameron. all 17 members of the eurozone and six countries that aspire to join agreed on a new intergovernmental treaty to put strict caps on government spending and borrowing. By the end of the year. France and some other smaller EU countries went a step further and vowed to create a fiscal union across the eurozone with strict and enforceable fiscal rules and automatic penalties embedded in the EU treaties." Instead of a default by one country rippling through the entire interconnected financial system. would play 'a central role' in running the ESM. Then the single default can be managed while limiting financial contagion.The European Stability Mechanism (ESM) is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism in July 2012. the firewall mechanism can ensure that downstream nations and banking systems are protected by guaranteeing some or all of their obligations. aiming at straightening the rules by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules. Economic reforms and recovery Increase investment . Cameron subsequently conceded that his action had failed to secure any safeguards for the UK. the European Parliament approved the treaty amendment after receiving assurances that the European Commission. including the proposed EU financial transaction tax. subject to parliamentary vote. who demanded that the City of London be excluded from future financial regulations. The treaty will enter into force on 1 January 2013. Germany. with penalties for those countries who violate the limits. European Fiscal Compact Main article: European Fiscal Compact In March 2011 a new reform of the Stability and Growth Pact was initiated. if by that time 12 members of the euro area have ratified it. Britain's refusal to be part of the Franco-German fiscal compact to safeguard the eurozone constituted a de facto refusal (PM David Cameron vetoed the project) to engage in any radical revision of the Lisbon Treaty at the expense of British sovereignty: centrist analysts such as John Rentoul of The Independent concluded that "Any Prime Minister would have done as Cameron did". By the end of the day. Such a mechanism serves as a "financial firewall. leaving the United Kingdom as the only country not willing to join. On 16 December 2010 the European Council agreed a two line amendment to the EU Lisbon Treaty to allow for a permanent bail-out mechanism to be established including stronger sanctions. On 9 December 2011 at the European Council meeting. the ESM will be an intergovernmental organisation under public international law and will be located in Luxembourg. According to this treaty.
all this money is conditional on all these countries doing fiscal adjustment and structural reform. A 1 percentage point reduction in the structural deficit delivers a 0. would require structural fiscal tightening of more than 12% to eliminate its 2012 actual fiscal deficit. Instead of austerity. Some argue that an abrupt return to "non-Keynesian" financial policies is not a viable solution and predict that deflationary policies now being imposed on countries such as Greece and Spain might prolong and deepen their recessions. Keynes suggested increasing investment and cutting income tax for low earners to kick-start the economy and boost growth and employment. The case of Greece shows that excessive levels of private indebtedness and a collapse of public confidence (over 90% of Greeks fear unemployment. wealth." This means that Ireland e.g.67 percentage point improvement in the actual fiscal deficit. In early 2012 an IMF official. Furthermore the two suggest providing €40 billion in additional funds to the European Investment Bank (EIB). "structural tightening does deliver actual tightening. German economist and member of the German Council of Economic Experts Peter Bofinger and Sony Kapoor of the global think tank Re-Define suggest financing additional public investments by growth-friendly taxes on "property. which further deepened the recession and made it ever more difficult to generate tax revenues and fight public indebtedness. admitted that spending cuts were harming Greece. According to New York Times chief economics commentatorMartin Wolf. rather than increased or frozen spending. poverty and the closure of businesses)  led the private sector to decrease spending in an attempt to save up for rainy days ahead. This led to even lower demand for both products and labor. carbon emissions and the undertaxed financial sector". union leaders have also argued that the working population is being unjustly . A task that is difficult to achieve without an exogenous eurozone-wide economic boom. Since struggling European countries lack the funds to engage in deficit spending.There has been substantial criticism over the austerity measures implemented by most European nations to counter this debt crisis." Most austerity cuts came with even larger tax increases. In a 2003 study that analyzed 133 IMF austerity programmes. Apart from arguments over whether or not austerity. Currently authorities capture less than 1% in annual tax revenue on untaxed wealth transferred to other EU members. who negotiated Greek austerity measures. the IMF's independent evaluation office found that policy makers consistently underestimated the disastrous effects of rigid spending cuts on economic growth."  According to Keynesian economists "growth-friendly austerity" relies on the false argument that public cuts would be compensated for by more spending from consumers and businesses. land. Nouriel Roubini adds that the new credit available to the heavily indebted countries did not equate to an immediate revival of economic fortunes: "While money is available now on the table. But its impact is much less than one to one. Current austerity "cuts have been relatively small compared to the size of the problem and meaningful structural reforms were seldom implemented. which could then lend ten times that amount to the employment-intensive smaller business sector. They also called on EU countries to renegotiate the EU savings tax directive and to sign an agreement to help each other crack down on tax evasion and avoidance. is a macroeconomic solution. a theoretical claim that has not materialized.
Over 23 million EU workers have become unemployed as a consequence of the global economic crisis of 2007– 2010. instead of funding new highways. investors. such as building highways in Greece. It's hoped that this will get the economy moving in Greece and Portugal." Der Spiegel also said: "According to sources inside the German government. Olli Rehn. "enthusiastically announced to EU parliamentarians in mid-April that 'there was a breakthrough before Easter'. He said the European heads of state had given the green light to pilot projects worth billions. 2000–2010 . Berlin is interested in supporting innovation and programs to promote small and medium-sized businesses. the European commissioner for economic and monetary affairs in Brussels." Increase competitiveness See also: Euro Plus Pact Change in unit labour costs. In April. and this has led many to call for additional regulation of the banking sector across not only Europe. but the entire world. To ensure that this is done as professionally as possible. EU funds amounting to €230 million are expected to mobilize investments of up to €4. modeled after Germany's [Marshall Plan-era-origin] Kreditanstalt für Wiederaufbau (KfW) banking group. the Germans would like to see the southern European countries receive their own state-owned development banks. In the pilot phase until 2013. 2012. and bankers.held responsible for the economic mismanagement errors of economists.6 billion." Other growth initiatives include "project bonds" wherein the EIB would "provide guarantees that safeguard private investors.
not its cause. which helped decrease its relative price/wage levels by 16%.. a painful economic adjustment process. Source: Euro Plus Monitor  Slow GDP growth rates correspond to slower growth in tax revenues and higher safety net spending. as in the case of Iceland.. To improve the situation. increasing deficits and debt levels. generous middle-class subsidies and complex regulations and taxes – have become sclerotic. which suffered the largest financial crisis in 2008–2011 in economic history but has since vastly improved its position. writing in November 2011: "Europe's core problem [is] a lack of growth." He advocated lower wages and steps to bring in more foreign capital investment. they could never compete with low-cost developing countries such as China or India. Now they face pressures from three fronts: demography (an aging population). technology (which has allowed companies to do much more with fewer people) and globalization (which has allowed manufacturing and services to locate across the world). Italy's economy has not grown for an entire decade. German economist Hans-Werner Sinn noted in 2012 that Ireland was the only country that had implemented relative wage moderation in the last five years. Other economists argue that no matter how much Greece and Portugal drive down their wages. Greece would need to bring this figure down by 31%. Government's mounting debts are a response to the economic downturn as spending rises and tax revenues fall. not deficit spending that created this crisis. Since eurozone countries cannot devalue their currency. crisis countries must significantly increase their international competitiveness. effectively reaching the level of Turkey.. where a country aims to reduce its unit labour costs. No debt restructuring will work if it stays stagnant for another decade. The fact is that Western economies – with high wages. Typically this is done bydepreciating the currency. Instead weak European . Indian-American journalist Fareed Zakaria described the factors slowing growth in the eurozone. policy makers try to restore competitiveness through internal devaluation. British economic historian Robert Skidelsky disagreed saying it was excessive lending by banks.Eurozone economic health and adjustment progress 2011..
According to the report most critical eurozone member countries are in the process of rapid reforms. Ireland and Spain are among the top five reformers and Portugal is ranked seventh among 17 countries included in the report (see graph)..e. The authors note that "Many of those countries most in need to adjust [.. Siegel argues that the need to make labor competitive requires devaluation. Address current account imbalances Current account imbalances (1997–2013) Regardless of the corrective measures chosen to solve the current predicament. this is a mathematical identity called the balance of payments.] are now making the greatest progress towards restoring their fiscal balance and external competitiveness".countries must shift their economies to higher quality products and services. as long as cross border capital flows remain unregulated in the euro area. Jeremy J. importing more than it exports) must ultimately be a net importer of capital. though this is a long-term process and may not bring immediate relief. current account imbalances are likely to continue. This could be achieved by internal devaluation but this is difficult politically. Progress On 15 November 2011. In . This could be achieved by Greece leaving the Euro but that would lead to runs on the banks of Greece and other EU nations. the Lisbon Council published the Euro Plus Monitor 2011.. A country that runs a large current account or trade deficit (i. Siegel argues that the only option left is for the devaluation of the Euro as a whole (parity with the dollar)--if it is to survive. Greece.
Jose Manuel Barroso insisted that any such plan would have to be . though their introduction matched by tight financial and budgetary coordination may well require changes in EU treaties.6bn respectively. if a country's citizens saved more instead of consuming imports. Greece) consume less and improve their exporting industries. In May 2012 German finance minister Wolfgang Schäuble has signaled support for a significant increase in German wages to help decrease current account imbalances within the eurozone. many of the countries involved in the crisis are on the euro..31bn and $35. lending money to other countries to allow them to buy German goods. Spain. individual interest rates and capital controls are not available.other words. although this benefit is likely offset by slowing down the economy and increasing government interest payments. such as Germany. A similar imbalance exists in the U. On 21 November 2011. This currency appreciation occurs as the importing country sells its currency to buy the exporting country's currency used to purchase the goods. Ben Bernanke warned of the risks of such imbalances in 2005. arguing that a "savings glut" in one country with a trade surplus can drive capital into other countries with trade deficits.g. A country with a large trade surplus would generally see the value of its currency appreciate relative to other currencies.96 billion. Greece. which would reduce the imbalance as the relative price of its exports increases. a country that imports more than it exports must either decrease its savings reserves or borrow to pay for those imports. $75. Austria and the Netherlands would need to shift their economies more towards domestic services and increase wages to support domestic consumption. so devaluation. export driven countries with a large trade surplus. and Portugal were estimated to be $42. trade imbalances can be reduced if a country encouraged domestic saving by restricting or penalizing the flow of capital across borders. It has therefore been suggested that countries with large trade deficits (e.97bn. artificially lowering interest rates and creating asset bubbles. On the other hand. Either way. Alternatively. Using the term "stability bonds". which runs a large trade deficit (net import position) and therefore is a net borrower of capital from abroad. or by raising interest rates. and $25. Conversely.S. Germany's large trade surplus (net export position) means that it must either increase its savings reserves or be a net exporter of capital. this would reduce its trade deficit. The only solution left to raise a country's level of saving is to reduce budget deficits and to change consumption and savings habits. the European Commission suggested that eurobonds issued jointly by the 17 euro nations would be an effective way to tackle the financial crisis.6bn. while Germany's trade surplus was $188. Proposed long-term solutions Eurobonds Main article: Eurobonds A growing number of investors and economists say Eurobonds would be the best way of solving a debt crisis. The 2009 trade deficits for Italy. For example.
These bonds would not be tradable but could be held by investors with the EMF and liquidated at any time. The econometric analysis suggests that "If the short-term and long. Drastic debt write-off financed by wealth tax Overall debt levels in 2009 and write-offs necessary in the Eurozone. Greece's debt level falling below 110% of GDP.5 % and 3 %. respectively.S. Governments lacking sound financial policies would be forced to rely on traditional (national) governmental bonds with less favorable market rates. more than 40percentage points below the baseline scenario with market based interest levels." To ensure fiscal discipline despite lack of market pressure.matched by tight fiscal surveillance and economic policy coordination as an essential counterpart so as to avoid moral hazard and ensure sustainable public finances. Germany remains largely opposed at least in the short term to a collective takeover of the debt of states that have run excessive budget deficits and borrowed excessively over the past years. Given the backing of all eurozone countries and the ECB "the EMU would achieve a similarly strong position visa-vis financial investors as the US where the Fed backs government bonds to an unlimited extent. which could provide governments with fixed interest rate Eurobonds at a rate slightly below medium-term economic growth (in nominal terms). the EMF would operate according to strict rules. banks would no longer be able to unduly benefit from intermediary profits by borrowing from the ECB at low rates and investing in government bonds at high rates.g. saying this could substantially raise the country's liabilities.term interest rates in the euro area were stabilized at 1. Furthermore. At the same time sovereign debt levels would be significantly lower with e. European Monetary Fund On 20 October 2011. the Austrian Institute of Economic Research published an article that suggests transforming the EFSF into a European Monetary Fund (EMF). UK and U. . to reach sustainable grounds. providing funds only to countries that meet fiscal and macroeconomic criteria. aggregate output (GDP) in the euro area would be 5 percentage points above baseline in 2015".
"unpopular" and "require broad political coordination and leadership" but they maintain that the longer politicians and central bankers wait. The Boston Consulting Group (BCG) adds that if the overall debt load continues to grow faster than the economy. then large-scale debt restructuring becomes inevitable. German economist Harald Spehl has called for a 30 year debt-reduction plan. who otherwise are lined up for losses on the sovereign debt they recklessly bought. at an interest rate of 5 percent and a nominal economic growth rate of 3 percent per year. and private households can each sustain a debt load of 60 percent of GDP. private household debt is more than 85 percent of GDP. similar to the one Germany used after World War II to share the burden of reconstruction and development.1 trillion. Lower interest rates and/or higher growth would help reduce the debt burden further. According to BCG this could be financed by a one-time wealth tax of between 11 and 30 percent for most countries. Instead of a one-time write-off. This number is based on the assumption that governments. the combined private and public debt of 18 OECD countries nearly quadrupled between 1980 and 2010. Controversies The European bailouts are largely about shifting exposure from banks and others. nonfinancial corporations. Similar calls have been made by political parties in Germany including the Greens and The Left. apart from the crisis countries (particularly Ireland) where a write-off would have to be substantially higher.According to the Bank for International Settlements. To prevent a vicious upward debt spiral from gaining momentum the authors urge policy makers to "act quickly and decisively" and aim for an overall debt level well below 180 percent for the private and government sector. The authors admit that such programs would be "drastic". To reach sustainable levels the Eurozone must reduce its overall debt level by €6. reaching between 250% (for Italy) and about 600% (for Japan) by 2040. The same authors also found in a previous study that increased financial burden imposed by aging populations and lower growth makes it unlikely that indebted economies can grow out of their debt problem if only one of the following three conditions is met: government debt is more than 80 to 100 percent of GDP. onto European taxpayers. non-financial corporate debt is more than 90 percent. the more necessary such a step will be. EU treaty violations Wikisource has original text related to this article: Consolidated version of the Treaty on the Functioning of the European Union . and will likely continue to grow.
the ―no bail-out‖ clause (Article 125 TFEU) ensures that the responsibility for repaying public debt remains national and prevents risk premiums caused by unsound fiscal policies from spilling over to partner countries.-based credit rating agencies—Moody's. Concerning government finance the states have agreed that the annual government budget deficit should not exceed 3% of the gross domestic product (GDP) and that the gross government debt to GDP should not exceed 60% of the GDP.No bail-out clause The EU's Maastricht Treaty contains juridical language which appears to rule out intra-EU bailouts. Nevertheless the main crisis states Greece and Italy (status November 2011) have substantially exceeded these criteria over a long period of time. They were also meant to protect the taxpayers of the other more prudent member states. the "no bail-out doctrine" seems to be a thing of the past. the EU and eurozone countries also encourage moral hazard in the future. the agencies . The European Central Bank's purchase of distressed country bonds can be viewed as violating the prohibition of monetary financing of budget deficits (Article 123 TFEU). Standard & Poor's and Fitch—which have already been under fire during the housing bubble and the Icelandic crisis—have also played a central and controversial role in the current European bond market crisis. Convergence criteria The EU treaties contain so called convergence criteria. For eurozone members there is the Stability and Growth Pact which contains the same requirements for budget deficit and debt limitation but with a much stricter regime. New York City The international U. The clause thus encourages prudent fiscal policies at the national level. and prevent the moral hazard of over-spending and lending in good times. By issuing bail-out aid guaranteed by prudent eurozone taxpayers to rule-breaking eurozone countries such as Greece. The creation of further leverage in EFSF with access to ECB lending would also appear to violate the terms of this article. Articles 125 and 123 were meant to create disincentives for EU member states to run excessive deficits and state debt. First.S. While the no bail-out clause remains in place.On one hand. Actors fueling the crisis Credit rating agencies Standard & Poor's Headquarters in Lower Manhattan.
 including the European Securities and Markets Authority (ESMA). which became the EU’s single credit-ratings firm regulator. when gauging the solvency of EU-based financial institutions. e. State owned utility and infrastructure companies like ANA – Aeroportos de Portugal. French central bank chief Christian Noyer criticized the decision of Standard & Poor's to lower the rating of France but not that of the United Kingdom. effective since 2008. Similar comments were made by high ranking politicians in Germany. which "has more deficits. On the other hand. to rely heavily on the standardized assessments of credit risk marketed by only two private company US agencies. deputy leader of the leading Christian Democrats. with Greek bonds trading at junk levels several weeks before the ratings agencies began to describe them as such. ratings agencies have a tendency to act conservatively. more inflation.. Particularly Moody's decision to downgrade Portugal's foreign debt to the category Ba2 "junk" has infuriated officials from the EU and Portugal alike." Credit rating agencies were also accused of bullying politicians by systematically downgrading eurozone countries just before important European Council meetings. less growth than us". Credit-ratings . adding that the latter's collective private and public sector debts are the largest in Europe. European regulators obtained new powers to supervise ratings agencies. Counter measures Due to the failures of the ratings agencies. this forced European banks and more importantly the European Central Bank. As one EU source put it: "It is interesting to look at the downgradings and the timings of the downgradings .g. He further added: "If the agency downgrades France. and to take some time to adjust when a firm or country is in trouble. accusing the Big Three of bias towards European assets and fueling speculation. it should also downgrade Britain in order to be consistent. the market responded to the crisis before the downgrades. as much debt. European policy makers have criticized ratings agencies for acting politically. Why doesn't it act on the highly indebted United States or highly indebted Britain?"." Regulatory reliance on credit ratings Think-tanks such as the World Pensions Council have criticized European powers such as France and Germany for pushing for the adoption of the Basel II recommendations. France too has shown its anger at its downgrade.Moody’s and S&P. With the creation of the European Supervisory Authority in January 2011 the EU set up a whole range of new financial regulatory institutions. said: "Standard and Poor's must stop playing politics. It is strange that we have so many downgrades in the weeks of summits. Michael Fuchs. and Brisa – Auto-estradas de Portugal were also downgraded despite claims to having solid financial profiles and significant foreign revenue. Energias de Portugal. adopted in 2005 and transposed in European Union law through the Capital Requirements Directive (CRD).. In the case of Greece. In essence.have been accused of giving overly generous ratings due to conflicts of interest. Redes Energéticas Nacionais.
can continue to fund their large external deficits and government deficits. and the U.. Germany's foreign minister Guido Westerwelle has called for an "independent" European ratings agency.S. political or financial". the Bertelsmann Stiftung presented a blueprint for establishing an international non-profit credit rating agency (INCRA) for sovereign debt. "This is an attack on the eurozone by certain other interests.companies have to comply with the new standards or will be denied operation on EU territory. and poorly enforced EU rule on ratings agencies (Regulation EC N° 1060/2009) has had little effect on the way financial analysts and economists interpret data or on the potential for conflicts of interests created by the complex contractual arrangements between credit rating agencies and their clients" Media There has been considerable controversy about the role of the English-language press in regard to the bond market crisis. On 30 January 2012. unevenly transposed in national law. This is not the case in the eurozone which is self funding.S. says ESMA Chief Steven Maijoor. do not have large domestic savings pools to draw on and therefore are dependent on external savings e. So far no results have been reported from this investigation. which could avoid the conflicts of interest that he claimed US-based agencies faced. Greek Prime Minister Papandreou is quoted as saying that there was no question of Greece leaving the euro and suggested that the crisis was politically as well as financially motivated.-based ratings agencies have less influence on developments in European financial markets in the future. which could provide its first country ratings by the end of the year.K.European leaders are reportedly studying the possibility of setting up a European ratings agency in order that the private U.g. The U. in a similar attempt. But attempts to regulate more strictly credit rating agencies in the wake of the European sovereign debt crisis have been rather unsuccessful. In April 2012. Speculators . the company said it was already collecting funds from financial institutions and business intelligence agencies to set up an independent non-profit ratings agency by mid 2012. According to German consultant company Roland Berger. CNI in Spanish) to investigate the role of the "Anglo-Saxon media" in fomenting the crisis.K. and U. Some European financial law and regulation experts have argued that the hastily drafted. He ordered the Centro Nacional de Inteligencia intelligence service (National Intelligence Center. from China.S. Other commentators believe that the euro is under attack so that countries. setting up a new ratings agency would cost €300 million. The Spanish Prime Minister José Luis Rodríguez Zapatero has also suggested that the recent financial market crisis in Europe is an attempt to undermine the euro. structured in way that management and rating decisions are independent from its financiers. and to avoid the collapse of the US$. such as the U.
such as Luca A. "Without such an institution. German chancellor Merkel has stated that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere.  There was no suggestion by regulators that there was any collusion or other improper action. where a small group of hedge-fund managers from SAC Capital Advisors LP. they recommended that Greece and the other debtor nations unilaterally leave the eurozone. triggering a decline that brought the currency below $1. regain their fiscal sovereignty. Green Light Capital Inc. Three days later the euro was hit with a wave of selling. the disbandment of the eurozone. When faced with economic problems.. the boutique research and brokerage firmMonness. Speculation about the breakup of the eurozone Economists. the Euro hit a four year low at $1. Crespi." Some non-Keynesian economists. mostly from outside Europe and associated with Modern Monetary Theory and other postKeynesian schools. It is not yet clear to what extent this bank has been involved in the unfolding of the crisis or if they have made a profit as a result of the sell-off on the Greek government debt market. if the Greek and Irish bailouts should fail. Ricci of the IMF. As the debt crisis expanded beyond Greece. though it is moving in that direction. Brigade Capital Management LLC and others argued that the euro was likely to fall to parity with the US dollar and were of the opinion that Greek government bonds represented the weakest link of the euro and that Greek contagion could soon spread to infect all sovereign debt in the world. On 8 June. these economists continued to advocate. default on their debts. Soros Fund Management LLC. EMUwould prevent effective action by individual countries and put nothing in its place. contend the eurozone does not fulfill the necessary criteria for an optimum currency area.36. Bloombergsuggested in June 2011 that. some markets banned naked short selling for a few months. If this was not immediately feasible. In response to accusations that speculators were worsening the problem. The likely substantial fall in the euro against a newly reconstituted Deutsche Mark would give a "huge boost" to its members' competitiveness. albeit more forcefully. On 8 February. they maintained. an alternative would be for Germany to leave the eurozone in order to save the currency through depreciation instead of austerity. and re-adopt national currencies. condemned the design of the euro currency system from the beginning because it ceded national monetary and economic sovereignty but lacked a central fiscal authority. hosted an exclusive "idea dinner" at a private townhouse in Manhattan. Traders estimate that bets for and against the euro account for a huge part of the daily three trillion dollar global currency market.Both the Spanish and Greek Prime Ministers have accused financial speculators and hedge funds of worsening the crisis by short selling euros. exactly four months after the dinner. ."  According to The Wall Street Journal several hedge-fund managers launched "large bearish bets" against the euro in early 2010. The role of Goldman Sachs in Greek bond yield increases is also under scrutiny.19 before it started to rise again. Hardt & Co.
Soros acknowledges that converting the EFSF into a European Treasury will necessitate ―a radical change of heart. Soros writes that a treaty is needed to transform the European Financial Stability Fund into a full-fledged European Treasury. In September 2011. A European Treasury would have the capability to tax and borrow money. not part of the EU. And it would be under collective European supervision instead of individual member states’ supervision. is regarded as one of Europe's recovery success stories. linking the survival of the euro with that of the entire European Union. saying that expelling weaker countries from the euro was not an option. which can prove costly both for their own citizens and those of other Eurozone states that are forced to bail out the profligate states. Soros writes.The Wall Street Journal conjectured that Germany could return to the Deutsche Mark. Thus a common European Treasury could mean that individual members of the Eurozone will be less able to pursue costly fiscal policies such as excessive spending. Luxembourg and other European countries such as Denmark. bigger than China or Japan. publicly said that they would not allow the eurozone to disintegrate. Finland. But what would be most effective. Germans will be wary of any such move. Soros writes however that a collapse of European Union would precipitate an uncontrollable financial meltdown and thus ―the only way‖ to avert ―another Great Depression‖ is the formation of a European Treasury. Following the formation of the Treasury. The changes he recommends include even greater economic integration of the European Union. or create another currency union with the Netherlands. A monetary union of these countries with current account surpluses would create the world's largest creditor bloc. European Council could then ask the European Commission Bank to step into the breach and indemnify the European Commission Bank in advance against potential risks to the Treasury’s solvency. he cautions. on numerous occasions. Switzerland and the Baltics. Soros argues. Furthermore. The Wall Street Journal added that without the German-led bloc. German Chancellor Angela Merkel and French President Nicolas Sarkozy have. not least because many continue to believe that they have a choice between saving the Euro and abandoning it. George Soros warns in ―Does the Euro have a Future?‖ that there is no escape from the ―gloomy scenario‖ of a prolonged European recession and the consequent threat to the Eurozone’s political cohesion so long as ―the authorities persist in their current course. a European Monetary Fund following the template of the International Monetary Fund is needed to better assist debt-ridden states like Greece and Portugal in their periods of economic crises. former ECB president Jean-Claude Trichet also denounced the possibility of a return of the Deutsche Mark. It defaulted on its debt and drastically devalued it currency. is a full-fledged European Treasury.‖ He argues that to save the Euro long-term structural changes are essential in addition to the immediate steps needed to arrest the crisis. At a minimum. Norway. a residual euro would have the flexibility to keep interest rates low and engage in quantitative easing or fiscal stimulus in support of a job-targeting economic policy instead of inflation targeting in the current configuration. Iceland. EU commissioner Joaquín Almunia shared this view.‖ In particular. which has effectively reduced wages by 50% making exports more . Austria. Sweden.
a politically easier option than the economically equivalent but politically impossible method of lowering wages by political enactment. However. a minimal reliance on public debt. Lee Harris argues that floating exchange rates allows wage reductions by currency devaluations. and reported "plenty of support" for 33/1 odds for a complete disbanding of the Eurozone during 2012.The structures were designed by prominent U. The British betting company Ladbrokes stopped taking bets on Greece exiting the Eurozone in May 2012 after odds fell to 1/3. This added a new dimension in the world financial turmoil. potentially undermining investor confidence. who received substantial fees in return for their services and who took on little credit risk themselves thanks to special legal protections for derivatives counterparties. members of the European Union signed an agreement known as the Maastricht Treaty. The Greek documentary Debtocracy examines whether the recent Siemens scandal and uncommercial ECB loans which were conditional on the purchase of military aircraft and submarines are evidence that the loans amount to odious debt and that an audit would result in invalidation of a large amount of the debt. since the financial crisis have only served to reinforce special protections for derivatives—including greater access to government guarantees—while minimizing disclosure to broader financial markets. to mask the sizes of public debts and deficits.  Financial reforms within the U. National statistics In 1992. These have included analyses of examples in . under which they pledged to limit their deficit spending and debt levels.S. and tax reform helped to further a pro-growth policy.4% in 2010) has been cited as one of the issues that ignited the Greek debt crisis. The revision of Greece’s 2009 budget deficit from a forecast of "6–8% of GDP" to 12. There has however been a growing number of reports about manipulated statistics by EU and other nations aiming. as was the case for Greece. after reclassification of expenses under IMF/EU supervision was further raised to 15. Sweden's floating rate currency gives it a short term advantage. including Greece and Italy. as the issues of "creative accounting" and manipulation of statistics by several nations came into focus. structural reforms and constraints account for longer-term prosperity.S. commentators such as Libération correspondent Jean Quatremer and the Liège based NGO Committee for the Abolition of the Third World Debt (CADTM) allege that the debt should be characterized as odious debt. Labor concessions.7% by the new Pasok Government in late 2009 (a number which. were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures. The focus has naturally remained on Greece due to its debt crisis. investment banks.competitive. a number of EU member states. Odious debt Main article: Odious debt Some protesters.
 the United Kingdom. as one of the strongest AAA countries. so as not to increase the risk level over their participation in the bailout. After extensive negotiations to implement a collateral structure open to all eurozone countries. and even Germany. and Slovakia responded with irritation over this special guarantee for Finland and demanded equal treatment across the eurozone. the four largest Greek banks agreed to provide the €880 million in collateral to Finland in order to secure the second bailout program. On 13 October 2011 Slovakia approved euro bailout expansion. Political impact Handling of the ongoing crisis has led to the premature end of a number of European national governments and impacted the outcome of many elections: Greece . 2012 became the first time since 1981 that an incumbent failed to gain a second term. the United States. France . . The expectation is that only Finland will utilise it.The Greek legislative election. the IMF and the European Central Bank).May 2012 . In February 2012. a collateral the Greeks can only give by recycling part of the funds loaned by Finland for the bailout. which was the immediate issue behind the collateral discussion. requirement to contribute initial capital to European Stability Mechanism in one installment instead of five installments over time.a. but the government has been forced to call new elections in exchange. a modified escrow collateral agreement was reached. due to i. the Netherlands. The extreme right-wing and left-wing political parties that have opposed the policy of strict measures. At the beginning of October. collapsed in votes as a punishment for their support to the strict measures proposed by the country's foreign lenders and the Troika (consisted of the European Union. when Nicolas Sarkozy lost to Francois Hollande. Finland.several countries or have focused on Italy. or a similar deal with Greece.The French presidential election. on 4 October 2011. Slovakia and Netherlands were the last countries to vote on the EFSF expansion. Slovenia. can raise the required capital with relative ease. which ruled the country for over 40 years. enabling it to participate in the potential new €109 billion support package for the Greek economy. as requested by the Finnish parliament as a condition for any further bailouts.May 2012 . 2012 were the first time in the history of the country. Collateral for Finland On 18 August 2011. Austria. with a mid-October vote. which means Finland and the other eurozone countries guarantee the Finnish loans in the event of a Greek default. The main point of contention was that the collateral is aimed to be a cash deposit. it became apparent that Finland would receive collateral from Greece. at which the bipartisanship (consisted of PASOK and New Democracy parties). Spain. won the majority of the votes.
the junior party in the coalition government. Meanwhile. Greece – November 2011 – After intense criticism from within his own party. following which Janez Janša became PM. which both leading parties supported but many MPs of these two parties voted against. Slovenia – September 2011 – Following the failure of June referendums on measures to combat the economic crisis and the departure of coalition partners. leading to PASOK losing its parliamentary majority.5% in 2010 to as low as 7% in some polls in 2012. PM Iveta Radičová had to concede early elections in March 2012. Following the vote in the Greek parliament on the austerity and bailout measures. "It is convenient to hold elections this fall so a new government can take charge of the economy in 2012. bringing about early elections in June 2011. PM George Papandreou announced his resignation in favour of a national unity government between three parties. Early elections were held in May 2012. fresh from the balloting" he said. for his proposal to hold a referendum on the austerity and bailout measures. following which Robert Ficobecame PM. the Government of Silvio Berlusconi lost its majority. the Green Party set a time-limit on its support for the Cowen Government which set the path to early elections in Feb 2011. following which Enda Kenny became PM. . the opposition and other EU governments. Italy – November 2011 – Following market pressure on government bond prices in response to concerns about levels of debt. PM José Luis Rodríguez Zapatero announced early elections in November. Papandreou and Antonis Samaras expelled a total of 44 MPs from their respective parliamentary groups. resigned and was replaced by the Government of Mario Monti. the popularity of Papandreou's PASOK party dropped from 42. Republic of Ireland – November 2010 – In return for its support for the IMF bailout and consequent austerity budget. Spain – July 2011 – Following the failure of the Spanish government to handle the economic situation. Slovakia – October 2011 – In return for the approval of the EFSF by her coalition partners. Portugal – March 2011 – Following the failure of parliament to adopt the government austerity measures. Following the elections. the Borut Pahor government lost amotion of confidence and December 2011 early elections were set. Finland – April 2011 – The approach to the Portuguese bailout and the EFSF dominated the April 2011 election debate and formation of the subsequent government. Mariano Rajoy became PM. PM José Sócrates and his government resigned. of which only two currently remain in the coalition.
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