Controversies surrounding the eurozone crisis: Difference between revisions - Wikipedia

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{{~~external~~mergeto|European debt ~~links~~crisis|date=~~July~~August ~~2013~~2024}}

[[File:Long-term interest rates of eurozone countries since 1993.png|thumb|upright=1.35|alt=Convergence and spread of interest rates in Eurozone countries since 1993|Spread of interest rates in Eurozone countries]]

The '''~~Eurozone~~eurozone crisis''' is an ongoing [[European sovereign-debt crisis|financial crisis]] that has made it difficult or impossible for some countries in the [[euro area]] to repay or [[Refinance|re-finance]] their [[government debt]] without the assistance of third parties.

[[File:Public Debt and Debt to GDP- 2010.png|thumb|upright=1.35|alt=Public Debt and Debt to GDP in 2010|Public debt $ and %GDP (2010) for selected European countries]]

[[File:BruttostaatsschuldenEuroEngl.png|thumb|upright=1.35|alt=Government debt compared to Eurozone GDP|[[Government debt]] of Eurozone, Germany and crisis countries compared to Eurozone GDP]]

The European sovereign debt crisis resulted from a combination of complex factors, including the [[Financialization|globalization of finance]]; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the [[financial crisis of 2007–08]]; international trade imbalances; [[Real estate bubble|real-estate bubbles]] that have since burst; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.

<ref name="Lewis 2011">{{cite book| last = Lewis| first = Michael| year = 2011| title = Boomerang: Travels in the New Third World | publisher = Norton | isbn = 978-0-393-08181-7| title-link = Boomerang: Travels in the New Third World}}</ref><ref>{{cite news |title=Touring the Ruins of the Old Economy |first=Michael |last=Lewis |url=https://www.nytimes.com/2011/09/27/books/boomerang-by-michael-lewis-review.html |newspaper=The New York Times|date=~~2011-09-~~26 September 2011 |access-date=6 June 2012}}</ref>

One narrative describing the causes of the crisis begins with the significant increase in savings available for investment during the 2000–2007 period when the global pool of fixed-income securities increased from approximately $36 trillion in 2000 to $70 trillion by 2007. This "Giant Pool of Money" increased as savings from high-growth developing nations entered global capital markets. Investors searching for higher yields than those offered by [[U.S. Treasury bonds]] sought alternatives globally.<ref>{{cite web|url=http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money |title=NPR-The Giant Pool of Money-May 2008 |date=9 May 2008 |publisher=Thisamericanlife.org |access-date=14 May 2012}}</ref>

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The temptation offered by such readily available savings overwhelmed the policy and regulatory control mechanisms in country after country, as lenders and borrowers put these savings to use, generating [[Economic bubble|bubble]] after bubble across the globe. While these bubbles have burst, causing asset prices (e.g., housing and commercial property) to decline, the liabilities owed to global investors remain at full price, generating questions regarding the [[solvency]] of governments and their banking systems.<ref name="Lewis 2011" />

How each European country involved in this crisis borrowed and invested the money varies. For example, Ireland's banks lent the money to property developers, generating a massive property bubble. When the bubble burst, Ireland's government and taxpayers assumed private debts. In Greece, the government increased its commitments to public workers in the form of extremely generous wage and pension benefits, with the former doubling in real terms over 10 years.<ref name="npr.org">{{cite web|author=Heard on Fresh Air from WHYY |url=https://www.npr.org/templates/transcript/transcript.php?storyId=140948138 |title=NPR-Michael Lewis-How the Financial Crisis Created a New Third World-October 2011 |publisher=Npr.org |date=4 October 2011~~-10-04~~ |access-date=7 July 2012}}</ref> Iceland's banking system grew enormously, creating debts to global investors ([[external debt]]s) several times [[GDP]].<ref name="Lewis 2011" /><ref>{{cite news|url=https://www.vanityfair.com/politics/features/2009/04/iceland200904-2 |title=Wall Street on the Tundra |author=Lewis, Michael |newspaper=Vanity Fair |date=April 2009 |access-date=18 July 2012 |quote=In the end, Icelanders amassed debts amounting to 850 percent of their G.D.P. (The debt-drowned United States has reached just 350 percent.)}}</ref>

The interconnection in the global financial system means that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk, the banking systems of creditor nations face losses. For example, in October 2011, Italian borrowers owed French banks $366 billion (net). Should Italy be unable to finance itself, the French banking system and economy could come under significant pressure, which in turn would affect France's creditors and so on.

This is referred to as [[financial contagion]].<ref name="Seth W. Feaster">{{cite news |url=https://www.nytimes.com/imagepages/2011/10/22/opinion/20111023_DATAPOINTS.html?ref=sunday-review |title=NYT-It's All Connected-A Spectators Guide to the Euro Crisis |first1=Seth W. |last1=Feaster |first2=Nelson D. |last2=Schwartz |first3=Tom |last3=Kuntz |newspaper=The New York Times|via=nytimes.com |date=~~2011-10-~~22 October 2011 |access-date=14 May 2012}}</ref><ref>{{cite news |url=https://www.nytimes.com/interactive/2011/10/23/sunday-review/an-overview-of-the-euro-crisis.html?ref=europeansovereigndebtcrisis |title=NYT-It's All Connected-An Overview of the Euro Crisis-October 2011 |author=XAQUÍN, G.V. |first2=Alan |last2=McLean |first3=Archie |last3=Tse |newspaper=The New York Times|date=~~2011-10-~~22 October 2011 |access-date=14 May 2012}}</ref> Another factor contributing to interconnection is the concept of debt protection. Institutions entered into contracts called [[credit default swaps]] (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds).

But, since multiple CDSs can be purchased on the same security, it is unclear what exposure each country's banking system now has to CDS.<ref>{{cite news|url=http://www.economist.com/node/21534851 |title=The Economist-No Big Bazooka-29 October 2011 |newspaper=The Economist|access-date=14 May 2012 |date=29 October 2011}}</ref>

Greece hid its growing debt and deceived EU officials with the help of derivatives designed by major banks.<ref name="NYT-wallhelp" /><ref>{{cite web|url=http://www.businessweek.com/news/2010-02-23/merkel-slams-euro-speculation-warns-of-resentment-update1-.html|archive-url=https://web.archive.org/web/20100226183655/http://www.businessweek.com/news/2010-02-23/merkel-slams-euro-speculation-warns-of-resentment-update1-.html|url-status=dead|archive-date=26 February 2010|title=Merkel Slams Euro Speculation, Warns of 'Resentment' (Update 1)|work=BusinessWeek |date=23 February 2010|access-date=28 April 2010}}</ref><ref>{{cite news|first=Laurence|last=Knight|url=https://www.bbc.co.uk/news/business-12040913|title=Europe's Eastern Periphery|publisher=BBC |date=22 December 2010|access-date=17 May 2011}}</ref><ref>{{cite web|url=http://www.investopedia.com/terms/p/piigs.asp|title=PIIGS Definition|publisher=investopedia.com|access-date=17 May 2011}}</ref><ref>{{cite web|url=http://www.dw-world.de/dw/article/0,,5515912,00.html|title=Europe's next bankruptcy candidates?|publisher=dw-world.com|first=Bernd|last=Riegert|access-date=17 May 2011}}</ref><ref>{{cite web|url=http://www.skai.gr/news/articles/article/158857/zoodi-enstikta-kai-oikonomikes-katastrofes-|script-title=el:Ζωώδη Ένστικτα και Οικονομικές Καταστροφές|language=el|publisher=skai.gr|first=Nikolaos D.|last=Philippas|access-date=17 May 2011|archive-date=23 June 2020|archive-url=https://web.archive.org/web/20200623213136/https://www.skai.gr/|url-status=dead}}</ref>

Although some financial institutions clearly profited from the growing Greek government debt in the short run,<ref name="NYT-wallhelp">{{cite news|url=https://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all|title=Wall St. Helped to Mask Debt Fueling Europe's Crisis|last=Story|first=Louise |author2=Landon Thomas Jr |first3=Nelson D.|last3=Schwartz|date=14 February 2010 |work=The New York Times|pages=A1|access-date=19 September 2011|location=New York}}</ref> there was a long lead-up to the crisis.

The European bailouts are largely about shifting exposure from banks and others, who otherwise are lined up for losses on the sovereign debt they have piled up, onto European taxpayers.<ref name="LSEHO 23Mar2012">{{cite web |url= http://blogs.lse.ac.uk/greeceatlse/2012/03/23/are-the-european-banks-saving-greece-or-saving-themselves/#more-537 |title= Are the European banks saving Greece or saving themselves? |first= Kevin |last= Featherstone |date= 23 March 2012 |work= Greece@LSE |publisher= LSE |access-date=27 March 2012}}</ref><ref>{{cite web |url=http://www.presseurop.eu/en/content/news-brief/1599061-greek-aid-will-go-banks |title=Greek aid will go to the banks |date=9 March 2012 |work= Die Gazette |publisher=[[Presseurop]] |access-date=12 March 2012 |archive-date=3 December 2012 |archive-url=https://web.archive.org/web/20121203235903/http://www.presseurop.eu/en/content/news-brief/1599061-greek-aid-will-go-banks |url-status=dead }}</ref><ref>{{cite news |last= Whittaker |first= John |year= 2011 |title= Eurosystem debts, Greece, and the role of banknotes |url= http://www.lums.lancs.ac.uk/files/23558.pdf |publisher= Lancaster University Management School |access-date= 2 April 2012 |url-status= dead |archive-url= https://web.archive.org/web/20111125004634/http://www.lums.lancs.ac.uk/files/23558.pdf |archive-date= 25 November 2011}}</ref><ref>{{cite web |url= http://www.social-europe.eu/2011/10/follow-the-money-behind-europes-debt-crisis-lurks-another-giant-bailout-of-wall-street/ |title= Follow the Money: Behind Europe's Debt Crisis Lurks Another Giant Bailout of Wall Street |first= Robert |last= Reich |date= 10 May 2011 |publisher= Social Europe Journal |access-date= 2 April 2012 |archive-url= https://web.archive.org/web/20130413055736/http://www.social-europe.eu/2011/10/follow-the-money-behind-europes-debt-crisis-lurks-another-giant-bailout-of-wall-street/ |archive-date= 13 April 2013 |url-status= dead }}</ref><ref>{{cite web |url= http://www.social-europe.eu/2012/03/the-mystery-tour-of-restructuring-greek-sovereign-debt/ |title= The Mystery Tour of Restructuring Greek Sovereign Debt |first= Ronald |last= Janssen |date= 28 March 2012 |publisher= Social Europe Journal |access-date= 2 April 2012 |archive-url= https://web.archive.org/web/20120401104754/http://www.social-europe.eu/2012/03/the-mystery-tour-of-restructuring-greek-sovereign-debt/ |archive-date= 1 April 2012 |url-status= dead }}</ref><ref>{{cite web |url= http://www.economonitor.com/nouriel/2012/03/07/greeces-private-creditors-are-the-lucky-ones/ |title= Greece's Private Creditors Are the Lucky Ones |first= Nouriel |last= Roubini |date= 7 March 2012 |series= The A-List |work=Financial Times |access-date=28 March 2012}}</ref>

==EU treaty violations==

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===Convergence criteria===

The EU treaties contain so called [[Euro convergence criteria|convergence criteria]], specified in the protocols of the [[Treaties of the European Union]]. 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 (see [[s:Consolidated protocols, annexes and declarations attached to the treaties of the European Union/Protocols#PROTOCOL (No 12) ON THE EXCESSIVE DEFICIT PROCEDURE|protocol 12 and 13]]). 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. In the past, many European countries including Greece and Italy have substantially exceeded these criteria over a long period of time.<ref>{{cite web |title= Public Finances in EMU -– 2011 |publisher= European Commission, Directorate-General for Economic and Financial Affairs |url=http://ec.europa.eu/economy_finance/publications/european_economy/2011/pdf/ee-2011-3_en.pdf |access-date=12 July 2012}}</ref>

==Actors fueling the crisis==

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On one hand, the agencies have been accused of giving overly generous ratings due to conflicts of interest.<ref>{{Cite news| title = Greek crisis: the world would be a better place without credit rating agencies – Telegraph Blogs | url = http://blogs.telegraph.co.uk/finance/jeremywarner/100005241/the-world-would-be-a-better-place-without-credit-rating-agencies/ | archive-url = https://web.archive.org/web/20100429033629/http://blogs.telegraph.co.uk/finance/jeremywarner/100005241/the-world-would-be-a-better-place-without-credit-rating-agencies/ | url-status = dead | archive-date = 29 April 2010 |work=The Daily Telegraph |location=UK| date = 28 April 2010 |access-date=2 May 2010}}</ref> On the other hand, ratings agencies have a tendency to act conservatively, and to take some time to adjust when a firm or country is in trouble.<ref>{{Cite news| url=http://edition.cnn.com/2010/BUSINESS/05/04/credit.ratings.agencies/index.html?hpt=C1 |publisher=CNN | title=Are the ratings agencies credit worthy?}}</ref> In the case of Greece, the market responded to the crisis before the downgrades, with Greek bonds trading at junk levels several weeks before the ratings agencies began to describe them as such.<ref name="next phase">{{Cite news|title=Crisis in Euro-zone—Next Phase of Global Economic Turmoil |url=http://www.competitionmaster.com/ArticleDetail.aspx?ID=4546e4b3-8b0c-465b-b2b8-46ef69cc14f3 |work=Competition master |url-status=dead |access-date=23 October 2013 |archive-url=https://web.archive.org/web/20100525043849/http://www.competitionmaster.com/ArticleDetail.aspx?ID=4546e4b3-8b0c-465b-b2b8-46ef69cc14f3 |archive-date=25 May 2010}}</ref>

According to a study by economists at [[St Gallen University]] credit rating agencies have fueled rising euro zone indebtedness by issuing more severe downgrades since the sovereign debt crisis unfolded in 2009. The authors concluded that rating agencies were not consistent in their judgments, on average rating Portugal, Ireland and Greece 2.3 notches lower than under pre-crisis standards, eventually forcing them to seek international aid.<ref>{{cite news|first=Emma |last=Thomasson |url=http://uk.reuters.com/article/uk-eurozone-ratings-study-idUKBRE86Q11220120727 |archive-url=https://web.archive.org/web/20160130112528/http://uk.reuters.com/article/uk-eurozone-ratings-study-idUKBRE86Q11220120727 |url-status=dead |archive-date=30 January 2016 |title=Tougher euro debt ratings stoke downward spiral -– study |work=Reuters |date=27 July 2012 |access-date=30 July 2012}}</ref>

European policy makers have criticized ratings agencies for acting politically, accusing the [[Big Three (credit rating agencies)|Big Three]] of bias towards European assets and fueling speculation.<ref name="reuters-rating-agencies"/> Particularly [[Moody's]] decision to downgrade Portugal's foreign debt to the category Ba2 "junk" has infuriated officials from the EU and Portugal alike.<ref name="reuters-rating-agencies">{{Cite news

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| date = 6 July 2011

| url = https://www.reuters.com/article/eurozone-ratings-barroso-idUSLDE7650ST20110706}}</ref>

State owned utility and infrastructure companies like [[ANA – Aeroportos de Portugal]], [[Energias de Portugal]], [[Redes Energéticas Nacionais]], and [[Brisa – Auto-estradas de Portugal]] were also downgraded despite claims to having solid financial profiles and significant foreign revenue.<ref>{{cite web|url=http://www.moodys.com/research/Moodys-downgrades-ANA-Aeroportos-de-Portugal-to-Baa3-from-A3?lang=en&cy=global&docid=PR_222253 |title=Moody's downgrades ANA-Aeroportos de Portugal to Baa3 from A3, review for further downgrade |date=8 July 2011 |publisher=Moodys.com |access-date=14 May 2012}}</ref><ref>{{cite web|url=http://www.moodys.com/research/Moodys-downgrades-EDPs-rating-to-Baa3-outlook-negative?lang=en&cy=global&docid=PR_222082 |title=Moody's downgrades EDP's rating to Baa3; outlook negative |date=8 July 2011 |publisher=Moodys.com |access-date=14 May 2012}}</ref><ref>{{cite web|url=http://www.moodys.com/research/Moodys-downgrades-RENs-rating-to-Baa3-keeps-rating-under-review?lang=en&cy=global&docid=PR_221992 |title=Moody's downgrades REN's rating to Baa3; keeps rating under review for downgrade |date=8 July 2011 |publisher=Moodys.com |access-date=14 May 2012}}</ref><ref>{{cite web|url=https://www.moodys.com/research/Moodys-downgrades-BCR-to-Baa3-under-review-for-further-downgrade?lang=en&cy=global&docid=PR_222177 |title=Moody's downgrades BCR to Baa3, under review for further downgrade |date=8 July 2011 |publisher=Moodys.com |access-date=23 October 2013}}</ref>

France too has shown its anger at its downgrade. French central bank chief [[Christian Noyer]] criticized the decision of Standard & Poor's to lower the rating of France but not that of the United Kingdom, which "has more deficits, as much debt, more inflation, less growth than us".

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====Regulatory reliance on credit ratings====

Think-tanks such as the [[:fr: Forum Mondial des Fonds de Pension|World Pensions Council (WPC)]] have criticized European powers such as France and Germany for pushing for the adoption of the [[Basel II]] recommendations, adopted in 2005 and transposed in European Union law through the [[Capital Requirements Directive]] (CRD), effective since 2008. In essence, this forced European banks and more importantly the [[European Central Bank]], e.g. when gauging the [[solvency]] of EU-based financial institutions, to rely heavily on the standardized assessments of [[credit risk]] marketed by only two private US firms- Moody's and S&P.<ref>M. Nicolas J. Firzli, "A Critique of the Basel Committee on Banking Supervision" ''Revue Analyse Financière'', 10 Nov. 2011/Q1 2012</ref>

====Counter measures====

Due to the failures of the ratings agencies, European regulators obtained new powers to supervise ratings agencies.<ref name="ReferenceA"/> With the creation of the [[European Supervisory Authority]] in January 2011 the EU set up a whole range of new financial regulatory institutions,<ref>{{cite web|url=http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/1&format=HTML&aged=0&language=EN&guiLanguage=enn |title=EUROPA – Press Releases – A turning point for the European financial sector |work=Europa (web portal) |date=1 January 2011 |access-date=24 April 2011}}</ref> including the [[European Securities and Markets Authority]] (ESMA),<ref>{{cite web |url=http://www.esma.europa.eu |title=ESMA |work=Europa (web portal) |date=1 January 2011 |access-date=24 April 2011 |archive-url=https://web.archive.org/web/20120904161328/http://www.esma.europa.eu/ |archive-date=4 September 2012 |url-status=dead}}</ref> which became the EU's single credit-ratings firm regulator.<ref>{{Cite news | title = EU erklärt USA den Ratingkrieg | newspaper = Financial Times Deutschland | url = http://www.ftd.de/politik/international/:gegen-fitch-moody-s-und-s-p-eu-erklaert-usa-den-ratingkrieg/60068772.html | date = 23 June 2011 | access-date = 24 June 2011 | archive-url = https://web.archive.org/web/20110626012118/http://www.ftd.de/politik/international/%3Agegen-fitch-moody-s-und-s-p-eu-erklaert-usa-den-ratingkrieg/60068772.html | archive-date = 26 June 2011 | url-status = dead}}</ref> Credit-ratings companies have to comply with the new standards or will be denied operation on EU territory, says ESMA Chief Steven Maijoor.<ref>{{Cite news| first = Katrin | last = Matussek | title = ESMA Chief Says Rating Companies Subject to EU Laws, FTD Reports | url = https://www.bloomberg.com/news/2011-06-23/esma-chief-says-rating-companies-subject-to-eu-laws-ftd-reports.html | date = 23 June 2011 |work=Bloomberg |access-date=24 June 2011}}</ref>

Germany's foreign minister Guido Westerwelle has called for an "independent" European ratings agency, which could avoid the conflicts of interest that he claimed US-based agencies faced.<ref name=e2e2f732>{{cite web| title = FT.com / Europe – Rethink on rating agencies urged | url = http://www.ft.com/cms/s/0/e2e2f732-53bd-11df-aba0-00144feab49a.html | work=Financial Times |access-date=2 May 2010}}</ref> European leaders are reportedly studying the possibility of setting up a European ratings agency in order that the private U.S.-based ratings agencies have less influence on developments in European financial markets in the future.<ref>{{cite web| title = EU Gets Tough on Credit-Rating Agencies |work=BusinessWeek | url = http://www.businessweek.com/globalbiz/content/apr2009/gb20090424_056975.htm | archive-url = https://web.archive.org/web/20090427205946/http://www.businessweek.com/globalbiz/content/apr2009/gb20090424_056975.htm | url-status = dead | archive-date = 27 April 2009 |access-date=2 May 2010}}</ref><ref>{{Cite news| title = European indecision: Why is Germany talking about a European Monetary Fund? | newspaper= The Economist | url = https://www.economist.com/blogs/charlemagne/2010/03/european_indecision?page=1 |access-date=2 May 2010 | date=9 March 2010}}</ref> According to German consultant company [[Roland Berger Strategy Consultants|Roland Berger]], setting up a new ratings agency would cost €300 million.

On 30 January 2012, the company said it was already collecting funds from financial institutions and business intelligence agencies to set up an independent non-profit ratings agency by mid-2012, which could provide its first country ratings by the end of the year.<ref>{{Cite news| first =Florian| last =Eder | title = Bonitätswächter wehren sich gegen Staatseinmischung work | work= Die Welt | url = https://www.welt.de/wirtschaft/article13825083/Bonitaetswaechter-wehren-sich-gegen-Staatseinmischung.html |date=20 January 2012 |access-date=20 January 2012}}</ref> In April 2012, in a similar attempt, the [[Bertelsmann Stiftung]] presented a blueprint for establishing an international non-profit credit rating agency (INCRA) for sovereign debt, structured in way that management and rating decisions are independent from its financiers.<ref>{{Cite news| title = Non-profit credit rating agency challenge | work= Financial Times | url = http://www.ft.com/cms/s/0/302e5b38-84ab-11e1-b6f5-00144feab49a.html?ftcamp=published_links/rss/markets_capital-markets/feed//product#axzz1sIIBk300 |access-date=16 April 2012}}</ref>

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Some in the Greek, Spanish, and French press and elsewhere spread [[Conspiracy theory|conspiracy theories]] that claimed that the U.S. and Britain were deliberately promoting rumors about the euro in order to cause its collapse or to distract attention from their own economic vulnerabilities. ''[[The Economist]]'' rebutted these "Anglo-Saxon conspiracy" claims, writing that although American and British traders overestimated the weakness of southern European public finances and the probability of the breakup of the eurozone breakup, these sentiments were an ordinary market panic, rather than some deliberate plot.<ref>{{cite news|title=Euro zone rumours: There is no conspiracy to kill the euro|url=https://www.economist.com/blogs/charlemagne/2010/02/euro_zone_rumours|newspaper=The Economist|access-date=2 May 2010|date=6 February 2010}}</ref>

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. "This is an attack on the eurozone by certain other interests, political or financial".<ref>{{Cite news|title= No EU bailout for Greece as Papandreou promises to "put our house in order" |first=Larry |last=Elliot |work=The Guardian |location=London |url= https://www.theguardian.com/business/2010/jan/28/greece-papandreou-eurozone |date=28 January 2010 |access-date=13 May 2010}}</ref> The Spanish Prime Minister [[José Luis Rodríguez Zapatero]] has also suggested that the recent financial market crisis in Europe is an attempt to undermine the euro.<ref>{{cite web|first=Barbara |last=Kollmeyer |title= Spanish secret service said to probe market swings |url= http://www.marketwatch.com/story/spanish-secret-service-said-to-probe-market-swings-2010-02-15 |website=[[MarketWatch]] |date=15 February 2010 |access-date=13 May 2010}}</ref><ref>{{cite news|first=Gavin |last=Hewitt |title= Conspiracy and the euro |url= http://www.bbc.co.uk/blogs/thereporters/gavinhewitt/2010/02/conspiracy_and_the_euro.html |work=BBC News |date=16 February 2010 |access-date=13 May 2010}}</ref> He ordered the [[National Intelligence Centre (Spain)|Centro Nacional de Inteligencia]] intelligence service (National Intelligence Center, CNI in Spanish) to investigate the role of the "[[Anglo-Saxon]] media" in fomenting the crisis.<ref>{{cite ~~web~~news| title = A Media Plot against Madrid?: Spanish Intelligence Reportedly Probing 'Attacks' on Economy |work=Der Spiegel |date=15 February 2010 |url = http://www.spiegel.de/international/europe/0,1518,677904,00.html |access-date=2 May 2010}}</ref><ref>{{Cite news| last = Roberts| first = Martin| title = Spanish intelligence probing debt attacks-report| work= Reuters | url = https://www.reuters.com/article/idUSLDE61D04V20100214 | date = 14 February 2010 |access-date=2 May 2010}}</ref><ref>{{Cite news| last = Cendrowicz| first = Leo| title = Conspiracists Blame Anglo-Saxons, Others for Euro Crisis |magazine=Time | url = http://www.time.com/time/world/article/0,8599,1968308,00.html | archive-url = https://web.archive.org/web/20100228192024/http://www.time.com/time/world/article/0,8599,1968308,00.html | url-status = dead | archive-date = 28 February 2010 | date = 26 February 2010 |access-date=2 May 2010}}</ref><ref>{{Cite news| last = Tremlett| first = Giles| title = Anglo-Saxon media out to sink us, says Spain |work=The Guardian |location=London |url = https://www.theguardian.com/world/2010/feb/14/jose-zapatero-media-spain-recession | date = 14 February 2010 |access-date=2 May 2010}}</ref><ref>{{Cite news| title = Spain and the Anglo-Saxon press: Spain shoots the messenger |newspaper=The Economist |url = https://www.economist.com/blogs/charlemagne/2010/02/spain_and_anglo-saxon_press |access-date=2 May 2010 |date=9 February 2010}}</ref> So far no results have been reported from this investigation.

A major reason for this media coverage were Greek officials' unprecedented statements acknowledging Greece's serious economic woes. For example, during an EU summit at December 2009, newly elected Greek Prime Minister Georges Papandreou said that the public sector is corrupt, a statement later repeated to the international media by José Manuel Barroso,<ref>{{Cite web |url=http://www.ft.com/cms/s/0/6871e1e6-e6be-11de-98b1-00144feab49a.html |title=~~Archived~~Papandreou ~~copy~~says Greece is corrupt - FT.com |access-date=28 July 2014 |archive-date=11 June 2013 |archive-url=https://web.archive.org/web/20130611054333/http://www.ft.com/cms/s/0/6871e1e6-e6be-11de-98b1-00144feab49a.html |url-status=dead }}</ref> European Commission -president. The previous month, Papandreou said "we need to save the country from the bankruptcy," a statement to which the market reacted.<ref>{{cite web |title=Greece tests the limit of sovereign debt as it grinds towards slump |website=[[The Daily Telegraph]] |date=22 November 2009 |archive-url=https://web.archive.org/web/20220707132314/https://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6630117/Greece-tests-the-limit-of-sovereign-debt-as-it-grinds-towards-slump.html ~~The~~|archive-date=7 ~~Daily~~July ~~Telegraph]~~2022 |url-status=live |url=https://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6630117/Greece-tests-the-limit-of-sovereign-debt-as-it-grinds-towards-slump.html}}</ref>

===Speculators===

Both the Spanish and Greek Prime Ministers have accused [[financial speculator]]s and [[hedge fund]]s of worsening the crisis by [[Short (finance)|short selling]] euros.<ref>{{Cite news|first=Sean |last=O'Grady |title= Soros hedge fund bets on demise of the euro |url= https://www.independent.co.uk/news/business/news/soros-hedge-fund-bets-on-demise-of-the-euro-1914356.html |work=The Independent |location=London |date= 2 March 2010 |access-date=11 May 2010 }}</ref><ref>{{cite web|first=Alex |last=Stevenson |title= Soros and the bullion bubble |url= http://ftalphaville.ft.com/blog/2010/03/02/162286/soros-and-the-bullion-bubble/ |publisher=FT Alphaville |date= 2 March 2010 |access-date=11 May 2010}}</ref> German chancellor Merkel has stated that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere."<ref>{{Cite news|url= http://www.businessweek.com/news/2010-02-23/merkel-slams-euro-speculation-warns-of-resentment-update1-.html |archive-url= https://web.archive.org/web/20100226183655/http://www.businessweek.com/news/2010-02-23/merkel-slams-euro-speculation-warns-of-resentment-update1-.html |url-status= dead |archive-date= 26 February 2010 |access-date=11 May 2010 |title= Merkel Slams Euro Speculation, Warns of 'Resentment' |work=BusinessWeek |author=Donahue, Patrick |date=23 February 2010}}</ref>

The role of [[Goldman Sachs]]<ref>{{cite news| title = Kevin Connor: Goldman's Role in Greek Crisis Is Proving Too Ugly to Ignore | url = https://www.huffingtonpost.com/kevin-connor/goldmans-role-in-greek-cr_b_479511.html |work=Huffington Post |last=Connor |first=Kevin |location=USA | date = 27 February 2010 |access-date=2 May 2010}}</ref> in Greek bond yield increases is also under scrutiny.<ref>{{Cite news |title=Goldman Sachs faces Fed inquiry over Greek crisis |url= https://www.theguardian.com/business/2010/feb/25/markets-pressure-greece-cut-spending |work=The Guardian |first1=Andrew |last1=Clark |first2=Heather |last2=Stewart |first3=Elena |last3=Moya |location=London |date= 26 February 2010 |access-date=23 October 2013}}</ref> 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.

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==Speculation about the breakup of the eurozone==

Economists, mostly from outside Europe 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. When faced with economic problems, they maintained, "Without such an institution, [[Economic and Monetary Union of the European Union|EMU]] would prevent effective action by individual countries and put nothing in its place."<ref name=Wray2011>{{cite web|last=Wray|first=L. Randall|title=Can Greece survive?|url=http://neweconomicperspectives.blogspot.com/2011/06/can-greece-survive.html|work=New Economic Perspectives|date=25 June 2011|access-date=1 February 2013|archive-url=https://web.archive.org/web/20120706231148/http://neweconomicperspectives.blogspot.com/2011/06/can-greece-survive.html|archive-date=6 July 2012|url-status=dead}}</ref><ref name="Godley1992">{{cite journal|title=Maastricht and All That|url=http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that|date=8 October 1992|volume=14|issue=19|first=Wynne|last=Godley|author-link=Wynne Godley|journal=[[London Review of Books]]}}</ref> US economist [[Martin Feldstein]] went so far to call the euro "an experiment that failed".<ref>{{cite journal |last= Feldstein |first= Martin |title= The Failure of the Euro |url= http://www.foreignaffairs.com/articles/136752/martin-feldstein/the-failure-of-the-euro |journal= Foreign Affairs |date= January 2012 |volume= 91 |issue= January/February 2012 |access-date= 21 April 2012 }}</ref> Some non-Keynesian economists, such as Luca A. Ricci of the IMF, contend the eurozone does not fulfill the necessary criteria for an [[optimum currency area]], though it is moving in that direction.<ref name="Euro_Plus_Monitor_2011">{{cite web|url=http://www.lisboncouncil.net//index.php?option=com_downloads&id=557 |title=Euro Plus Monitor 2011 |work=The Lisbon Council |date=15 November 2011 |access-date=17 November 2011}}</ref><ref>Ricci, Luca A., [https://ssrn.com/abstract=882345 "Exchange Rate Regimes and Location"], 1997</ref>

As the debt crisis expanded beyond Greece, these economists continued to advocate, albeit more forcefully, the disbandment of the eurozone. If this was not immediately feasible, they recommended that Greece and the other debtor nations unilaterally leave the eurozone, default on their debts, regain their fiscal sovereignty, and re-adopt national currencies.<ref name="Roubini-orderly-default">{{cite web|url=http://www.ft.com/cms/s/0/a3874e80-82e8-11df-8b15-00144feabdc0.html#axzz1YqwjSbNl|first=Nouriel|last=Roubini|title=Greece's best option is an orderly default|work=Financial Times|date=28 June 2010|access-date=24 September 2011}}</ref><ref name="ReferenceB">M. Nicolas J. Firzli, "Greece and the Roots the EU Debt Crisis" ''The Vienna Review'', March 2010</ref><ref>{{cite web| title = FT.com / Comment / Opinion – A euro exit is the only way out for Greece |url = http://www.ft.com/cms/s/0/6a618b7a-3847-11df-8420-00144feabdc0.html | work=Financial Times | date = 25 March 2010 |access-date=2 May 2010}}</ref><ref name="Wray2010">{{cite web |url=http://neweconomicperspectives.blogspot.com/2010/03/interview-with-randall-wray-about.html |title=Greece's Debt Crisis, interview with L. Randall Wray, 13 March 2010 |publisher=Neweconomicperspectives.blogspot.com |access-date=14 May 2012 |archive-url=https://web.archive.org/web/20120425053016/http://neweconomicperspectives.blogspot.com/2010/03/interview-with-randall-wray-about.html |archive-date=25 April 2012 |url-status=dead}}</ref><ref>[http://bilbo.economicoutlook.net/blog/?p=14558 "I'll buy the Acropolis"] by [[Bill Mitchell (economist)|Bill Mitchell]], 29 May 2011</ref> [[Bloomberg L.P.|Bloomberg]] suggested in June 2011 that, if the Greek and Irish bailouts should fail, an alternative would be for Germany to leave the eurozone in order to save the currency through [[Depreciation (currency)|depreciation]]<ref>{{cite news|last=Kashyap |first=Anil |url=https://www.bloomberg.com/news/2011-06-09/euro-may-have-to-coexist-with-a-german-led-uber-euro-business-class.html |title=Euro May Have to Coexist With a German-Led Uber Euro: Business Class |publisher=Bloomberg |date=10 June 2011 |access-date=11 June 2011}}</ref> instead of austerity. The likely substantial fall in the euro against a newly reconstituted [[Deutsche Mark]] would give a "huge boost" to its members' competitiveness.<ref>[http://www.creditwritedowns.com/2010/04/the-greek-tragedy-continues.html "To Save the Euro, Germany Must Quit the Euro Zone"] {{Webarchive|url=https://web.archive.org/web/20111004141940/http://www.creditwritedowns.com/2010/04/the-greek-tragedy-continues.html |date=4 October 2011 }} by [http://www.newdeal20.org/author/marshall-mauer/ Marshall Auerback] {{webarchive|url=https://web.archive.org/web/20110908061329/http://www.newdeal20.org/author/marshall-mauer/ |date=8 September 2011 }}, 25 May 2011</ref>

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===Breakup vs. deeper integration===

However, there is opposition in this view. The national exits are expected to be an expensive proposition. The breakdown of the currency would lead to insolvency of several euro zone countries, a breakdown in intrazone payments. Having instability and the public debt issue still not solved, the contagion effects and instability would spread into the system.<ref>Anand. M.R, Gupta.G.L, Dash, R. The Euro Zone Crisis Its Dimensions and Implications. January 2012.</ref> Having that the exit of Greece would trigger the breakdown of the eurozone, this is not welcomed by many politicians, economists and journalists. According to Steven Erlanger from The New York Times, a "Greek departure is likely to be seen as the beginning of the end for the whole euro zone project, a major accomplishment, whatever its faults, in the postwar construction of a Europe "whole and at peace."<ref>{{cite news|title= Greek Crisis Poses Unwanted Choices for Western Leaders|url=https://www.nytimes.com/2012/05/21/world/europe/greek-crisis-poses-hard-choices-for-western-leaders.html|newspaper=The New York Times|date=20 May 2012|first=Steven|last=Erlanger|quote=But while Europe is better prepared for a Greek restructuring of its debt – writing down what is currently held by states and the European bailout funds – a Greek departure is likely to be seen as the beginning of the end for the whole euro zone project, a major accomplishment, whatever its faults, in the postwar construction of a Europe "whole and at peace." |access-date=18 July 2012}}</ref> Likewise, the two big leaders of the Euro zone, German Chancellor [[Angela Merkel]] and former French President [[Nicolas Sarkozy]] have said on numerous occasions that they would not allow the eurozone to disintegrate and have linked the survival of the Euro with that of the entire [[European Union]].<ref name="Czuczka">{{cite news|last=Czuczka |first=Tony |url=http://www.businessweek.com/news/2011-02-04/merkel-makes-euro-indispensable-turning-crisis-into-opportunity.html |archive-url=https://web.archive.org/web/20110208220948/http://www.businessweek.com/news/2011-02-04/merkel-makes-euro-indispensable-turning-crisis-into-opportunity.html |url-status=dead |archive-date=8 February 2011 |title=Merkel makes Euro Indispensable Turning Crisis into Opportunity |work=Bloomberg Businessweek |date=4 February 2011 |access-date=9 December 2011}}</ref><ref>{{cite news |last=MacCormaic |first=Ruadhan |url=https://www.irishtimes.com/newspaper/world/2011/1209/1224308800810.html |title=EU risks being split apart, says Sarkozy |work=Irish Times |date=9 December 2011 |access-date=9 December 2011 |archive-date=9 December 2011 |archive-url=https://web.archive.org/web/20111209090949/http://www.irishtimes.com/newspaper/world/2011/1209/1224308800810.html |url-status=dead }}</ref>

In September 2011, EU commissioner [[Joaquín Almunia]] shared this view, 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".<ref name="EUobserver">{{cite web|url=http://euobserver.com/19/113568 |title=Spanish commissioner lashes out at core eurozone states |publisher=EUobserver |date=9 September 2011 |access-date=15 September 2011}}</ref> The former ECB president [[Jean-Claude Trichet]] also denounced the possibility of a return of the Deutsche Mark.<ref>{{cite news|url=https://www.bloomberg.com/news/2011-09-08/trichet-loses-his-cool-at-prospect-of-deutsche-mark-s-revival-in-germany.html |title=Trichet Loses His Cool at Prospect of Deutsche Mark's Revival in Germany |publisher=Bloomberg |date=9 September 2011 |first=John |last=Fraher |access-date=2 October 2011}}</ref>

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''[[The Economist]]'' provides a somewhat modified approach to saving the euro in that "a limited version of [[federalization]] could be less miserable solution than break-up of the euro."<ref name="The Economist">{{cite news|title=The Choice|url=http://www.economist.com/node/21555916?scode=3d26b0b17065c2cf29c06c010184c684|access-date=5 June 2012|newspaper=The Economist|date=26 May 2012}}</ref> The recipe to this tricky combination of the limited federalization, greatly lies on mutualization for limiting the [[fiscal integration]]. In order for overindebted countries to stabilize the dwindling euro and economy, the overindebted countries require "access to money and for banks to have a "safe" euro-wide class of assets that is not tied to the fortunes of one country" which could be obtained by "narrower [[Eurobond (eurozone)|Eurobond]] that mutualises a limited amount of debt for a limited amount of time."<ref name="The Economist"/> The proposition made by [[German Council of Economic Experts]] provides detailed blue print to mutualize the current debts of all euro-zone economies above 60% of their GDP. Instead of the breakup and issuing new national governments bonds by individual euro-zone governments, "everybody, from Germany (debt: 81% of GDP) to Italy (120%) would issue only these joint bonds until their national debts fell to the 60% threshold. The new mutualized-bond market, worth some €2.3 trillion, would be paid off over the next 25 years. Each country would pledge a specified tax (such as a VAT surcharge) to provide the cash." However, so far German Chancellor [[Angela Merkel]] has opposed to all forms of mutualization.<ref name="The Economist"/>

The Hungarian-American business magnate [[George Soros]] warns in "Does the Euro have a Future?" that there is no escape from the "gloomy scenario" of a prolonged European recession and the consequent threat to the Eurozone's political cohesion so long as "the authorities persist in their current course." He argues that to save the Euro long-term structural changes are essential in addition to the immediate steps needed to arrest the crisis. The changes he recommends include even greater economic integration of the European Union.<ref name="nybooks.com">{{cite ~~web~~magazine|url=http://www.nybooks.com/articles/archives/2011/oct/13/does-euro-have-future/?pagination=false |title=Does the Euro Have a Future? by George Soros | The New York Review of Books |publisher=Nybooks.com |access-date=14 May 2012|last1=Soros |first1=George }}</ref> Soros writes that a treaty is needed to transform the European Financial Stability Fund into a full-fledged European Treasury. Following the formation of the Treasury, European Council could then ask the European Commission Bank to step into the breach and indemnify the European Commission Bank in advance against potential risks to the Treasury's solvency. Soros acknowledges that converting the EFSF into a European Treasury will necessitate "a radical change of heart." In particular, he cautions, Germans will be wary of any such move, not least because many continue to believe that they have a choice between saving the Euro and abandoning it. Soros writes however that a collapse of European Union would precipitate an uncontrollable financial meltdown and thus "the only way" to avert "another Great Depression" is the formation of a European Treasury.<ref name="nybooks.com"/>

The British betting company [[Ladbrokes]] stopped taking bets on Greece exiting the Eurozone in May 2012 after odds fell to 1/3, and reported "plenty of support" for 33/1 odds for a complete disbanding of the Eurozone during 2012.<ref name="cowie20120516">{{cite news | url=https://www.telegraph.co.uk/finance/personalfinance/investing/9269973/How-would-a-euro-collapse-hit-us-in-the-pocket.html | title=How would a euro collapse hit us in the pocket? | work=The Daily Telegraph | date=~~2012-05-~~16 May 2012 |author=Cowie, Ian |access-date=17 May 2012 | location=London}}</ref>

==Odious debt==

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|first=Michael |last=Simkovic

|journal= American Bankruptcy Law Journal

|volume= 83 |page=253 |year= 2009}}</ref><ref name="World Bank">{{cite journal|ssrn=1738539 |title=Michael Simkovic, Bankruptcy Immunities, Transparency, and Capital Structure, Presentation at the World Bank, 11 January 2011 |doi=10.2139/ssrn.1738539 |publisher=Ssrn.com |s2cid=153617560 }}</ref> The structures were designed by prominent U.S. investment banks, 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.<ref name="Secret"/> Financial reforms within the U.S. 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.<ref name="Paving">{{cite web|ssrn=1585955 |title=Michael Simkovic, Paving the Way for the Next Financial Crisis, Banking & Financial Services Policy Report, Vol. 29, No. 3, 2010 |date=January 2010 |publisher=Ssrn.com |last1=Simkovic |first1=Michael }}</ref>

The revision of Greece's 2009 budget deficit from a forecast of "6–8% of GDP" to 12.7% by the new Pasok Government in late 2009 (a number which, after reclassification of expenses under IMF/EU supervision was further raised to 15.4% in 2010) has been cited as one of the issues that ignited the Greek debt crisis.

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| url = http://www.euromoney.com/Article/1000384/BackIssue/50007/How-Europes-governments-have-enronized-their-debts.html

|work=Euromoney | date = September 2005 |access-date=1 January 2014}}</ref> or have focused on Italy,<ref>{{Cite news| title = Italy faces restructured derivatives hit | url = http://www.ft.com/intl/cms/s/0/440007a8-dd9a-11e2-a756-00144feab7de.html#axzz2pGwz0eRi |work= Financial Times| date = 26 June 2013 |access-date=1 January 2014}}</ref> the United Kingdom,<ref>{{Cite news | title = UK Finances: A Not-So Hidden Debt | url = http://www.egovmonitor.com/node/41679 | work = eGovMonitor | date = 12 April 2011 | access-date = 16 May 2011 | url-status = dead | archive-url = https://web.archive.org/web/20110415014436/http://www.egovmonitor.com/node/41679 | archive-date = 15 April 2011}}</ref><ref>{{Cite news| first = Eamonn| title = Hidden debt is the country's real monster | url = http://www.timesonline.co.uk/tol/news/uk/article7148962.ece

|work=The Sunday Times |location=London | date = 13 June 2010 |last=Butler |access-date=16 May 2011}}{{dead link|date=September 2024|bot=medic}}{{cbignore|bot=medic}}</ref><ref>{{Cite news| first = Brooks| title = Britain's hidden debt | url = https://www.theguardian.com/commentisfree/2008/oct/21/economy-creditcrunch

|work=The Guardian |location=London | date = 21 October 2008 |last=Newmark |access-date=16 May 2011}}</ref><ref>{{Cite news | title = The Hidden Debt Bombshell | url = http://www.cps.org.uk/cps_catalog/the%20hidden%20debt%20bombshellnew.pdf | work = Pointmaker | date = October 2009 | access-date = 16 May 2011 | archive-url = https://web.archive.org/web/20110813123320/http://www.cps.org.uk/cps_catalog/the%20hidden%20debt%20bombshellnew.pdf | archive-date = 13 August 2011 | url-status = dead}}</ref><ref>{{Cite news| first = Patience| title = Time to remove the mask from debt | url = https://www.wsj.com/articles/SB10001424052748704431404575067312370615300 |last=Wheatcroft

|work=The Wall Street Journal | date = 16 February 2010 |access-date=16 May 2011}}</ref><ref>{{Cite news| title = Brown accused of 'Enron accounting'

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==Collateral for Finland==

On 18 August 2011, as requested by the Finnish parliament as a condition for any further bailouts, it became apparent that Finland would receive [[collateral (finance)|collateral]] from Greece, enabling it to participate in the potential new {{Nowrap|€109 billion}} support package for the Greek economy.<ref>{{cite news|url=https://www.wsj.com/article/BT-CO-20110819-710333.html |work=The Wall Street Journal |title=Finland Collateral Demands Threaten Bailout Solidarity |date=19 August 2011 }}{{dead link|date=May 2016|bot=medic}}{{cbignore|bot=medic}}</ref> Austria, the Netherlands, Slovenia, and Slovakia responded with irritation over this special guarantee for Finland and demanded equal treatment across the eurozone, or a similar deal with Greece, so as not to increase the risk level over their participation in the bailout.<ref>Schneeweiss, Zoe, and Kati Pohjanpalo, [https://www.bloomberg.com/news/2011-08-18/austria-joins-finland-in-asking-greece-for-collateral-on-emergency-loans.html "Finns Set Greek Collateral Trend as Austria, Dutch, Slovaks Follow Demands"], ''Bloomberg'', 18 August 2011 9:41 am ET.</ref> The main point of contention was that the collateral is aimed to be a cash deposit, a collateral the Greeks can only give by recycling part of the funds loaned by Finland for the bailout, which means Finland and the other eurozone countries guarantee the Finnish loans in the event of a Greek default.<ref>{{cite news | url=http://www.ibtimes.com/articles/199150/20110817/finland-and-greece-agree-on-collateral.htm | title=Finland and Greece agree on collateral | date=17 August 2011 | access-date=24 February 2012 | archive-date=15 May 2012 | archive-url=https://web.archive.org/web/20120515190059/http://www.ibtimes.com/articles/199150/20110817/finland-and-greece-agree-on-collateral.htm | url-status=dead }}</ref>

After extensive negotiations to implement a collateral structure open to all eurozone countries, on 4 October 2011, a modified escrow collateral agreement was reached. The expectation is that only Finland will use it, due to i.a. requirement to contribute initial capital to [[European Stability Mechanism]] in one installment instead of five installments over time. Finland, as one of the strongest AAA countries, can raise the required capital with relative ease.<ref>{{Cite news|title= Finnish win Greek collateral deal |url=http://www.europeanvoice.com/article/2011/october/finnish-win-greek-collateral-deal/72177.aspx|publisher=European Voice |date=4 October 2011 |access-date=4 October 2011}}</ref>

At the beginning of October, Slovakia and Netherlands were the last countries to vote on the [[#EU emergency measures|EFSF expansion]], which was the immediate issue behind the collateral discussion, with a mid-October vote.<ref name=MW01>Marsh, David, [http://www.marketwatch.com/story/german-ok-only-small-step-in-averting-greek-crisis-2011-10-03 "German OK only small step in averting Greek crisis"], ''MarketWatch'', 3 ~~Oct~~October 2011, 12:00 am EDT. Retrieved 3 October 2011.</ref> On 13 October 2011 Slovakia approved euro bailout expansion, but the government has been forced to [[Slovak parliamentary election, 2012|call new elections]] in exchange.

In February 2012, the four largest Greek banks agreed to provide the €880 million in collateral to Finland in order to secure the second bailout program.<ref>{{Cite news |title=The second Greek bailout: Ten unanswered questions |url=http://www.openeurope.org.uk/Content/Documents/Pdfs/Greecetenquestions.pdf |publisher=[[Open Europe]] |date=16 February 2012 |access-date=16 February 2012 |url-status=dead |archive-url=https://web.archive.org/web/20120219190434/http://www.openeurope.org.uk/Content/Documents/Pdfs/Greecetenquestions.pdf |archive-date=19 February 2012}}</ref>

Finland's recommendation to the crisis countries is to issue [[Asset-backed security|asset-backed securities]] to cover the immediate need, a tactic successfully used in [[early 1990s recession in Finland|Finland's early 1990s recession]],<ref>{{cite web |url=~~http~~https://www.iltalehti.fi/talous/~~2012082715999914_ta.shtml~~a/2012082715999914 |language=fi |title=Yle: Suomalaisvirkamiehet salaa neuvomaan Italiaa talousasioissa |trans-title=YLE: Finnish officials secretly advised the Italian financial matters |access-date=23 October 2013}}</ref> in addition to spending cuts and [[bad bank]]ing.

== Effects of IMF/EU austerity policies==

The recessions experienced in bailed-out countries have been connected with elements of the imposed austerity policies. Especially in Greece, the steep rise of [[debt-to-GDP ratio]] (which has climbed to 169,1% in 2013) is predominantly a result of the GDP contraction (in absolute numbers, debt has only risen from 300 billion Euros in 2009 to 320 billion Euros in 2013<ref>{{Cite news| title = Ομολογία Σταϊκούρα στη Βουλή: "Στα 320 δισ. ευρώ το χρέος το 2013" | url = http://www.tanea.gr/news/economy/article/5037482/staikoyras-sta-320-dis-eyrw-to-xreos-to-2013/ |work= TA NEA | date = 28 August 2013 | access-date= 6 January 2014}}</ref>). A discussion on the relevant policy "errors" is still ongoing.<ref>{{Cite news| title = For hard-hit Greeks, IMF mea culpa comes too late | url = https://www.reuters.com/article/us-imf-greece-idUSBRE9550M320130606 |work= Reuters | date = 6 June 2013 | access-date= 6 January 2014}}</ref><ref>{{Cite news| title = Lagarde: IMF's Admission of Error on Fiscal Multipliers for Greece "A Matter of Honour" | url = http://english.capital.gr/News.asp?id=1923156 |work= Capital.gr | date = 11 December 2013 | access-date= 6 January 2014}}</ref>

After the sovereign debt crisis, five eurozone governments received conditional financial assistance from the Troika, namely the International Monetary Fund (IMF), the European Central Bank and the European Commission. In return for the loans and [[debt restructuring]], the implementation of certain measures was mandatory to get the country's finances back on track. The aim was to restore stability and ensure sustainable economic growth. All conditionality programs included measures to reduce public spending, but also to promote an internal devaluation mechanism with a reduction in wages. In addition, liberalization of protected professions, privatization of public enterprises, and reduction of excessive private rents were present in all the MoUs.<ref>{{cite book |last1=Moury |first1=Catherine |last2=Ladi |first2=Stella |last3=Cardoso |first3=Daniel |last4=Gago |first4=Angie |title=Capitalising on constraint: Bailout politics in Eurozone countries |date=2021 |doi=10.7765/9781526149893 |isbn=~~1526149885~~978-1526149886 |s2cid=240025813 |edition=Manchester University Press |url=https://doi.org/10.7765/9781526149893 |access-date=23 May 2022}}</ref>.

In March 2010, the announcement of the rescue mechanisms for Greece was made at the European Council. The program consists of coordinated bilateral loans provided by the IMF for 1/3 of the program and by the European Union for 2/3 of the program.<ref>{{cite book |last1=Moury |first1=Catherine |last2=Ladi |first2=Stella |last3=Cardoso |first3=Daniel |last4=Gago |first4=Angie |title=Capitalising on constraint: Bailout politics in Eurozone countries |date=2021 |doi=10.7765/9781526149893 |isbn=978-1526149886 |s2cid=240025813 |edition=Manchester University Press |url=https://doi.org/10.7765/9781526149893 |access-date=23 May 2022}}</ref>

These conditionality programs have been the subject of much criticism. For example, scholars have pointed to a shift in power within the European Union to Germany and the European institutions. Indeed, instead of helping domestic banks and the country's economy, the funds allocated to Greece's first rescue plan were used almost exclusively to reimburse foreign banks, mainly French and German, which had invested heavily in Greek banks. This postponement partly explains the fact that a large part of the funds for restructuring the Greek economy allocated by the Troika's reform programs were used to pay off short-term creditors, i.e., foreign banks. However, the criticism by many economists, including Joseph Stiglitz, that the refinancing funds allocated benefited only foreign banks is unfounded, since one-third of the sovereign debt was held by Greek banks and other domestic financial institutions.

The researchers also pointed out that indebted governments were forced to implement very specific reforms against their will. For example, Joseph Stiglitz pointed out that in Greece, reforms were imposed on the price of bread or on pharmaceutical products.<ref>{{cite book |last1=Stiglitz |first1=Joseph E. |title=L'Euro : Comment la monnaie unique menace l'avenir de l'Europe |date=2018 |isbn=978-2330097059 |edition=Les Liens qui libèrent}}</ref> According to the Nobel laureate, the reforms imposed on Greece did not reflect the real problem of its economy.

In the case of Greece, a paradox seems to have emerged. Indeed, a default of the country was expected if it did not pursue the economic adjustment program, while at the same time, the MoU seems not to be sustainable for the Greek population and especially to reverse the downward trend of its economy. Indeed, Yanis Varoufakis recalled a discussion with Christine Lagarde when she was head of the IMF. According to the former finance minister, she said that the adjustment programs were not sustainable, but that it was politically mandatory to implement them since the eurozone was in the middle of an impressive economic storm.<ref>{{cite book |last1=Varoufakis |first1=Yanis |title=Conversations entre adultes : Dans les coulisses secrètes de l'Europe |date=2017 |isbn=978-2330117634 |edition=Les Liens qui Libèrent}}</ref> Although these measures were necessary to support the country and avoid bankruptcy, the measures taken by the Troika were deemed to be too ill-considered. Indeed, the adjustment programs based on indiscriminate tax hikes and horizontal cuts in public spending, including wages and pensions, have caused the deepest recession since the post-war period.<ref>{{cite journal |last1=Alogoskoufis |first1=George |title=Greece Before and After the Euro: Macroeconomics, Politics and the Quest for Reforms |journal=SSRN Electronic Journal |date=21 March 2021 |doi=10.2139/ssrn.3801659|s2cid=233622483 }}</ref>

According to Olivier Blanchard, the 2010 reform program only served to increase the debt and required too much fiscal adjustment, resulting in an unprecedented economic depression. However, he argues that if Greece had been left to its own devices, the social cost would have been much higher than under the reform programs. Moreover, while austerity is an extreme burden on an economy, it was seen as essential to put the country's finances in order.<ref>{{cite web |last1=Blanchard |first1=Olivier |title=Grèce : bilan des critiques et perspectives d'avenir |url=https://www.imf.org/external/french/np/blog/2015/070915f.htm |website=Fonds Monétaire International |access-date=23 May 2022}}</ref>

When we talk about austerity, however, we can say that it is not a bad solution per se and that it can be adapted in certain cases. For example, if a significant increase in sovereign debt is due to fiscal laxity, austerity is a must. It is one of the only ways to eliminate the practices that create this massive increase. However, some public expenditures are less appropriate for such an intervention measure, namely wages and pensions. In addition, there are some dangers to consider, such as the fact that widespread private deleveraging may depress demand. Indeed, it is necessary for the proper functioning of an austerity policy that the private sector be able to compensate for government budget cuts by increasing private consumption or activity.<ref>{{cite journal |last1=Aglietta |first1=Michel |last2=Baudry |first2=Sonia |last3=Busson |first3=Henri |title=L'austérité est-elle la solution à la crise ? |journal=Regards croisés sur l'économie |date=2012 |volume=11 |page=78 |doi=10.3917/rce.011.0078}}</ref> The austerity policies introduced by the Troika during the sovereign debt crisis were not sufficiently analyzed before being implemented. Indeed, it is commonly accepted that an austerity policy aimed only at reducing deficits without taking into account the nature of expenditures and revenues can trigger a vicious circle and depress demand. The Keynesian multiplier can work in the opposite direction and worsen the fiscal situation.<ref>{{cite journal |last1=Olivier |first1=Blanchard |title=Public Debt and Low Interest Rates |journal=National Bureau of Economic Research |date=February 2019 |doi=10.3386/w25621|doi-access=free }}</ref> Moreover, austerity is not able to work if the growth rate is lower than the real interest rate. The problems nowadays are the extremely low nominal interest rates that have led to a liquidity trap which complicated the proper implementation of austerity policies.

In the case of Greece, the austerity policies were put in place on the one hand to reduce the Greek deficit in order to reduce the debt – unnecessary spending in the country will be reduced and thus Greece will return to sustainable growth – and on the other hand to reassure the markets about the country's financial sustainability. The austerity policies carried out between 2010 and 2015 brought Greek budgets back into balance but contributed strongly to the acceleration of the country's debt, unable to repay the loans that had matured with depressed demand in the country. The first three years of internal devaluation under the austerity programs thus led to a significant recession in the country.

These programs eliminated Greece's large fiscal and external account deficits before the crisis. However, these adjustments were made at the expense of the population with a very large number of layoffs. Paul Krugman has suggested that the creditors' approach to austerity programs could be considered wrong since these approaches focused on budget cuts that affect economic growth.

However, while much of the research has emphasized the impossibility for indebted countries to go against austerity programs, some research has shown the opposite. Much of the research often assumes that bailed-out eurozone countries were forced to implement specific reforms against their will. However, according to the research of Catherine Moury and al., this statement appears to be false. Indeed, the bailed-out governments had room to maneuver and the opportunity to exploit the conditionality constraint to their own advantage.<ref>{{cite book |last1=Moury |first1=Catherine |last2=Ladi |first2=Stella |last3=Cardoso |first3=Daniel |last4=Gago |first4=Angie |title=Capitalising on constraint: Bailout politics in Eurozone countries |date=2021 |doi=10.7765/9781526149893 |isbn=978-1526149886 |s2cid=240025813 |edition=Manchester University Press |url=https://doi.org/10.7765/9781526149893 |access-date=23 May 2022}}</ref> According to the authors of this book, bailed-out governments are able to derive political benefits from these operations during and after the program by influencing the policies implemented according to their preferences. Ultimately, national policies remain essential, even in an era of Europeanization.<ref>{{cite book |last1=Moury |first1=Catherine |last2=Ladi |first2=Stella |last3=Cardoso |first3=Daniel |last4=Gago |first4=Angie |title=Capitalising on constraint: Bailout politics in Eurozone countries |date=2021 |doi=10.7765/9781526149893 |isbn=978-1526149886 |s2cid=240025813 |edition=Manchester University Press |url=https://doi.org/10.7765/9781526149893 |access-date=23 May 2022}}</ref> In addition, in some cases, conditionality programs have given countries the opportunity to adopt reforms that were considered necessary but difficult to implement.

==See also==

* [[2000s commodities boom]]

* [[Financial crisis of 2007–08]]▼

* [[2008–11 Icelandic financial crisis]]

* [[Global Recession]]▼

* [[Crisis situations and protests in Europe since 2000]]

* [[European sovereign-debt crisis: List of acronyms]]

* [[European sovereign-debt crisis: List of protagonists]]

* [[Federal Reserve Economic Data]] FRED

▲* [[Financial crisis of 2007–08]]

▲* [[Global ~~Recession~~recession]]

* [[Late-2000s recession in Europe]]

* [[List of countries by credit rating]]

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==External links==

*[http://www.tni.org/briefing/eu-crisis-pocket-guide The EU Crisis Pocket Guide] by the [[Transnational Institute]] in English (2012) -– Italian (2012) -– Spanish (2011)

*[https://web.archive.org/web/20120425080636/http://www.dahrendorf-symposium.eu/ 2011 Dahrendorf Symposium] – Changing the Debate on Europe – Moving Beyond Conventional Wisdoms

*[https://web.archive.org/web/20121031074609/http://blog.dahrendorf-symposium.eu/ 2011 Dahrendorf Symposium Blog]

*[http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Structure_of_government_debt Eurostat – Statistics Explained: Structure of government debt] (October 2011 data)

*[https://www.economist.com/blogs/dailychart/2011/02/europes_economies Interactive Map of the Debt Crisis] ''Economist Magazine'', 9 February 2011

*[http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sovereign_debt_crisis/index.html?ref=global European Debt Crisis] ''The New York Times'' topic page updated daily.

*[https://www.nytimes.com/interactive/business/global/european-debt-crisis-tracker.html?ref=europeansovereigndebtcrisis Tracking Europe's Debt Crisis] ''The New York Times'' topic page, with latest headline by country (France, Germany, Greece, Italy, Portugal, Spain).

*[https://www.nytimes.com/interactive/2010/04/06/business/global/european-debt-map.html Map of European Debts] ''The New York Times'' 20 December 2010

*[http://www.eiu.com/eurodebt Budget deficit from 2007 to 2015] ''Economist Intelligence Unit'' 30 March 2011

*[http://www.democracynow.org/2010/5/4/protests_in_greece_in_response_to Protests in Greece in Response to Severe Austerity Measures in EU, IMF Bailout] – video report by ''[[Democracy Now!]]''

*[https://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html Diagram of Interlocking Debt Positions of European Countries] ''The New York Times'' 1 May 2010

*[http://www.soundsandcolours.com/articles/argentina/argentina-lessons-learnt-from-the-aftermath-of-default/ Argentina: Life After Default] ''Sand and Colours'' 2 August 2010

*[https://www.google.com/publicdata/overview?ds=ds22a34krhq5p_ Google – public data]: Government Debt in Europe

*[http://library.fes.de/pdf-files/id/ipa/07710.pdf Stefan Collignon: Democratic requirements for a European Economic Government] Friedrich-Ebert-Stiftung, December 2010 (PDF 625 KB)

*[http://library.fes.de/pdf-files/id/ipa/08208.pdf Nick Malkoutzis: Greece – A Year in Crisis] Friedrich-Ebert-Stiftung, Juni 2011

*[http://library.fes.de/pdf-files/id/ipa/08169.pdf Rainer Lenz: Crisis in the Eurozone] Friedrich-Ebert-Stiftung, Juni 2011

*[[Martin Wolf|Wolf, Martin]], [http://www.ft.com/intl/cms/s/0/e71ab1d6-049d-11e1-ac2a-00144feabdc0.html#axzz1cYDHnKg3 "Creditors can huff but they need debtors"], ''Financial Times'', 1 November 2011 7:28 pm.

*[http://www.cepr.net/documents/publications/greece-2012-02.pdf More Pain, No Gain for Greece: Is the Euro Worth the Costs of Pro-Cyclical Fiscal Policy and Internal Devaluation?] [[Center for Economic and Policy Research]], February 2012

*"Liquidity only buys time" – Where are European experts for a long-term and holistic approach? Interview with Liu Olin: [http://99faces.tv/liuolin/?preview=true&preview_id=2542&preview_nonce=a5f23749b4 The Euro Crisis. A Chinese Economist's View. (03/2012)]{{dead link|date=November 2016 |bot=InternetArchiveBot |fix-attempted=yes }}

*[https://www.npr.org/templates/transcript/transcript.php?storyId=140948138 Michael Lewis-How the Financial Crisis Created a New Third World-October 2011] NPR, October 2011

*[http://www.thisamericanlife.org/radio-archives/episode/455/continental-breakup This American Life - Continental Breakup] NPR, January 2012

*[http://www.imf.org/external/pubs/ft/gfsr/2012/01/pdf/text.pdf Global Financial Stability Report] International Monetary Fund, April 2012

*[http://www.oecd.org/document/18/0,3746,en_2649_33733_20347538_1_1_1_1,00.html OECD Economic Outlook-May 2012]

*[https://web.archive.org/web/20130118203115/http://www.policyexchange.org.uk/images/WolfsonPrize/wolfson%20economics%20prize%20winning%20entry.pdf "Leaving the Euro: A Practical Guide" by Roger Bootle, winner of the 2012 Wolfson Economics Prize]

*[https://web.archive.org/web/20130928082207/http://ineteconomics.org/sites/inet.civicactions.net/files/INET%20Council%20on%20the%20Euro%20Zone%20Crisis%20-%2023-7-12.pdf "Breaking the Deadlock: A Path Out of the Crisis"]

*[https://web.archive.org/web/20130119040141/http://www.cfo-insight.com/uploads/media/Eurozone-Crisis-webinars-20120718.pdf The Eurozone Crisis - Can Austerity Foster Growth?] The World Bank's Chief Economist EMEA, Indermit Gil, about potential ramifications, CFO Insight Magazine, July 2012

*[https://www.academia.edu/6655991/Media_Coverage_of_the_2010_Greek_Debt_Crisis_Inaccuracies_and_Evidence_of_Manipulation Media Coverage of the 2010 Greek Debt Crisis: Inaccuracies and Evidence of Manipulation] Academia.edu, January 2014