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across the globe together with a wave of downgrading of government debt of certain European states. Concerns intensified early 2010 and thereafter making it difficult or impossible for Greece, Ireland and Portugal to re-finance their debts. On 9 May 2010, Europe's Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). In October 2011 eurozone leaders agreed on another package of measures designed to prevent the collapse of member economies. This included an agreement with banks to accept a 50% 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 suggested to create a common fiscal union across the eurozone with strict and enforceable rules embedded in the EU treaties. While the sovereign debt increases have been most pronounced in only a few eurozone countries, they have become a perceived problem for the area as a whole. Nevertheless, the European currency has remained stable, trading even slightly higher against the Euro bloc's major trading partners than at the beginning of the crisis. The three most affected countries, Greece, Ireland and Portugal, collectively account for six percent of eurozone's gross domestic product (GDP).
1 Causes o 1.1 Rising government debt levels o 1.2 Trade imbalances o 1.3 Loss of confidence o 1.4 Rating agency views 2 Evolution of the crisis o 2.1 Greece o 2.2 Spread beyond Greece 2.2.1 Ireland 2.2.2 Portugal 2.2.3 Italy 2.2.4 Spain 2.2.5 Belgium 2.2.6 France o 2.3 Other European countries 2.3.1 United Kingdom 2.3.2 Iceland 2.3.3 Switzerland 3 Solutions o 3.1 EU emergency measures 3.1.1 European Financial Stability Facility (EFSF) 3.1.2 European Financial Stabilisation Mechanism (EFSM)
3.1.3 Brussels agreement 3.2 ECB interventions 3.3 Reform and recovery 4 Proposed long-term solutions o 4.1 European fiscal union o 4.2 Eurobonds o 4.3 European Stability Mechanism o 4.4 Address current account imbalances o 4.5 European Monetary Fund o 4.6 Speculation of the breakup of the Eurozone 5 Controversies o 5.1 Breaking of the EU treaties o 5.2 Actors fueling the crisis 5.2.1 Credit rating agencies 5.2.2 Media 5.2.3 Speculators o 5.3 Doubts about effectiveness of non-Keynesian policies o 5.4 Odious debt o 5.5 National statistics o 5.6 Finland collateral 6 Political impact 7 See also 8 References 9 External links o o
Public debt $ and %GDP (2010) for selected European countries The European sovereign debt crisis has been created by a combination of complex factors such as: the globalization of finance; easy credit conditions during the 2002-2008 period that
 Rising government debt levels . the global pool of fixed income securities increased from approximately $36 trillion in 2000 to $70 trillion by 2007. the government increased its commitments to public workers in the form of extremely generous pay and pension benefits. Ireland's government and taxpayers assumed private debts. In Greece. Since multiple CDS can be purchased on the same security. This is referred to as financial contagion. creating debts to global investors ("external debts") several times larger than its national GDP. Iceland's banking system grew enormously. generating a massive property bubble. During this time. When the bubble burst. This "Giant Pool of Money" increased as savings from high-growth developing nations entered global capital markets. the banking systems of creditor nations face losses. Further creating interconnection is the concept of debt protection. which creates another type of uncertainty. Although some financial institutions clearly profited from the growing Greek government debt in the short run. fiscal policy choices related to government revenues and expenses. the value of money changing hands can be many times larger than the amount of debt itself.encouraged high-risk lending and borrowing practices.. housing and commercial property) to decline. Some politicians. real-estate bubbles that have since burst. and approaches used by nations to bailout troubled banking industries and private bondholders. Ireland's banks lent the money to property developers. in October 2011 Italian borrowers owed French banks $366 billion (net). Financial institutions enter into contracts called credit default swaps (CDS) that result in payment or receipt of funds should default occur on a particular debt instrument or security. slow growth economic conditions 2008 and after.g. there was a long lead up to the crisis. generating questions regarding the solvency of governments and their banking systems. the liabilities owed to global investors remain at full price. The interconnection in the global financial system means that if one nation defaults on its sovereign debt or enters into recession that places some of the external private debt at risk as well. For example. generating bubble after bubble across the globe. assuming private debt burdens or socializing losses. For example. which in turn would affect France's creditors and so on. Should Italy be unable to finance itself. The temptation offered by this readily available savings overwhelmed the policy and regulatory control mechanisms in country after country as global fixed income investors searched for yield. notably Angela Merkel. such as a government bond. One narrative describing the causes of the crisis begins with the significant increase in savings available for investment during the 2000-2007 period. the French banking system and economy could come under significant pressure. While these bubbles have burst causing asset prices (e.S. How each European country involved in this crisis borrowed and invested the money varies. international trade imbalances. Investors searching for higher yields than those offered by U. It is unclear what exposure each country's banking system has to CDS. Treasury bonds sought alternatives globally. have sought to attribute some of the blame for the crisis to hedge funds and other speculators stating that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere".
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. Whereas in the same period. high debt levels alone may not explain the crisis. all the worse affected major countries (Greece. under which they pledged to limit their deficit spending and debt levels. Ireland. However." The budget deficit for the euro area as a whole 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. Germany had a considerably worse public debt and fiscal deficit relative to GDP than some of the worse affected Eurozone members like Spain and Ireland. investment banks. the position of the euro area looked "no worse and in some respects. According to The Economist Intelligence Unit. Italy and Spain) had a far worse balance of payments position than Germany. private-sector indebtedness across the euro area as a whole is markedly lower than in the highly leveraged Anglo-Saxon economies. The aftermath of the late-2000s financial crisis and the global economic slowdown led to a further increase of government debt levels of European countries. Moreover.   Loss of confidence . However. rather better than that of the US or the UK.S. including Greece and Italy. were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures. In 1992 members of the European Union signed the Maastricht Treaty.2007. Portugal.Public debt as a percent of GDP (2010). a number of EU member states. He notes that in the run to the crises from 1999.  Trade imbalances Commentators such as Martin Wolf have asserted the root cause of the crisis is imbalances on the balance of payments. The structures were designed by prominent U.
investors have doubts about the possibilities of policy makers to quickly contain the crisis. According to the Economist. 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. The left axis is in basis points.Sovereign credit default swap prices of selected European countries (2010-2011). Since countries that use the Euro as their currency have fewer monetary policy choices (e. Furthermore. a level of 1. Prior to development of the crisis it was assumed by both regulators and banks that sovereign debt from the Euro zone was safe. and possibly other countries'. as opposed to the U. certain solutions require multi-national cooperation. As the crisis developed it became obvious that Greek.S.000 means it costs $1 million to protect $10 million of debt for five years. Federal Reserve. bonds offered substantially more risk. they cannot print money in their own currencies to pay debt holders). Further. Banks had substantial holdings of bonds from weaker economies such as Greece which offered a small premium and seemingly were equally sound. the crisis "is as much political as economic" and the . the European Central Bank has an inflation control mandate but not an employment mandate.. which has a dual mandate.g.
Frightened investors demanded higher interest rates from several governments with higher debt levels or deficits.. Especially in countries where government budget deficits and sovereign debts have increased sharply. longer term. 4) High levels of government and household indebtedness across a large area of the eurozone. and fiscal convergence among eurozone members. This in turn makes it difficult for governments to finance further budget deficits and service existing high debt levels.result of the fact that the euro area is not supported by the institutional paraphernalia (and mutual bonds of solidarity) of a state. Elected officials have focused on austerity measures (e. higher taxes and lower expenses) contributing to social unrest and significant debate among economists. 3) Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and. how to ensure greater economic. financial."  Evolution of the crisis In the first weeks of 2010. Portugal and Greece.g. Germany was estimated to have made more than €9 billion out of the crisis as investors flock to safer but near zero interest rate bunds. most importantly Germany. S&P wrote this was due to "systemic stresses from five interrelated factors: 1) Tightening credit conditions across the eurozone. Currently. there was renewed anxiety about excessive national debt. By the end of 2011. but we now assign a 40% probability of a fall in output for the eurozone as a whole.  Rating agency views S&P placed its long-term sovereign ratings on 15 members of the European Economic and Monetary Union (EMU or eurozone) on "CreditWatch" with negative implications on December 5. a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU member states. 2011. we expect output to decline next year in countries such as Spain. 2) Markedly higher risk premiums on a growing number of eurozone sovereigns including some that are currently rated 'AAA'. many of whom advocate greater deficits when economies are struggling.  Greece Main article: Greek government debt crisis . and 5) The rising risk of economic recession in the eurozone as a whole in 2012.
even as the reality of economics suggested the Euro was in danger. Greece's economy was strong and the government took advantage by running a large deficit. In early 2010. the country's debt began to pile up rapidly. in the event of default. The initial size of the loan package was €45 billion ($61 billion) and its first installment covered €8. investors would lose 30–50% of their money. Standard & Poor's estimates that. In the early-mid 2000s.Greece's debt percentage between 1999 and 2010 compared to the average of the Eurozone. the Greek government requested that the EU/IMF bailout package (made of relatively high-interest loans) be activated. EU politicians in Brussels have long turned a blind eye and gave Greece a fairly clean bill of health.5 billion of Greek bonds that became due for repayment. partly due to high defense spending amid historic enmity to Turkey. policy makers suggested that emergency bailouts might be necessary. as concerns about Greece's national debt grew. As a result. As the world economy cooled in the late 2000s.3% in the secondary market. Stock markets worldwide and the Euro currency declined in response to this announcement. The IMF had said it was "prepared to move expeditiously on this request". Greece was hit especially hard because its main industries—shipping and tourism—were especially sensitive to changes in the business cycle. The yield of the Greek two-year bond reached 15. Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "junk" status amid fears of default. On 27 April 2010. On 23 April 2010. .
which is seen by certain analysts as more difficult to sustain. the last remaining holdout. . etc. a national strike was held in opposition to the planned spending cuts and tax increases. Nevertheless. a €78 billion bail-out for Portugal in May 2011. regardless of the nation's credit rating. the Eurozone countries and the International Monetary Fund agreed to a €110 billion loan for Greece. Greece. Italy and Belgium's creditors are mainly domestic institutions. because they lack the ability to repay adequately due to their low growth rate. killing three people. and Spain have a 'credibility problem'. a series of austerity measures was proposed. Protest on that date was widespread and turned violent in Athens. Japan. less FDI.Former Prime Minister George Papandreou and European Commission President José Manuel Barroso after their meeting in Brussels on 20 June 2011. The November 2010 revisions of 2009 deficit and debt levels made accomplishment of the 2010 targets even harder. but Greece and Portugal have a higher percent of their debt in the hands of foreign creditors. The proposal helped persuade Germany. On 5 May. then continuing efforts to meet the continuing crisis in Greece and other countries. The Greek bail-out was followed by a €85 billion rescue package for Ireland in November. This was followed by an announcement of the ECB on 3 May that it will still accept as collateral all outstanding and new debt instruments issued or guaranteed by the Greek government. €110 billion EU/IMF loan package over three years for Greece (retaining a relatively high interest of 5% for the main part of the loans. high deficit. to sign on to a larger. Portugal. provided by the EU). On 1 May 2010. and indications signal a recession harsher than originally feared. credit rating agencies downgraded Greek governmental bonds to junk status. On 2 May 2010. conditional on the implementation of harsh austerity measures.
8% decline in 2011 but a . without which Greece would have had to default on loan repayments due in mid-July. The crisis sent ripples around the world. Greece even expects a primary surplus in 2012 of 1. the lowest in the world. With this new package it is projected that there will be a 3. Economists who favor this approach to solve the Greek debt crisis typically argue that a delay in organising an orderly default would wind up hurting EU lenders and neighboring European countries even more.5%. At an extraordinary summit on 21 July 2011 in Brussels the euro area leaders agreed to lower the interest rates of EU loans to Greece to 3. Some believe that this will cause more debt for Greece. In late June 2011. The Greek people generally reject the austerity measures.In May 2011. Excluding interest payments. On 13 June 2011. Greece's government proposed additional spending cuts worth €28 billion (£25bn) over five years. This adjustment program hoped to reestablish the access to private capital markets by 2012. the new interim national union government led by Lucas Papademos submitted its plans for the 2012 budget.  Spread beyond Greece . The next 12 billion euros from the Eurozone bail-out package will be released when the proposal is passed. The aim of the haircut is to reduce Greece's debt to 120% of GDP by 2020. mostly due to a write-off of debt held by banks. In July 2011 there was a new package instilled in which an extra €109 billion in support of Greece which included a large privatization effort.4% in 2012. promising to cut its deficit from 9% of GDP 2011 to 5. Some experts argue the best option for Greece and the rest of the EU should be to engineer an ―orderly default‖ on Greece’s public debt which would allow Athens to withdraw simultaneously from the eurozone and reintroduce its national currency the drachma at a debased rate. Standard and Poor's downgraded Greece's sovereign debt rating to CCC.5% increase in 2013. following the findings of a bilateral EU-IMF audit which called for further austerity measures. However it was soon found that this process would take longer than expected. and asked for a vote of confidence in the parliament. Eurozone leaders and the IMF came to an agreement with banks to accept a 50% write-off of (some part of) Greek debt. On 7 December 2011. the equivalent of €100 billion. Prime Minister George Papandreou proposed a re-shuffled cabinet. After the major political parties failed to reach consensus on the necessary measures to qualify for a further bailout package. following with a 3. and have expressed their dissatisfaction through angry street protests. Greece’s first adjustment plan was launched in March 2010 with €80 billion in support from the European governments and €30 billion from the IMF. Greek public debt gained prominence as a matter of concern.6% growth in 2012.4%. where it will eventually plateau in 2015 at 6.1%. In the early hours of 27 October 2011. with major stock exchanges exhibiting losses. and amidst riots and a general strike.
Greece. 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. The data is taken from Eurostat. One of the central concerns prior to the bailout was that the crisis could spread beyond Greece.4% of GDP. Ireland. Spain with 9.2%. Germany. the EU and the eurozone for 2009. Greece.A graph showing the economic data from Portugal. Spain and the UK against the Eurozone and the United States (2001-2011). Italy. Spain." . and Portugal at 9. France. Portugal. The government surplus or deficit of Belgium. Hungary. Iceland.1% are most at risk. United Kingdom. Italy. with a government deficit in 2010 of 32. Ireland. The crisis has reduced confidence in other European economies.
On 29 September 2008 the Finance Minister Brian Lenihan. and Japan has ¥213 trillion of government bonds to roll over. The economy collapsed during 2008.7 trillion more Treasury securities in this period. and it remarked: "We're very . Jnr issued a one-year guarantee to the banks' depositors and bond-holders. shifting the losses and debt to its taxpayers. the OECD forecasts $16 trillion will be raised in government bonds among its 30 member countries. following a marked increase in Irish 2-year bond yields. In May 2010 the European Commissioner for Economic and Financial Affairs. Irish banks had lost an estimated 100 billion euros. The December 2009 hidden loans controversy within Anglo Irish Bank had led to the resignations of three executives.6 trillion. have had fraught moments as investors shunned bond auctions due to concerns about public finances and the economy.86 including chief executive Seán FitzPatrick. In April 2010. in 2008. Ireland's NTMA state debt agency said that it had "no major refinancing obligations" in 2010. Ireland could have guaranteed bank deposits and let private bondholders who had invested in the banks face losses. but from the state guaranteeing the six main Irish-based banks who had financed a property bubble. Its requirement for €20 billion in 2010 was matched by a €23 billion cash balance. He renewed it for another year in September 2009 soon after the launch of the National Asset Management Agency (NAMA). Germany and the UK. despite draconian austerity measures. Olli Rehn. The Anglo Irish Bank Corporation Act 2009 was passed to nationalise Anglo Irish Bank was voted through Dáil Éireann and passed through Seanad Éireann without a vote on 20 January 2009. For 2010. using loans from the bank. Unemployment rose from 4% in 2006 to 14% by 2010. while the federal budget went from a surplus in 2007 to a deficit of 32% GDP in 2010. much of it related to defaulted loans to property developers and homeowners made in the midst of the property bubble. the highest in the history of the euro zone. Greece has been the notable example of an industrialised country that has faced difficulties in the markets because of rising debt levels. A mysterious "Golden Circle" of ten businessmen are being investigated over shares they purchased in Anglo Irish Bank. a body designed to remove bad loans from the six banks. confirming the bank's nationalisation. which burst around 2007.Financing needs for the eurozone in 2010 come to a total of €1. According to British economist and historian Niall Ferguson similarities between the U. called for "absolutely necessary" deficit cuts by the heavily indebted countries of Spain and Portugal. while the US is expected to issue US$1. and Greece should not be dismissed. President Mary McAleese then signed the bill at Áras an Uachtaráin the following day.  Ireland Main article: 2008–2011 Irish financial crisis The Irish sovereign debt crisis was not based on government over-spending.S. but instead borrowed money from the ECB to pay these bondholders. NAMA purchased over 80 billion euros in bad loans from the banks as the mechanism for this transfer. Even countries such as the US.
Denmark and Sweden. the democratic Portuguese Republic governments have 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. Moody's downgraded the banks' debt to junk status. the government received €85 billion. the European Financial Stability Facility. of which €34 billion were used to support the country's ailing financial sector. exports.comfortably circumstanced". In the first quarter of 2010. As a result of the improved economic outlook. the cost of 10-year government bonds. in the New York Times article "Portugal's Unnecessary Bailout". According to the Centre for Economics and Business Research Ireland's export-led recovery "will gradually pull its economy out of its trough". and so the government started negotiations with the EU. is expected to fall further to 4 per cent by 2015. entrepreneurial innovation and high-school achievement. The Euro Plus Monitor report from November 2011 attests to Ireland's vast progress in dealing with its financial crisis. rating agencies and speculators. This allowed considerable slippage in state-managed public works and inflated top management and head officer bonuses and wages. From the perspective of Portugal's industrial orders. .5 billion issue that was three times oversubscribed. which has already fallen substantially since mid July 2011 (see the graph "Long-term Interest Rates"). and later it was incapable of doing anything to improve the situation when the country was on the verge of bankruptcy by 2011. Portugal had one of the best rates of economic recovery in the EU. In April 2011. By September 2010 the banks could not raise finance and the bank guarantee was renewed for a third year. The bailout loan will be equally split between the European Financial Stabilisation Mechanism. Risky credit.5 billion coming from Ireland's own reserves and pensions. This had a negative impact on Irish government bonds. Together with additional €17. expecting the country to stand on its own feet again and finance itself without any external support from the second half of 2012 onwards. government help for the banks rose to 32% of GDP. demonstrated that in the period between the Carnation Revolution in 1974 and 2010. On 16 May 2011 the Eurozone leaders officially approved a €78 billion bailout package for Portugal. and European structural and cohesion funds were mismanaged across almost four decades. In February the government lost the ensuing Irish general election. despite all the measures taken. points out that Portugal fell victim to successive waves of speculation by pressure from bond traders. On 18 May the NTMA tested the market and sold a €1. 2011. public debt creation. before markets pressure. Persistent and lasting recruitment policies boosted the number of redundant public servants. In return the government agreed to reduce its budget deficit to below three percent by 2015. and the International Monetary Fund. Robert Fishman.5 billion "bailout" agreement of 29 November 2010.  Portugal A report released in January 2011 by the Diário de Notícias and published in Portugal by Gradiva. The Prime Minister Sócrates's cabinet was not able to forecast or prevent this in 2005. the country matched or even surpassed its neighbors in Western Europe. the IMF and three nations: the United Kingdom. resulting in a €67.
a two-year increase in the retirement age to 67 by 2026. Italy even has a surplus in its primary budget. Portugal agreed to eliminate its golden share in Portugal Telecom to pave the way for privatization. the public debt of Italy has a longer maturity and a big share of it is held domestically. Spain's government announced new austerity measures designed to further reduce the country's budget deficit. On 15 July and 14 September 2011. However. On 6 July 2011 it was confirmed that the ratings agency Moody's had cut Portugal's credit rating to junk status. climbing above the 7 percent level where the country is thought to lose access to financial markets. $2.4 trillion in 2010) and economic growth was lower than the EU average for over a decade.K. As one of the largest eurozone economies the condition of Spain's economy is of particular concern to international observers.  Italy Italy's deficit of 4.1% As part of the bailout. after Ireland and Greece. Italian 10-year borrowing costs fell sharply from 7.2% of GDP in 2009 to 9. which excludes debt interest payments. On 11 November 2011. To build up additional trust in the financial markets.5 to 6. the IMF. The measures include a pledge to raise €15 billion from real-estate sales over the next three years.3 percent and less than that of the U. The Spanish government had hoped to avoid such deep cuts. but weak economic growth as well as domestic and international pressure forced the government to expand on cuts already announced in January.7 percent after Italian legislature approved further austerity measures and the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi. by 8 November 2011 the Italian bond yield was 6.S.According to the Portuguese finance minister. The interim government expected to put the new laws into practice is led by former European Union Competition Commissioner Mario Monti.74 percent for 10-year bonds. and France. This has led investors to view Italian bonds more and more as a risky asset. Italy's government passed austerity measures meant to save €124 billion.  Spain Main article: 2008–2011 Spanish financial crisis Shortly after the announcement of the EU's new "emergency fund" for eurozone countries in early May 2010. Portugal became the third Eurozone country. ranking better than France and Belgium. On the other hand. Overall this makes the country more resilient to financial shocks. Nonetheless.6 percent of GDP in 2010 was similar to Germany’s at 4. the average interest rate on the bailout loan is expected to be 5. Moody's also launched speculation that Portugal may follow Greece in requesting a second bailout. and faced pressure from the United States. to receive a bailout package. other European countries and the European Commission to cut its deficit more aggressively. the government . Spain succeeded in trimming its deficit from 11. opening up closed professions within 12 months and a gradual reduction in government ownership of local services. its debt has increased to almost 120 percent of GDP (U.2% in 2010 and around 6% in 2011.
Germany (83%). However the government deficit of 5% was relatively modest and Belgian government 10-year bond yields in November 2010 of 3.  Other European countries  United Kingdom According to the Financial Policy Committee "Any associated disruption to bank funding markets could spill over to UK banks.8% of GDP by 2012. Shortly after Belgian negotiating parties reached an agreement to form a new government. Following the announcement Belgium 10-year bond yields fell sharply to 4.7% were still below those of Ireland (9.Spain's public debt was approximately U.D. thought exceptions would be made in case of a natural catastrophe.  Belgium Main article: 2008–2009 Belgian financial crisis In 2010. Portugal (93%). and to balance the books in 2015. After inconclusive elections in June 2010. 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.S.1 trillion and 83% GDP. By 16 November 2011. Portugal (7%) and Spain (5.1% in 2010) is significantly lower than that of Greece (143%). Spain's public debt relative to GDP (60. France's bond yield spreads vs. Belgium's long-term sovereign credit rating was downgraded from AA+ to AA by Standard and Poor and 10-year bond yields reached 5. making it less prone to fluctuations of international credit markets. contract value rose 300% in the same period.66%.S.2%). France's C. and Ireland combined. 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. $2. The deal includes spending cuts and tax rises worth about €11 billion. $820 billion in 2010. Nevertheless on 25 November 2011. the Belgian Government financed the deficit from mainly domestic savings.amended the Spanish Constitution in 2011 to require a balanced budget at both the national and regional level by 2020.2%).  France France's public debt in 2010 was approximately U. 2011. Furthermore. which should bring the budget deficit down to 2. The amendment states that public debt can not exceed 60% of GDP. Germany had widened 450% since July. Portugal. Ireland (96%).S. economic recession or other emergencies.6%. France (82%) and the United Kingdom (80%). with a 2010 budget deficit of 7% GDP. thanks to Belgium's high personal savings rate. roughly the level of Greece. Financial analysts forecast that Belgium would be the next country to be hit by the financial crisis as Belgium's borrowing costs rose. Italy (119%)." Bank of England governor Mervyn King declared that .
the Swiss National Bank weakened the Swiss franc to a floor of 1. The effort has been made more difficult by a more sluggish recovery than earlier expected. they jointly owed over 10 times Iceland's GDP. the government has been able to reduce the size of deficits each year. credit default swaps on Icelandic sovereign debt have steadily declined from over 1000 points prior to the crash in 2008 to around 200 points in June 2011.the UK is very much at risk from a domino-fall of defaults and called on banks to build up more capital when financial conditions allowed. however. Landsbanki and Kaupthing. The foreign operations of the banks. harming Swiss exporters. In large part this is due to the success of an IMF Stand-By Arrangement in the country since November 2008. went into receivership. Capital controls were also enacted and the work began to resurrect a sharply downsized domestic banking system on the ruins of its gargantuan international banking system. with two of the three biggest banks now in foreign hands. As a result. on 9 June 2011. Further. the country has not been seriously affected by the European sovereign debt crisis from 2010. central government debts have been stabilised at around 80–90 percent of GDP. The franc has been appreciating against the euro during the crisis. The SNB surprised currency traders by pledging that "it will no longer tolerate a euro- . based on expenditure cuts and broad based and significant tax hikes. the Icelandic government successfully raised $1 billion with a bond issue indicating that international investors are viewing positively the efforts of the government to consolidate the public finances and restructure the banking system. Glitnir.20 francs per euro.  Iceland Main article: 2008–2011 Icelandic financial crisis The Icelandic stock market (OMX) from 1998 till the crisis hit in October 2008 Iceland suffered the failure of its banking system and a subsequent economic crisis. Despite a contentious debate with Britain and the Netherlands over the question of a state guarantee on the Icesave deposits of Landsbanki in these countries. The Financial Supervisory Authority of Iceland used permission granted by the emergency legislation to take over the domestic operations of the three largest banks. Before the crash of the three largest commercial banks in Iceland.  Switzerland In September 2011. The government has enacted a program of medium term fiscal consolidation. which the government was unable to bail out. As a result. the Icelandic parliament passed emergency legislation to minimise the impact of the financial crisis. In October 2008. After a sharp increase in public debts due to the banking failures.
 The dollar Libor held at a nine-month high.  Solutions  EU emergency measures  European Financial Stability Facility (EFSF) Main article: European Financial Stability Facility On 9 May 2010. Shortly after the euro rose again as hedge funds and other shortterm traders unwound short positions and carry trades in the currency. The agreement is interpreted to allow the ECB to start buying government debt from the secondary market which is expected to reduce bond yields. and this led to some stocks rising to the highest level in a year or more. 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 . On November 29. 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. before falling to a new four-year low a week later. As a result Greek bond yields fell sharply from over 10% to just over 5%. Asian bonds yields also fell with the EU bailout.billion from the International Monetary Fund (IMF) to obtain a financial safety net up to €750 billion.20 francs. The Euro made its biggest gain in 18 months. 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. a legal instrument aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. recapitalize banks or buy sovereign debt. Commodity prices also rose following the announcement. after a record weekly rise the preceding week that prompted the bailout. the 27 EU member states agreed to create the European Financial Stability Facility. Reception by financial markets Stocks surged worldwide after the EU announced the EFSF's creation." This is the biggest Swiss intervention since 1978.) Usage of EFSF funds . The Facility eased fears that the Greek debt crisis would spread. Default swaps also fell. The VIX closed down a record almost 30%. 2011 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 and to create investment vehicles that would boost the EFSF’s firepower to intervene in primary and secondary bond markets.franc exchange rate below the minimum rate of 1.
upsetting financial markets. Moody's and Standard & Poor's. In November 2010.5 billion rescue package for Ireland (the rest was loaned from individual European countries. As of end of December 2011. it financed €17. . which will start operating in July 2012. a fourfold increase (to about €1 trillion) in bailout funds held under the European Financial Stability Facility.7 billion of the total €67. the EU successfully placed in the capital markets a €5 billion issue of bonds as part of the financial support package agreed for Ireland. 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. This leaves the EFSF with €250 billion or an equivalent of €750 billion in leveraged firepower. has the authority to raise up to €60 billion and is rated AAA by Fitch. it is planned to also shift the loan for Greece to the EFSF. In the future. backed by all 27 European Union members. Like the EFSF also the EFSM will be replaced by the permanent rescue funding programme ESM.  European Financial Stabilisation Mechanism (EFSM) On 5 January 2011. the European Union created the European Financial Stabilisation Mechanism (EFSM). running one year parallel to the permanent €500 billion rescue funding program called European Stability Mechanism (ESM). José Manuel Barroso characterised the package as a set of "exceptional measures for exceptional times". the European Commission and the IMF). which according to EU diplomats would amount to about €80 billion. Also pledged was €35 billion in "credit enhancement" to mitigate losses likely to be suffered by European banks. this is more than enough to finance the debt rollovers of all flagging European countries until end of 2012. 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. The Commission fund. it has been activated two times. According to German newspaper Sueddeutsche. Under the EFSM.59%. leaders of the 17 Eurozone countries met in Brussels and agreed on a 50% write-off of Greek sovereign debt held by banks. at a borrowing cost for the EFSM of 2.  Brussels agreement On 26 October 2011. 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. which is due to be launched in July 2012. an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral. In May 2011 it contributed one third of the €78 billion package for Portugal in May 2011. in case necessary. On 3 November 2011 the promised Greek referendum on the bailout package was withdrawn by Prime Minister Papandreou.The EFSF only raises funds after an aid request is made by a country. The EFSF is set to expire in 2013.
making it difficult for the government to raise money on capital markets. the former Deutsche Bundesbank president. a level that Rabobank economist Elwin de Groot believes to be a ―natural limit‖ the ECB can sterilize. writing in November 2011: "Europe's core problem [is] a lack of growth. No debt restructuring will work if it stays stagnant for another decade. increasing deficits and debt levels. Now they face pressures from three fronts: demography (an aging population). it would reach €300 billion by mid-January... though it simultaneously absorbed the same amount of liquidity to prevent a rise in inflation. Weber was replaced by his Bundesbank successor Jens Weidmann and "[l]eaders in Berlin plan to push for a German successor to Stark as well. which critics say erode the bank’s independence". The ECB has also changed its policy regarding the necessary credit rating for loan deposits.The fact is that Western economies . news reports said". generous middle-class subsidies and complex regulations and taxes . Second. ECB interventions The European Central Bank (ECB) has taken a series of measures aimed at reducing volatility in the financial markets and at improving liquidity: First. If the ECB maintains its average rate of €11 billion additional purchases per week. Jürgen Stark became the second German after Axel A. it announced two 3-month and one 6-month full allotment of Long Term Refinancing Operations (LTRO's). The moved took some pressure of Greek government bonds.have become sclerotic. He and Stark were both thought to have resigned due to "unhappiness with the ECB’s bond purchases. 2011. Weber. In September. On 3 May 2010 the ECB announced it will accept as collateral all outstanding and new debt instruments issued or guaranteed by the Greek government.with high wages.. it reactivated the dollar swap lines with Federal Reserve support. Fareed Zakaria described the factors slowing growth in the Euro zone.Italy's economy has not grown for an entire decade. reaching €200 billion by end of November 2011. the member banks of the European System of Central Banks started buying government debt. Subsequently. Thirdly. Weber to resign from the ECB Governing Council in 2011. technology (which has allowed companies to do much more with fewer people) and globalization (which has . regardless of the nation's credit rating. it began open market operations buying government and private debt securities.. which had just been downgraded to junk status.  Reform and recovery See also: Euro Plus Pact Slow GDP growth rates correspond to slower growth in tax revenues and higher safety net spending. Stark was "probably the most hawkish" member of the council when he resigned. was once thought to be a likely successor to Jean-Claude Trichet as bank president.
Debt breaks applied across the eurozone would imply much tighter fiscal discipline than the bloc’s existing rules requiring deficits of less than 3 per cent of GDP.] are now making the greatest progress towards restoring their fiscal balance and external competitiveness". Strong European Commission oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it infringe the sovereignty of eurozone member states. Ireland and Spain are among the top five reformers and Portugal is ranked seventh among 17 countries included in the report. German chancellor Angela Merkel also insisted that the European commission and the European court of justice must play an "important role" in ensuring that countries meet their obligations. According to the report most critical eurozone member countries are in the process of rapid reforms. . On 9 December 2011 at the European Council meeting. all 17 members of the euro zone and six countries that aspire to join agreed on a new intergovernmental treaty to put strict caps on government spending and borrowing. All other non-eurozone countries except Great Britain are also prepared to join in. Greece and other countries. Germany had pressured other member states to adopt a balanced budget law to achieve a clear cap on new debt.  Proposed long-term solutions  European fiscal union Angel Ubide from the Peterson Institute for International Economics suggested that long term stability in the eurozone requires a common fiscal policy rather than controls on portfolio investment. strict budgetary discipline and balanced budgets. By the end of 2011.allowed manufacturing and services to locate across the world). Germany. Originally EU leaders planned to change existing EU treaties but this was blocked by British prime minister David Cameron. Greece. subject to parliamentary vote. would therefore also lose control over domestic fiscal policy. 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. in addition to having already lost control over monetary policy and foreign exchange policy since the euro came into being. The authors note that "Many of those countries most in need to adjust [. including the proposed EU financial transaction tax." He advocated lower wages and steps to bring in more foreign capital investment. In March 2011 a new reform of the Stability and Growth Pact was initiated. 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. In exchange for cheaper funding from the EU. Progress On 15 November 2011 the Lisbon Council published the Euro Plus Monitor 2011.. who demanded that the City of London be excluded from future financial regulations. with penalties for those countries who violate the limits..
It would mutualise eurozone debt above 60%. . combining it with a bold debt reduction scheme for countries not on life support from the EFSF. According to this treaty. leader of the liberal ALDE group in the European parliament suggested following a proposal made by the "five wise economists" from the German Council of Economic Experts. rather than EU states. Using the term "stability bonds". jointly issued and underwritten by all 17 members of the currency bloc.  European Stability Mechanism Main article: European Stability Mechanism 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. However. the European Commission suggested that eurobonds issued jointly by the 17 euro nations would be an effective way to tackle the financial crisis. the ESM will be an intergovernmental organisation under public international law and will be located in Luxembourg. Guy Verhofstadt. could substantially raise the country's liabilities in the debt crisis. on the creation of a European collective redemption fund. Germany remains opposed to take over the debt and interest risk of states that have run excessive budget deficits and borrowed excessively over the past years. Jose Manuel Barroso insisted that any such plan would have to be matched by tight fiscal surveillance and economic policy coordination as an essential counterpart so as to avoid moral hazard and ensure sustainable public finances. The German government sees no point in making borrowing easiers for states who have the problem that they borrow so much until they went in a debt crisis. 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. would play 'a central role' in running the ESM. Germany says that Eurobonds. In March 2011. a growing field of investors and economists say it would be the best way of solving the debt crisis. which is widely expected to be discussed at the 9 December EU summit. Eurobonds Main article: Eurobonds On 21 November 2011. The introduction of eurobonds matched by tight financial and budgetary coordination may well require changes in EU treaties. the European Parliament approved the treaty amendment after receiving assurances that the European Commission.
g.. it imports more than it exports) must ultimately be a net importer of capital. this would reduce its trade deficit. A country that runs a large current account or trade deficit (i. Spain. the firewall mechanism can ensure that downstream nations and banking systems are protected by guaranteeing some or all of their obligations. Either way. which runs a large trade deficit (net import position) and therefore is a net borrower of capital from abroad. trade imbalances can be reduced if a country encouraged domestic saving by restricting or penalizing the flow of capital across borders. Germany's large trade surplus (net export position) means that it must either increase its savings reserves or be a net exporter of capital. Ben Bernanke warned of the risks of such imbalances in 2005.. while Germany's trade surplus was $188. It has therefore been suggested that countries with large trade deficits (e. or by raising interest rates. arguing that a "savings glut" in one country with a trade surplus can drive capital into other countries with trade deficits. so devaluation.  Address current account imbalances Regardless of the corrective measures chosen to solve the current predicament. A similar imbalance exists in the U. On the other hand. Then the single default can be managed while limiting financial contagion. For example. In other words. this is a mathematical identity called the balance of payments. The 2009 trade deficits for Italy. such as Germany. Austria and the Netherlands would need to shift their economies more towards domestic services and increase wages to support domestic consumption. A country with a large trade surplus would generally see the value of its currency appreciate relative to other currencies. Greece) consume less and improve their exporting industries. current account imbalances are likely to continue.6bn. a country that imports more than it exports must either decrease its savings reserves or borrow to pay for those imports. Greece.97bn. many of the countries involved in the crisis are on the Euro.6bn respectively. artificially lowering interest rates and creating asset bubbles. which would reduce the imbalance as the relative price of its exports increases. and $25. as long as cross border capital flows remain unregulated in the Euro Area. export driven countries with large trade surplus. The only solution left to raise a country's level of saving is to reduce budget deficits and to change consumption and savings habits. if a country's citizens saved more instead of consuming imports. individual interest rates and capital controls are not available. Alternatively. $75.   European Monetary Fund .96 billion.31bn and $35.e. lending money to other countries to allow them to buy German goods. This currency appreciation occurs as the importing country sells its currency to buy the exporting country's currency used to purchase the goods. Conversely. although this benefit is likely offset by slowing down the economy and increasing government interest payments.S." Instead of a default by one country rippling through the entire interconnected financial system.Such a mechanism serves as a "financial firewall. and Portugal were estimated to be $42.
 Bloomberg suggested in June 2011 that. though it is moving in that direction. or create another currency union with the Netherlands." To ensure fiscal discipline despite the lack of market pressure. and re-adopt national currencies. regain their fiscal sovereignty. The likely substantial fall in the Euro against a newly reconstituted Deutsche Mark would give a "huge boost" to its members' competitiveness. the disbandment of the Eurozone. EMU would prevent effective action by individual countries and put nothing in its place.  Speculation of the breakup of the Eurozone Economists. Ricci of the IMF. Econometric analysis suggests that a stable long-term interest rate of three percent in all eurozone countries would lead to higher nominal GDP growth rates and substantially lower sovereign debt levels by 2015. "Without such an institution. Hans-Olaf Henkel suggested that "southern countries" could retain their competitiveness through a greater tolerance for inflation and corresponding regular devaluations. which could provide governments with fixed interest rate Eurobonds at a rate slightly below medium-term economic growth (in nominal terms). such as Luca A. Norway. Sweden. the Austrian Institute of Economic Research published an article that suggests to transform the EFSF into a European Monetary Fund (EMF). default on their debts. albeit more forcefully. If this is not immediately feasible. The former president of the German Industries. and associated with Modern Monetary Theory and other post-Keynesian schools 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 . providing funds only to countries that meet agreed on fiscal and macroeconomic criteria. they recommended that Greece and the other debtor nations unilaterally leave the Eurozone. Also The Wall Street Journal conjectured that Germany could return to the Deutsche Mark. if the Greek and Irish bailouts should fail. Austria. . contend the Eurozone does not fulfill the necessary criteria for an optimum currency area. mostly from outside Europe.On 20 October 2011. an alternative would be for Germany to leave the eurozone in order to save the currency through depreciation instead of austerity. A monetary union of the mentioned current account surplus countries would create the world's largest creditor bloc that is bigger than China or Japan. compared to the baseline scenario with market based interest levels. banks were also no longer able to unduly benefit from intermediary rents by borrowing from the ECB at low rates and investing in government bonds at high rates. these economists continued to advocate."  Some non-Keynesian economists. the EMF would operate according to strict rules. Since investors would finance governments directly. Switzerland and the Baltics. As the debt crisis expanded beyond Greece. Luxembourg and other European countries such as Denmark. Given the backing of the entire eurozone countries and the ECB "the EMU would achieve a similarly strong position vis-a-vis financial investors as the US where the Fed backs government bonds to an unlimited extent. These bonds would not be tradable but could be held by investors with the EMF and liquidated at any time. Finland.saying that faced with economic problems. Governments that lack sound financial policies would be forced to rely on traditional (national) governmental bonds with less favorable market rates.
The clause thus encourages prudent fiscal policies at the national level. The creation of further leverage in EFSF with access to ECB lending would also appear to break this Article. 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. The Articles 125 and 123 were meant to create disincentive for EU member states to run excessive deficits and state debt.once they are freed of the "straitjacket of Germanic stability phobia". German Chancellor Angela Merkel and French President Nicolas Sarkozy have. however. the EU and Eurozone countries encourage moral hazard also in the future. "lashed out" against the bloc of Germany. Joaquín Almunia. First. the "no bail-out doctrine" seems to be a thing of the past. The European Central Bank purchase of distressed country bonds can be viewed to break the prohibition of monetary financing of budget deficits (Article 123 TFEU). The Wall Street Journal added that without the German-led bloc 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. and prevent the moral hazard of over-spend and lending in good times. 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.  Controversies  Breaking of the EU treaties No bail-out clause The Maastricht Treaty of EU contains juridical language which appears to rule out intra-EU bailouts. By issuing bail out aid guaranteed by the prudent Eurozone taxpayers to rule-breaking Eurozone countries such as Greece. Finland. Nevertheless . Also former ECB president Jean-Claude Trichet denounced the possibility of a return of the deutsche mark and defended the price stability of the euro. on numerous occasions publicly said that they would not allow the Eurozone to disintegrate and have linked the survival of the Euro with that of the entire European Union. They were also meant to protect the taxpayers of the other more prudent member states. saying that expelling weaker countries from the euro was not an option: "Those who think that this hypothesis is possible just do not understand our process of integration". an EU commissioner. Austria. 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. In September 2011. Netherlands. While the no bail-out clause remains in place.
S. European policy makers have criticized ratings agencies for acting in political manner. the market responded to the crisis before the downgrades..have also played a central and controversial role in the current European bond market crisis. accusing the Big Three of bullying politicians by systematically downgrading eurozone countries just before important European Council meetings. European leaders are reportedly studying the possibility of setting up a European ratings agency in order that the private U. According to German consultant company Roland Berger. It is strange that we have so many downgrades in the weeks of summits. which could avoid the conflicts of interest that he claimed US-based agencies faced. On the one hand. Credit-ratings companies have to comply with the new standards or be denied operation on EU territory. setting up a new ratings agency would cost €300 million and could be operating by 2014. including the European Securities and Markets Authority (ESMA). European regulators will be given new powers to supervise ratings agencies. based credit rating agencies – Moody's. the agencies have been accused of giving overly generous ratings due to conflicts of interest. and poorly enforced EU rule on rating agencies (Règlement CE n° 1060/2009) has had little effect on the way financial analysts and economists interpret data or on the potential for conflicts of interests . In the case of Greece.  Actors fueling the crisis  Credit rating agencies The international U. Germany's foreign minister Guido Westerwelle has called for an "independent" European rating agency. unevenly transposed in national law. As one EU source put it: "It is interesting to look at the downgradings and the timings of the downgradings . Standard & Poor's and Fitch  – which have already been under fire during the housing bubble and the Icelandic crisis . Some European financial law and regulation experts have argued that the hastily drafted. which became the EU’s single credit-ratings firm regulator.-based ratings agencies have less influence on developments in European financial markets in the future. 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.. and to take some time to adjust when a firm or country is in trouble. But attempts to regulate more strictly credit rating agencies in the wake of the European sovereign debt crisis have been rather unsuccessful. With the creation of the European Supervisory Authority in January 2011 the EU set up a whole range of new financial regulatory institutions." Counter measures Due to the failures of the ratings agencies.S. On the other hand.the main crisis states Greece and Italy (status November 2011) have exceeded these criteria execessively over a long period of time. says ESMA Chief Steven Maijoor.
talk. such as the U. CNI in Spanish) to investigate the role of the "Anglo-Saxon media" in fomenting the crisis.[original research?] The U.. "This is an attack on the eurozone by certain other interests. from China. There has been considerable controversy about the role of the English-language press in the regard to the bond market crisis. political or financial". The Spanish Prime Minister José Luis Rodríguez Zapatero has suggested that the recent financial market crisis in Europe is an attempt to undermine the euro in order that countries. get involved!) (November 2011) Government deficit of Eurozone compared to USA and OECD. . 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. No results have so far been reported from this investigation. This is not the case in the eurozone which is self funding.S.K. Please help improve this article by checking for inaccuracies. can continue to fund their large external deficits[original research?].K.created by the complex contractual arrangements between credit rating agencies and their clients"  Media This section may contain inappropriate or misinterpreted citations that do not verify the text. which are matched by large government deficits.S. (help.g. and the U. do not have large domestic savings pools to draw on and therefore are dependent on external savings e. Zapatero ordered the Centro Nacional de Inteligencia intelligence service (National Intelligence Center. and U.
Hardt & Co. German chancellor Merkel has stated that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere. In response to accusations that speculators were worsening the problem. rather than increased or frozen spending. triggering a decline that brought the currency below $1. the Euro hit a four year low at $1. Crespi. union leaders have also argued that the working population is being unjustly held responsible for the economic mismanagement errors of economists." Apart from arguments over whether or not austerity.  Doubts about effectiveness of non-Keynesian policies There has been some criticism over the austerity measures implemented by most European nations to counter this debt crisis. while thousands of bankers across the EU have become millionaires despite collapse or nationalization (ultimately paid for by taxpayers) of institutions they worked for during the crisis.19 before it started to rise again. Traders estimate that bets for and against the euro account for a huge part of the daily three trillion dollar global currency market." According to The Wall Street Journal hedge-funds managers launched a concerted attack on the euro in early 2010. Some 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 Italy might prolong and deepen their recessions. is a macroeconomic solution. Green Light Capital Inc. but the entire world. Three days later the euro was hit with a wave of selling.36. all this money is conditional on all these countries doing fiscal adjustment and structural reform. exactly four months after the dinner. Brigade Capital Management LLC and others eventually agreed 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. investors. and bankers. some markets banned naked short selling for a few months. Soros Fund Management LLC. The role of Goldman Sachs in Greek bond yield increases is also under scrutiny.  Odious debt . a fact that has led many to call for additional regulation of the banking sector across not only Europe. 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. 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. Speculators Both the Spanish and Greek Prime Ministers have accused financial speculators and hedge funds of worsening the crisis by short selling euros. Over 23 million EU workers have become unemployed as a consequence of the global economic crisis of 2007–2010. where a small group of hedge-fund managers from SAC Capital Advisors LP. On February 8 the boutique research and brokerage firm Monness.. hosted an exclusive "idea dinner" at a private townhouse in Manhattan. On 8 June.
or a similar deal with Greece. 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. as was the case for Greece. Austria.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. enabling it to participate in the potential new €109 billion support package for the Greek economy. This added a new dimension in the world financial turmoil.    Finland collateral On 18 August 2011. The revision of Greece’s 2009 budget deficit from a forecast of "6–8% of GDP" to 12. 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. However. These have included analyses of examples in several countries     or have focused on Italy.Some protesters. the Netherlands.7% by the new Pasok Government in late 2009 (a number which. after reclassification of expenses under IMF/EU supervision was further raised to 15.         Spain. a number of EU member states. to mask the sizes of public debts and deficits. The main point of contention was that the collateral is aimed to be a cash deposit.  the United States. 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. were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures.    and even Germany. as the issues of "creative accounting" and manipulation of statistics by several nations came into focus. it became apparent that Finland would receive collateral from Greece. Financial reforms within the U.  the United Kingdom. and Slovakia responded with irritation over this special guarantee for Finland and demanded equal treatment across the Eurozone. so as not to increase the risk level over their participation in the bailout. The focus has naturally remained on Greece due to its debt crisis.  National statistics In 1992. members of the European Union signed an agreement known as the Maastricht Treaty. The structures were designed by prominent U. as requested by the Finnish parliament as a condition for any further bailouts. Slovenia. investment banks. including Greece and Italy. under which they pledged to limit their deficit spending and debt levels. however there has been a growing number of reports about manipulated statistics by EU and other nations aiming. a collateral the Greeks can only .S.4% in 2010) has been cited as one of the issues that ignited the Greek debt crisis. potentially undermining investor confidence.
a modified escrow collateral agreement was reached. PM Ivars Godmanis and his government resigned and there were subsequent changes to the constitutional election process.October 2011 . the opposition and other EU governments.November 2010 .The approach to the Portuguese bailout and the EFSF dominated the April 2011 election debate and formation of the subsequent government. with a midOctober vote.Following the failure of June referendums on measures to combat the economic crisis and the departure of coalition partners. the junior party in the coalition government.Following the failure of parliament to adopt the government austerity measures. the Borut Pahor government lost a motion of confidence and December 2011 early elections were set. At the beginning of October. due to i. from within his party.November 2011 . the Green Party set a timelimit on its support for the Cowen Government which set the path to early elections in Feb 2011 Italy .Following market pressure on Government bond prices in response to concerns about levels of debt. as one of the strongest AAA countries.February 2009 .a.  Political impact Handling of the ongoing crisis led to the premature end of a number of European national Governments and impacted the outcome of many elections Finland . . After extensive negotiations to implement a collateral structure open to all Eurozone countries. Latvia . However. which was the immediate issue behind the collateral discussion.give by recycling part of the funds loaned by Finland for the bailout. but the government has been forced to call new elections in exchange.March 2011 .In return for its support for the IMF bailout and consequent austerity budget.Following a severe economic downturn.April 2011 .Following widespread criticism of a referendum proposal on austerity and bailout measures. Greece . on 4 October 2011. PM George Papandreou announced plans for his resignation in favour of a national unity government Ireland . requirement to contribute initial capital to European Stability Mechanism in one installment instead of five installments over time. PM José Sócrates and his government resigned and this led to early elections in June 2011 Slovakia .November 2011 . which means Finland and the other Eurozone countries guarantee the Finnish loans in the event of a Greek default. PM Iveta Radičová had to concede early elections in March 2012 Slovenia . can raise the required capital with relative ease. as of 10 October. On 13 October 2011 Slovakia approved Euro bailout expansion. the Government of Silvio Berlusconi lost its majority and his impending resignation was announced by the President. Finland.September 2011 . Slovakia and Netherlands were the last countries to vote on the EFSF expansion. riots and criticism of the Governments handling of the crisis.In return for the approval of the EFSF by her coalition partners. Slovakia's government was still deeply split over the issue. The expectation is that only Finland will utilise it. Portugal .
 See also 2000s European sovereign debt crisis timeline 2000s commodities boom Crisis situations and protests in Europe since 2000 FRED (Federal Reserve Economic Data) List of countries by credit rating Late-2000s recession in Europe .