2010 European sovereign debt crisis From Wikipedia, the free encyclopedia Jump to: navigation, search It has been

suggested that PIGS (economics) be merged into this article or section. (Discuss) In early 2010 fears of a sovereign debt crisis or the 2010 Euro Crisis[1] also known as Aegean Contagion[2] developed concerning some countries in Europe[3] including: Greece, Spain,[4] and Portugal.[5] This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.[6][7] Concern about rising government deficits and debt levels[8][9] across the globe together with a wave of downgrading of European Government debt[10] has created alarm in financial markets. The debt crisis has been mostly centred on recent events in Greece, where there is concern about the rising cost of financing government debt. On 2 May 2010, the Eurozone countries and the International Monetary Fund agreed to a €110 billion loan for Greece, conditional on the implementation of harsh Greek austerity measures.[11] On 9 May 2010, Europe's Finance Ministers approved a comprehensive rescue package worth almost a trillion dollars aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility.[12] Contents [hide]

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1 Greek government funding crisis o 1.1 Causes o 1.2 Downgrading of debt o 1.3 Austerity and loan agreement o 1.4 Danger of default o 1.5 Objections to proposed policies 2 Possible spread beyond Greece 3 Long-term solutions 4 Controversies o 4.1 Credit rating agencies o 4.2 Media o 4.3 Role of speculators 5 Timeline of Greek crisis o 5.1 October 2009 o 5.2 November 2009 o 5.3 December 2009 o 5.4 January 2010 o 5.5 February 2010

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5.6 March 2010 5.7 April 2010 5.8 May 2010 5.9 June 2010 6 EU emergency measures 7 See also 8 References
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9 External links

[edit] Greek government funding crisis See also: Economy of Greece#2010 debt crisis [edit] Causes The Greek economy was one of the fastest growing in the eurozone during the 2000s; from 2000 to 2007 it grew at an annual rate of 4.2% as foreign capital flooded the country.[13] A strong economy and falling bond yields allowed the government of Greece to run large structural deficits. According to an editorial published by the Greek newspaper Kathimerini, large public deficits are one of the features that have marked the Greek social model since the restoration of democracy in 1974. After the removal of the right leaning military junta, the government wanted to bring disenfrachised left leaning portions of the population into the economic mainstream.[14] In order to do so, successive Greek governments have, among other things, run large deficits to finance public sector jobs, pensions, and other social benefits.[15] Initially currency devaluation helped finance the borrowing. After the introduction of the euro Greece was initially able to borrow due the lower interest rates government bonds could command. Since the introduction of the Euro, debt to GDP has remained above 100%.[16] The global financial crisis that began in 2008 had a particularly large effect on Greece. Two of the country's largest industries are tourism and shipping, and both were badly affected by the downturn with revenues falling 15% in 2009.

To keep within the monetary union guidelines, the government of Greece has been found to have consistently and deliberately misreported the country's official economic statistics.[17][18] In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing.[19] The purpose of these deals made by several subsequent Greek governments was to enable them to spend beyond their means, while hiding the actual deficit from the EU overseers.[20] In 2009, the government of George Papandreou revised its deficit from an estimated 6% (or 8% if a special tax for building irregularities were not to be applied) to 12.7%.[21] In May 2010, the Greek government deficit was estimated to be 13.6%[22] which is one of the highest in the world relative to GDP.[23] Greek government debt was estimated at €216 billion in January 2010.[24] Accumulated government debt is forecast, according to some estimates, to hit 120% of GDP in 2010.[25] The Greek government bond market is reliant on foreign investors, with some estimates

Standard & Poor's estimates that in the event of default investors would lose 30–50% of their money. the Greek debt rating was decreased to 'junk' status by Standard & Poor's amidst fears of default by the Greek government.[31] Some analysts question Greece's ability to refinance its debt. a loan agreement was reached between Greece.[28] According to the Financial Times on 25 January 2010.[32] Following downgradings by Fitch.[39] [edit] Austerity and loan agreement On 5 March 2010."[29] [edit] Downgrading of debt On 27 April 2010. again according to the Financial Times."[35] As of 6 May 2010. abolished entirely for those earning over €3. the European Central Bank suspended its minimum threshold for Greek debt "until further notice".5%. £17bn) in orders for the five-year. four times more than the (Greek) government had reckoned on.suggesting that up to 70%[citation needed] of Greek government bonds are held externally.[27] Despite the crisis. particularly in the wake of successive ratings downgrading.31%.000 introduced to bi-annual bonus." In March.[33] Greek bond yields rose in 2010. and the International Monetary Fund. fixed-rate bond. considered to be a rather high level for any bailout loan.[26] Estimated tax evasion costs the Greek government over $20 billion per year. both in absolute terms and relative to German government bonds. According to the Wall Street Journal "with only a handful of bonds changing hands.3bn. down from 800 basis points earlier.[43][44][45] On 2 May 2010.3% following the downgrading. or it would face a debt roll over of $11. . Moody's and S&P.[37] meaning the bonds will remain eligible as collateral even with junk status. A total of €110 billion has been agreed. The deal consists of an immediate €45 billion in low interest loans to be provided in 2010.000 a month. Greek government bond auctions have all been over-subscribed in 2010 (as of 26 January).[36] On 3 May 2010. the Greek government requested that the EU/IMF bailout package be activated.[38] Following the introduction of these measures the yield on Greek 10-year bonds fell to 8.[34] Yields have risen. and analysts said it should also help increase Greek bonds' attractiveness to investors. On 23 April 2010. The government of Greece agreed to impose a fourth and final round of austerity measures. The decision will guarantee Greek banks' access to cheap central bank funding. the other Eurozone countries. with more funds available later. Greek 10-year bonds were trading at an effective yield of 11. the Greek parliament passed the Economy Protection Bill.[30] Stock markets worldwide declined in response to this announcement. These include:[48] • Public sector limit of €1.5bn) in 10-year bonds and received orders for three times that amount. "Athens sold €5bn (£4.8 billion[40] through a number of measures including public sector wage reductions. "Investors placed about €20bn ($28bn.[42] Greece needed money before 19 May. 550 basis points above German yields. expected to save €4.[30] Yields on Greek government two-year bonds rose to 15. the meaning of the bond move isn't so clear.[41] The IMF has said it was "prepared to move expeditiously on this request".[46][47] The interest for the Eurozone loans is 5%.

Average retirement age for public sector workers has increased from 61 to 65.[52] Martin Feldstein called a Greek default "inevitable."[53] A default would most likely have taken the form of a restructuring where Greece would pay creditors only a portion of what they were owed.5%. It will amount to a total of €30 billion (i. Changes were planned to the laws governing lay-offs and overtime pay. Extraordinary taxes imposed on company profits. the EMU loans will be pari passu and not senior like those of the IMF. A financial stability fund has been created. as it would no longer have collateral with the European Central Bank. and 107 arrested. In fact the seniority of the IMF loans themselves has no legal basis but is respected nonetheless. The premiums on Greek debt had risen to a level that reflected a high chance of a default or restructuring. One analyst gave a 80 to 90% chance of a default or restructuring. a nationwide general strike was held in Athens to protest to the planned spending cuts and tax increases. 11% and 5. The amount of the loans will cover Greece's funding needs for the next three years (estimated at 30bn for the rest of 2010 and 40bn each for 2011 and 2012). cigarettes. General pension age has not changed. Return of a special tax on high pensions. or otherwise stimulate its economy with monetary policy. abolished for pensioners receiving over €2.[55] Because Greece is a member of the eurozone. For example. Equalization of men's and women's pension age limits. but a mechanism has been introduced to scale them to life expectancy changes. it cannot devalue a portion of its obligations by the means of introducing inflation.[50] According to research published on 5 May 2010.[54] This would effectively remove Greece from the euro. dozens injured.• • • • • • • • • • • • An 8% cut on public sector allowances and a 3% pay cut for DEKO (public sector utilities) employees. perhaps 50 or 25 percent.5% of 2009 Greek GDP) and consist of 5% of GDP tightening in 2010 and a further 4% tightening in 2011.S. Limit of €800 per month to 13th and 14th month pension installments.000. there was a possibility that Greece would have been forced to default on some of its debt. Federal Reserve expanded its balance sheet by over $1. and fuel.e.000 to 2.[56] . 12.[51] [edit] Danger of default Further information: Sovereign default Without a bailout agreement. the U.[citation needed] It would also destabilise the Euro Interbank Offered Rate. 10% rise in luxury taxes and taxes on alcohol. by Citibank.500 a month. which is backed by government securities.3 trillion USD since the global financial crisis began. Citibank finds the fiscal tightening "unexpectedly tough". essentially printing new money and injecting it into the system by purchasing outstanding debt. Three people were killed.[49] Public-owned companies to be reduced from 6.[49] On 5 May 2010. Increases in VAT to 23%.

would have been Greece leaving the Eurozone. and it doesn't face a risk of default[62]. An improved trade performance and less reliance on foreign capital would result. all of whom have high debt and deficit issues. then high interest rates would dampen demand. insufficiently supportive of the new government. Wilhelm Hankel.[63] [edit] Objections to proposed policies See also May 2010 Greek protests The crisis is seen as a justification for imposing fiscal austerity[64] on Greece in exchange for European funding which would lower borrowing costs for the Greek government.[57] The more severe danger is that a default by Greece will cause investors to lose faith in other Eurozone countries. but its budget position is better than the European average. and more than 60 points less than Italy. reflecting its high government deficit. more than 20 points less than Germany. professor emeritus of economics at the University of Frankfurt am Main suggested[67] in an article published in the Financial Times that the preferred solution to the Greek bond 'crisis' is a Greek exit from the euro followed by a devaluation of the currency. This concern is focused on Portugal and Ireland. making a default unlikely unless the situation gets far more severe. Zapatero as "complete insanity" and "intolerable"[60]. If Greece remains in the euro while accepting higher bond yields.[66] An alternative to the bailout agreement. [edit] Possible spread beyond Greece . Joseph Stiglitz has also criticised the EU for being too slow to help Greece. both countries have most of their debt controlled internally. Ireland or Greece[61].[59] Recent rumours raised by speculators about a Spanish bail-out were dismissed by Spanish President Mr. and are in a better fiscal situation than Greece and Portugal. and too deferential to bond rating agencies. France or the US. Spain and Italy are far larger and more central economies than Greece.[65] The negative impact of tighter fiscal policy could offset the positive impact of lower borrowing costs and social disruption could have a significantly negative impact on investment and growth in the longer term.The overall effect of Greece being forced off the euro. raise savings and slow the economy. at only 53% of GDP in 2010.[58] Italy also has a high debt. lacking the will power to set up sufficient "solidarity and stabilisation framework" to support countries experiencing economic difficulty. Fiscal austerity or a euro exit is the alternative to accepting differentiated government bond yields within the Euro Area. and it is not considered amongst the countries most at risk. would itself have been small for the other European economies. Spain has a comparatively low debt amongst advanced economies. Greece represents only 2% of the eurozone economy.

2 percent.6 percent."[73] According to the European Commission. but they add that the focus on continental Europe is unfair. Italy. the IMF. and Portugal at 9.5 billion issue that was three times oversubscribed.[71] On 18 May the NTMA tested the market and sold a €1. Ireland's NTMA state debt agency said that it had "no major refinancing obligations" in 2010.K. Spain's government announced new austerity measures designed to further reduce the country's budget deficit. and Spain against the European Union and Eurozone 2002–2009 One of the central concerns prior to the bailout was that the crisis could spread beyond Greece.4 percent are most at risk. That is understandable. following a marked increase in Irish 2-year bond yields.The government surplus or deficit of Portugal.K. but weak economic growth as well as domestic and international pressure forced the government to expand on cuts already announced in January. As one of the largest eurozone economies the condition of Spain's economy is of particular concern to international observers.[74] Shortly after the announcement of the EU's new "emergency fund" for eurozone countries in early May 2010. United Kingdom. Greece. say many economists. with 12. the U.[68][69][70] In April 2010. and faced pressure from the United States. Ireland. with a government deficit of 14. investors have concentrated their ire on peripheral eurozone economies because of the zone's inability to resolve cleanly the Greek crisis. Spain with 11.3 percent of GDP.[75] The socialist government had hoped to avoid such deep cuts.[76][77] . other European countries and the European Commission to cut its deficit more aggressively. and it remarked: "We're very comfortably circumstanced". budget deficit will surpass Greece's as worst in EU this calendar year.[72] According to the Financial Times: "So far. The crisis has reduced confidence in other European economies. the U. Its requirement for €20 billion in 2010 was matched by a €23 billion cash balance. Ireland.

Even countries such as the US.[86] The monetary fund would be supported by EU member governments. with strict conditions. Greece has been the notable example of an industrialised country that has faced difficulties in the markets because of rising debt levels.[82] According to Niall Ferguson in the Financial Times: "Only two things have thus far stood between the US and higher bond yields: purchases of Treasuries by the Federal Reserve and reserve accumulation by the Chinese monetary authorities. the OECD forecasts $16. strong European Commission oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it have been described as infringements on the sovereignty of eurozone member states[87] and are opposed by key EU nations such as France and Italy. However.000bn will be raised in government bonds among its 30 member countries. Some senior German policy makers went as far as to say that emergency bailouts should bring harsh penalties to EU aid recipients such as Greece.[89] Others argue that an abrupt return to "non-Keynesian" financial policies is not a viable solution and predict the deflationary policies now being imposed on countries such as Greece and Spain might prolong and deepen their recessions. an EU member country.6 trillion.[85] The second is a single authority responsible for tax policy oversight and government spending coordination of EU member countries. and Greece should not be dismissed. 2010 that while Europe's "profligate economies will struggle ."[84] [edit] Long-term solutions European Union leaders have made two major proposals for ensuring fiscal stability in the long term..." it also pointed out that "waning confidence will be mitigated by the boost that exports receive from the euro’s plunge. as austerity kicks in.S. According to Ferguson similarities between the U. which could jeopardise the establishment of a European Treasury. the Chinese have sharply reduced their purchases of Treasuries from around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an estimated 5 per cent last year. This preventive tool is dubbed the European Treasury." which involves "buying" social peace .[78] Financing needs for the Eurozone in 2010 come to a total of €1. have had fraught moments as investors shunned bond auctions due to concerns about public finances and the economy..Niall Ferguson writes that "the sovereign debt crisis that is unfolding . This reactive tool is sometimes dubbed as the European Monetary Fund by the media.[88] and have recommended the imposition of a battery of corrective policies to control public debt. The Economist acknowledged on May 27. Some think-tanks such as the CEE Council have argued that the predicament some EU countries find themselves in is the result of a decade of debt-fueled macroeconomic policies pursued by local policy makers and complacent EU central bankers. and the treasury would be supported by the European Commission.. Germany and the UK. is a fiscal crisis of the western world".7 trillion more Treasury securities in this period.[79] and Japan has ¥213 trillion of government bonds to roll over. But now the Fed is phasing out such purchases and is expected to wind up quantitative easing.[90] The Economist has suggested that ultimately the Greek "social contract.[81] For 2010. while the US is expected to issue US$1.[80] The countries most at risk are those that rely on foreign investors to fund their government sector."[83] On the positive side. Meanwhile. The first proposal is the creation of a common fund responsible for bailing out.

[96][97] A country with a large trade surplus would generally see the value of its currency appreciate relative to other currencies. However. Greece and other countries. while Germany's trade surplus was $109.[94] The 2009 trade deficits for Spain. Germany's large trade surplus (net export position) means that it must also be a net exporter of capital. Capital controls that restrict or penalize the flow of capital across borders is another method that can reduce trade imbalances.5 billion. respectively ($122.[95] A similar imbalance exists in the U.5B total). This currency appreciation occurs as the importing country sells its currency to buy the exporting country's currency used to purchase the goods. Conversely. lending money to other countries to allow them to buy German goods.4B and $18. in addition to having already lost control over monetary policy and foreign exchange policy since the euro came into being.[105][106] the ratings agencies have been under fire. $34. although this benefit is offset by slowing down an economy and increasing government interest payments. this is a mathematical identity called the balance of payments. and Portugal were estimated to be $69.[98] The suggestion has been made that long term stability in the eurozone requires a common fiscal policy rather than controls on portfolio investment. if a country's citizens saved more instead of consuming imports. which would reduce the imbalance as the relative price of its exports increases..[91] As Greece can no longer devalue its way out of economic difficulties it will have to more tightly control spending than it has since the inception of the Third Hellenic Republic. Alternatively. which runs a large trade deficit (net import position) and therefore is a net borrower of capital from abroad.7B. trade imbalances might be addressed by changing consumption and savings habits.S. The . it imports more than it exports) must also be a net importer of capital.[99] In exchange for cheaper funding from the EU. reducing budget deficits is another method of raising a country's level of saving. For example. will have to be changed to one predicated more on price stability and government restraint if the euro is to survive. S&P and Fitch – have played a central[100] and controversial role[101] in the current European bond market crisis. Greece. Ben Bernanke warned of the risks of such imbalances in 2005. and other social benefits. Likewise.[102] As with the housing bubble[103][104] and the Icelandic crisis. For example. pensions.. would therefore also lose control over domestic fiscal policy. many of the countries involved in the crisis are on the Euro.through public sector jobs. artificially lowering interest rates and creating asset bubbles. so this is not an available solution at present. as long as cross border capital flows remain unregulated in the Euro Area.e. [edit] Controversies [edit] Credit rating agencies The international credit rating agencies – Moody's. arguing that a "savings glut" in one country with a trade surplus can drive capital into other countries with trade deficits. Regardless of the corrective measures chosen to solve the current predicament. this would reduce its trade deficit. Interest rates can also be raised to encourage domestic saving.6B. a country that runs a large current account or trade deficit (i. In other words. a country that imports more than it exports must also borrow to pay for those imports.[92] asset bubbles[93] and current account imbalances are likely to continue.

[112] [edit] Media There has been considerable controversy about the role of the English-language press in the regard to the bond market crisis. based ratings agencies the ECB announced on 3 May that it will accept as collateral all outstanding and new debt instruments issued or guaranteed by the Greek government.[115][116][117][118] No results have so far been reported as a result of this investigation. such as the U. Guido Westerwelle. Germany's foreign minister suggested the European Union should create its own rating agency.[101] These supervisory powers will come into effect in December 2010. European regulators will be given new powers to supervise ratings agencies.[8] The U.S. German foreign minister. He spoke after downgrades of Greece and Portugal roiled financial markets.S. regardless of the nation's credit rating.S. [124] This is not the case in the Eurozone which is self funding.[125] 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. In a response to the actions of the private U. and the U.[110][111] Due to the failures of the ratings agencies.[100] European leaders are reportedly studying the possibility of setting up a European ratings agency in order that the private U.[113][114] Spanish Prime Minister José Luis Rodríguez Zapatero ordered the Centro Nacional de Inteligencia intelligence service to investigate the role of the "Anglo-Saxon media" in fomenting the crisis.[100] Government officials have criticised the ratings agencies and the German finance minister has said traders should not take global rating agencies "too seriously" following downgrades of Greece.K.[107] Ratings agencies also have a tendency to act conservatively. or whether there is something more behind this campaign. Spain and Portugal. with Greek bonds trading at junk levels several weeks before the ratings agencies began to describe them as such. which could avoid the conflicts of interest that he claimed US-based agencies faced.agencies have been accused of giving overly generous ratings due to conflicts of interest. the market responded to the crisis before the downgrades. do not have large domestic savings pools to draw on and therefore are dependent on external savings. "This is an attack on the eurozone by certain other interests. and U.K. According to the Madrid daily El País.. called for an "independent" European rating agency.-based ratings agencies have less influence on developments in European financial markets in the future.[109] According to the Financial Times "The latest furore over the agencies' role in the sovereign debt market"[109] is likely to bring about more supervision of these agencies. and to take some time to adjust when a firm or country is in trouble.[126] .'"[119][120][121] The Spanish Prime Minister has suggested[122] that the recent financial market crisis in Europe is an attempt to draw international capital away from the euro[123] in order that countries. "the National Intelligence Center (CNI) was investigating 'whether investors' attacks and the aggressiveness of some Anglo-Saxon [sic] media are driven by market forces and challenges facing the Spanish economy.S. can continue to fund their large external deficits which are matched by large government deficits.[108] In the case of Greece. political or financial".

[132] [edit] Timeline of Greek crisis Main article: 2010 European sovereign debt crisis timeline Below is a brief summary of some of the main events in the Greek Sovereign debt crisis.[133] [edit] October 2009 • A new Greek government is formed after the election.8% in 2012.: New budget draft reveals a deficit of 12. [edit] January 2010 • • 14 Jan. Draft also projects total debt rising to 121% of GDP in 2010 from 113. more than twice the previously announced figure.: Moody's cuts Greece's rating to A2 from A1. 8 Nov.[131] 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.: Greece unveils the Stability and Growth Program which aims to cut deficit from 12. .[edit] Role of speculators Financial speculators and hedge funds engaged in selling euros have also been accused by both the Spanish and Greek Prime Ministers of worsening the crisis."[129] The role of Goldman Sachs[130] in Greek bond yield increases is also under scrutiny. which received 43.92% of the popular vote.: Greek PM Papandreou outlines first round of policies to cut deficit and regain investor trust. [edit] November 2009 • • 5 Nov. 14 Dec. In response to accusations that speculators were worsening the problem.: S&P cuts Greece's rating to BBB+ from A-. 16 Dec. some markets banned naked short selling for a few months. [edit] December 2009 • • • • 8 Dec. 22 Dec.: Fitch Ratings cuts Greece's rating to BBB+ from A-. and 160 of 300 parliament seats.7% of GDP in 2010.7% in 2009 to 2. led by PASOK. Jan.4% in 2009. xx: 5-year bond issue is five-times oversubscribed but yields and spreads rise.7% of GDP.[127][128] Angela Merkel has stated that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere.: Final budget draft aims to cut deficit to 8. with a negative outlook.

Mar. EMU countries will participate in the amount based on their ECB country keys. For fixed rate loans rates will be swap rate for the loan's maturity.: EMU leaders agree bailout plan for Greece.: New public sector wage cuts and tax increases is passed and estimated to generate savings of EUR 4.: EMU finance ministers agree on mechanism to help Greece but reveal no details. Barroso says the EMU countries should be on stand by to make bilateral loans. tobacco and alcohol consumption taxes and freezing state-funded pensions in 2010. cutting public sector salary bonuses by 30%. [edit] March 2010 • • • • • • • 5 Mar. Measures include increasing VAT by 2% to 21%. 19 Mar.: European Commission President José Manuel Barroso urges EU member states to agree a standby aid package for Greece. [edit] April 2010 • • • 11 Apr. increases on fuel.: Public and private sector workers strike. . 25 Feb. 24 Feb.: Olli Rehn says there is no possibility of a Greek default and no doubt that Germany will participate in the bail out plan. In the mean time there had been serious objections from parts of German society to the country's participation in the Greek bailout.: EU mission in Athens with IMF experts delivers grim assessment of country's finances. 3 Feb.: One-day general strike against the austerity measures halts public services and transport system. 25 Mar.: ECB President Jean-Claude Trichet says his bank will extend softer rules on collateral (accepting BBB? instead of the standard A-) for longer (up to 2011) in order to avoid a situation where one ratings agency (Moody's) basically decides if an EMU country's bonds are eligible for use as ECB collateral.[edit] February 2010 • • • • 2 Feb.: ECB voices its support for the rescue plan.000 a month. 18 Mar.: Government extends public sector wage freeze to those earning less than EUR 2.: EU Commission backs Greece's Stability and Growth Program and urges it to cut its overall wage bill.8 bn. 15 Apr.: €5bn in 10-year Greek bonds sold – orders for three times that amount are received. 11 Mar. 15 Mar. 13 Apr. plus the 300 bp (as in variable) plus the 100 bp for loans over three years plus the 50 bp charge.: Papandreou warns Greece will not be able to cut deficit if borrowing costs remain as high as they are and may have to go to the IMF. Rates for variable rate loans will be 3mEuribor plus 300 bp + 100 bp for over three-year loans plus a one-off 50 bp charge for operating expenses. Terms are announced for EUR 30 bn of bilateral loans (roughly 5% for a three-year loan).

particularly dollar-yen and dollar-euro.: S&P downgrades Portuguese debt two notches and issues negative outlook. particularly in the US where electronic trading glitches combined with a high volume sell off produced a nearly 1. there was no final agreement as to how the Special Purpose Vehicle. before it recovered somewhat to close down 347. Sale of more than 1. Ministers slso discussed proposals to shore up the eurozone with stricter budget rules such as vetting of budgets before they are presented to state parliaments. albeit at a high interest rate. 3 May: The ECB announces that it will accept Greek Government Bonds as collateral no matter what their rating is. S&P downgrades Spanish bonds from AAA to AA- [edit] May 2010 • • • • • • • • • • • 1 May: Protests against the proposed austerity measures in Athens.: Standard and Poor's downgrades Greece's debt ratings below investment grade to junk bond status. raft of austerity measures. according to German Information Center article Eurozone Argues Over Rescue Aid As Currency Continues Slide.[136][137] 6 May: Concerns about the ability of the Eurozone to deal with a spreading crisis effectively caused a severe market sell off. 28 Apr. should the need arise. 8 May: Leaders of the eurozone countries resolved in Brussels to take drastic action to protect the euro from further market turmoil after approving a $100 billion bailout plan for Greece.[citation needed] 20 May: Fourth general strike in Greece against wage cuts. Three people were killed when a group of masked people threw petrol bombs in a Marfin Bank branch on Stadiou street.[135] 5 May: General nationwide strike and demonstrations in major cities in Greece turned violent.5 billion euros Greek Treasury bills met with "stronger-thanexpected" demand. Global stock markets react negatively to fears of contagion. 23 Apr.[138] 18 May: After a meeting of EU Finance Ministers met. that Euro area Member States agreed on May 10 to set up a special purpose vehicle (SPV) to raise up to EUR 440 bn in support of euro zone Member States.: Greece officially asks for the disbursement of money from the aid package effectively activating it.[134] 4 May: First day of strikes against the austerity measures. or what is being called the European Financial Stability Facility.000 point intra-day drop in the Dow Jones Industrial Average. 7 May: Volatility continued to accelerate with an increasing CBOE VIX index and a major widening in currency spreads. 21 May: The European Investment Bank announces in news release entitled Limited Services Provision Role For EIB In European Financial Stability Facility. would subject aid as well as loans to each country or the new agency. This effectively means scrapping the BBB-floor in the case of Greece and increasing the likelihood of similar announcements in case other countries run the risk of being downgraded to junk status. Stock indices around the world drop two to six percent on the news. warning that further downgrades to junk status are likely.• • • • • Apr. fourth. 2 May: Greece announces the latest. 27 Apr. At a meeting . 27 Apr.

• on May 17.[citation needed] 9 June: An imminent default on European sovereign debt is unlikely now. will create Eurobonds and establishes a EU Treasury. The SPV is technically known as the European Financial Stability Facility. as SoldAtTheTop. but deterioratoin continues. which is for all practical purposes.[139] [edit] June 2010 • • • • • • 4 June: The Hungarian PM Viktor Orban's spokeman said it was not an exaggeration to say the prospect of a national default is very real. Such services will be provided on a full cost-coverage basis. Bank bond sales slowed in May to the lowest since Lehman . writes Cliff Watchel in Seeking Alpha article entitled Imminent Default Threat Off But Deterioration Continues. European banks at risk of writedowns from the sovereign debt crisis face a funding squeeze that may depress earnings. in Seeking Alpha article entitled Greece Collapsing Into Recession. to the Commission and euro area Member States. Portuguese and Spanish bonds held by the lenders will plunge in value. relationships with the rating agencies and have its own executive management. The EFSF will operate its own funding and lending. that would borrow up to 440 billion euros with euro zone country guarantees for euro members in trouble. the EFSF. 2010. provides a manufacturing report showing debt deflation is now underway. article entitled Details Agreed For Euro Zone Loan Vehicle. The Eurogroup decided it would be set up under Luxembourg law and that the EFSF shareholders would be the 16 euro area Member States. seeking to combat the European debt crisis report Bloomberg’s Jonathan Stearns and Meera Louis in article Euro-Area Rescue Fund Is Established to Combat Debt Crisis. of European Finance Ministers. it will not be managing the EFSF and it will not be involved in borrowing front office but it could provide back office services. Moody's still affirmed Hungary had a good record of paying its obligations.[citation needed] 6 June: The European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($524 billion) in national guarantees. the EIB’s role is limited to providing technical assistance. The EIB will not be a shareholder in the EFSF. In this framework. with reporting by Jan Strupczewski and Julien Toyer. 14 June: Europe's Banks May Face Second Funding Squeeze Amid Sovereign-Debt Crisis. SPV. president of the European Council. the SPV was named the “European Financial Stability Facility (EFSF)”. This role would be similar to the back office support provided already to a number of trust and other funds set up by the Commission and Member States. led by Herman Van Rompuy. for example on legal matters (creation of such an entity under Luxembourg law). who relates that contagion threat continues and grows as CDS spreads continue to rise. risk management. has reached agreement on the technical aspects of the special purpose vehicle.[citation needed] 29 May: Fitch downgrades Spanish government bonds one notch from AAA to AA+. report Gavin Finch and John Glover of Bloomberg. Although.[140] The Euro fell to a four-year low[141] and major American markets fell more than 3%. 13 June: Sovereign debt crisis loans have failed to help Greece. curb lending and imperil economic recovery in the region. Investors are shunning bank securities on concern Greek. for extending loans to nations experiencing sovereign debt distress according to sources quoted by Reuters in Friday June 4. 4 June: The Euro Stability Task Force.

It agreed at Summit of EU Finance and State Leaders that from 2011 member states will present budgetary data to Brussels in the first half of the year so that the EU executive and European Council can assess the assumptions underlying the plan. local banks are having a difficult time locating funding due to their holdings of underwater government debt. Francisco Gonzalez. ‘Banks are trading with the ECB rather than with each other. reports Rom Badilla writing in Michael Chuang’s Bondsquawk Seeking Alpha article. Spain’s Treasury secretary. reports EurasiaReview. 17 June: Spanish Debt Wilts Amid €250bn Rescue Plan Confusion.’ said Christoph Rieger.• • • • • • • • Brothers Holdings Inc. reporting that Slovakia calls to sign Europe’s 750 billion euro stability programme. 17 June: EU. reports John Kell of Wall Street Journal. Carlos Ocana. a necessary step for the financial safety net to go ahead. In addition to stepping up the level of peer review. EU leaders agreed to develop a scoreboard "to better assess competitiveness developments and imbalances" and allow for an early detection of unsustainable or dangerous trends. 18 June: EU Agreement To Impose Tax On Banks And Publish Their “Solvency Tests”. co. the ratings agency cut the rating to Ba1. which is the highest junk-level rating.head of fixed-income strategy at Commerzbank. in Reuters article Slovaks Risk EU Safety Net Delay By Failing To Sign Off. 17 June: Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe's sovereign debt crisis escalating out of control. 17 June: Britain Wins Opt-Out From EU 'Economic Government'. reports EuraisaReview. saying there was "considerable" uncertainty surrounding the timing and impact of support measures on the country's economic growth. Chairman for one of Spain’s largest banks.’ The central bank is preventing a crisis by providing banks with unprecedented funding. Slovakia’s rejection could jeopardise European finance ministers’ plan for the facility to be operational by the end of June. amid political wrangling. the final agreement at the summit adds that this will "take account of national budgetary procedures" . IMF Say Greece Completing Deficit-Cutting Plan. a level that reflects Moody's analysis of the balance of strengths and risks associated with a joint support package from the European Union and International Monetary Fund. 14 June: Moody's Investors Service slashed Greece's government-bond ratings by four notches to "junk" territory. said that the current environment for banks and corporations was “definitely a problem”. 18 June: Slovak incoming Premier undecided on EU EFSF Fund reports Martin Santa. In addition. As Spain wrestles to contain its budget deficit which in turn is leading to a drop in bond market values. 17 June: Spain May Be the Next Domino to Fall. reports Ambrose Evans-Pritchard of the Telegraph in article ECB Must Buy 'Hundred Of Billions' Of Bonds To Tame Europe's Debt Crisis. said Tuesday that for many of the country’s financial institutions. At the insistence of the UK.’s failure in 2008 … ‘There is a lot of mistrust. writes Ambrose Evans-Pritchard of the Telegraph.satisfying Cameron's desire to provide information to British houses of parliament before sharing budgetary details with Europe. report Andrew Davis and Kevin Costelloe of Bloomberg. . the “international capital markets are closed”.

[145][146] The agreement allows the European Central Bank to start buying government debt which is expected to reduce bond yields. 18 June: At the behest of Spain.[147] (Greek bond yields fell from over 10% to just over 5%. Slovakia’s outgoing Prime Minister Robert Fico said he won’t sign the euro-area rescue fund unless the four parties likely to form a new government approve it. reports EurasiaReview. the eurozone member states. The new entity will sell debt only after an aid request is made by a country.com [edit] EU emergency measures On 9 May 2010 the 27 member states of the European Union agree to create the European Financial Stability Facility (EFSF). it began open market operations buying government and private debt securities. posted on ForexLive. report Radoslav Tomek and Meera Louis in Reuters.[148] Asian bonds also fell with the EU bailout. at a summit of European Union leaders in Brussels yesterday. has failed to impress financial markets. a legal instrument [142] aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. The bonds will be backed by guarantees given by the European Commission representing the whole EU.[149]) The ECB has announced a series measures aimed at reducing volatility in the financial markets and at improving liquidity:[150] • First. The European Commission couldn’t immediately confirm that Slovakia’s signature is necessary. the European Union yesterday took the first material decision at genuine crisis resolution since the start of the financial crisis in August 2007 – with a decision to publish stress tests of the 25 largest banks by July. . called the European Financial Stability Facility. 21 June: Transcript: Trichet’s Introductory Statement Before The EU Parliament Calling For Fiscal And Monetary Reform To Address The European Crisis. the erection of a financial shield. Slovakia was “strongly” asked to support the rescue fund.[144] The EFSF will be combined to a € 60 billion loan coming from the European financial stabilisation mechanism (reliant on guarantees given by the European Commission using the EU budget as collateral) and to a € 250 billion loan backed by the IMF in order to obtain a financial safety net up to € 750 billions. The previous strategy – consisting of ECB bond purchasing programme. potentially throwing a political obstacle in the way of the mechanism. noting that the mechanism will become operational once nations representing 90 percent of the shareholding approve it. and to extend the tests to smaller banks.• • • • 18 June: Slovak Premier Waiting for New Cabinet on EU (EFSF) Fund.[143] In order to reach these goals the Facility is devised in the form of a special purpose vehicle (SPV) that will sell bonds and use the money it raises to make loans up to a maximum of € 440 billions to eurozone nations in need. and the IMF. the prime minister said. The decision became necessary as the financial markets are now beginning to treat the European sovereign debt crisis as a banking crisis. and austerity programme. 18 June: EU Agreement To Impose Tax On Banks And Publish Their “Solvency Tests”.

^ Peter Coy. 3.htm. 2. ^ Stefan Schultz (11 February 2010).[156] before falling to a new four-year low a week later.com/index.00. Thirdly. it announced two 3-month and one 6-month full allotment of Long Term Refinancing Operations (LTRO's). Reuters.businessweek.677214. you have some very serious risks to the global business cycle.• • Second. ^ Bruce Walker (9 April 2010).com/article/idUSLDE61F0W720100216. . all this money is conditional on all these countries doing fiscal adjustment and structural reform. Olli Rehn. 4. "Peripheral euro zone government bond spreads widen".com/magazine/content/10_21/b4179006021713.1518."[163] Nouriel Roubini said 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.[153] Stocks worldwide surged after this announcement as fears that the Greek debt crisis would spread subsided. Spiegel Online.de/international/europe/0.[162] Private sector bankers and economists also warned that the threat from a double dip recession has not faded. http://www. Retrieved 28 April 2010.[161] Despite the moves by the EU.[159] Default swaps also fell. the euro rose as hedge funds and other short-term traders unwound short positions and carry trades in the currency. ^ George Matlock (16 February 2010).html. "Five Threats to the Common Currency".[158] The dollar Libor held at a nine-month high. the European Commissioner for Economic and Financial Affairs.[160] The VIX closed down a record almost 30%.[154] some rose the most in a year or more.[165] [edit] See also • Economy of Greece [edit] References 1.php/world-mainmenu-26/europe-mainmenu35/3274-greek-debt-crisis-worsens. chairman of Morgan Stanley Asia."[164] After initially falling to a four-year low early in the week following the announcement of the EU guarantee packages. called for "absolutely necessary" deficit cuts by the heavily indebted countries of Spain and Portugal. Retrieved 28 April 2010. Retrieved 28 April 2010.reuters.[157] Commodity prices also rose following the announcement. http://www. http://www. warned about this threat saying "When you have a vulnerable post-crisis economic recovery and crises reverberating in the aftermath of that. after a record weekly rise the preceding week that prompted the bailout.[152] Subsequently. it reactivated the dollar swap lines[151] with Federal Reserve support.spiegel. the member banks of the European System of Central Banks started buying government debt. The New American.thenewamerican.[155] The Euro made its biggest gain in 18 months. Stephen Roach. "The Trillion-Dollar Treatment". http://www.

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