European debt crisis: Difference between revisions - Wikipedia

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{{short description|Multi-year debt crisis in multiple EU countries since late 2009}}

{{~~Very~~mergefrom|Controversies surrounding the eurozone ~~long~~crisis|date=~~January~~August 2024}}

{{~~use~~Very ~~dmy dates~~long|date=~~December~~January ~~2021~~2024|words=20,000}}

[[File:Long-term interest rates (eurozone).png|thumb|upright=1.35|alt=Long-term interest rates in eurozone|Long-term interest rates ([[secondary market]] yields of government bonds with maturities of close to ten years) of all eurozone countries except [[Estonia]], [[Latvia]] and [[Lithuania]].<ref name="ecb.int">{{cite web |url=http://www.ecb.int/stats/money/long/html/index.en.html |title=Long-term interest rate statistics for EU Member States |work=ECB |date=12 July 2011 |access-date=22 July 2011}}</ref> A yield being more than 4% points higher compared to the lowest comparable yield among the eurozone states, i.e. yields above 6% in September 2011, indicates that financial institutions have serious doubts about credit-worthiness of the state.<ref>{{cite news |url=https://www.theguardian.com/business/blog/2011/sep/20/eu-debt-crisis-italy-downgrade |title=EU debt crisis: Italy hit with rating downgrade |work=The Guardian |location=UK |date=20 September 2011 |access-date=20 September 2011 |first=Graeme |last=Wearden}}</ref>]]

The '''European debt crisis''', often also referred to as the '''eurozone crisis''' or the '''European sovereign debt crisis''', was a multi-year [[debt crisis]] that took place in the [[European Union]] (EU) from 2009 until the mid to late 2010s. Several [[eurozone]] member states ([[Greece]], [[Portugal]], [[Republic of Ireland|Ireland]]~~, [[Spain]],~~ and [[Cyprus]]) were unable to repay or refinance their [[government debt]] or to bail out over-indebted banks under their national supervision without the assistance of ~~third parties like~~ other eurozone countries, the [[European Central Bank]] (ECB), or the [[International Monetary Fund]] (IMF).

The eurozone ~~crisis~~ was caused by ~~a [[Currency crisis|balance-of-payments crisis]], which is~~ a sudden stop of the flow of foreign capital into countries that had substantial current account deficits and were dependent on foreign lending. The crisis was worsened by the inability of states to resort to [[devaluation]] (reductions in the value of the national currency) due to having the Euro as a shared currency.<ref name="Copelovitch-2016"/><ref name="Frieden-2017"/> Debt accumulation in some eurozone members was in part due to macroeconomic differences among eurozone member states prior to the adoption of the euro. It also involved a process of debt market contagion. The European Central Bank adopted an interest rate that incentivized investors in Northern eurozone members to lend to the South, whereas the South was incentivized to borrow because interest rates were very low. Over time, this led to the accumulation of deficits in the South, primarily by private economic actors.<ref name="Copelovitch-2016"/><ref name="Frieden-2017"/> A lack of fiscal policy coordination among eurozone member states contributed to imbalanced capital flows in the eurozone,<ref name="Copelovitch-2016"/><ref name="Frieden-2017"/> while a lack of financial regulatory centralization or harmonization among eurozone states, coupled with a lack of credible commitments to provide bailouts to banks, incentivized risky financial transactions by banks.<ref name="Copelovitch-2016"/><ref name="Frieden-2017"/> The detailed causes of the crisis varied from country to country. In several countries, private debts arising from a property [[Economic bubble|bubble]] were transferred to sovereign debt as a result of banking system [[bailout]]s and government responses to slowing economies post-bubble. European banks own a significant amount of sovereign debt, such that concerns regarding the solvency of banking systems or sovereigns are negatively reinforcing.<ref name="Seth W. Feaster">{{cite news |url=https://www.nytimes.com/imagepages/2011/10/22/opinion/20111023_DATAPOINTS.html?ref=sunday-review |title=It's All Connected: A Spectators Guide to the Euro Crisis |author=Seth W. Feaster |author2=Nelson D. Schwartz |author3=Tom Kuntz |newspaper=[[The New York Times]] |date=22 October 2011 |access-date=14 May 2012 |location=New York}}</ref>

The onset of crisis was in late 2009 when the Greek government disclosed that its budget deficits were far higher than previously thought.<ref name="Copelovitch-2016"/> Greece called for external help in early 2010, receiving an EU–IMF bailout package in May 2010.<ref name="Copelovitch-2016"/> European nations implemented a series of financial support measures such as the [[European Financial Stability Facility]] (EFSF) in early 2010 and the [[European Stability Mechanism]] (ESM) in late 2010. The ECB also contributed to solve the crisis by lowering [[interest rates]] and providing cheap loans of more than one trillion euro in order to maintain money flows between European banks. On 6 September 2012, the ECB calmed financial markets by announcing free unlimited support for all eurozone countries involved in a sovereign state bailout/precautionary programme from EFSF/ESM, through some yield lowering [[Outright Monetary Transactions]] (OMT).<ref name="ecb">[http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html "Technical features of Outright Monetary Transactions"], [[European Central Bank]] Press Release, 6 September 2012</ref> Ireland and Portugal received EU-IMF bailouts In November 2010 and May 2011, respectively.<ref name="Copelovitch-2016"/> In March 2012, Greece received its second bailout. Both ~~Spain and~~ Cyprus received rescue packages in June 2012.<ref name="Copelovitch-2016"/>

Return to economic growth and improved structural deficits enabled Ireland and Portugal to exit their bailout programmes in July 2014. Greece and Cyprus both managed to partly regain market access in 2014. Spain never officially received a bailout programme. Its rescue package from the ESM was earmarked for a bank recapitalisation fund and did not include financial support for the government itself. The crisis ~~has~~ had significant adverse economic effects and labour market effects, with unemployment rates in Greece~~, Italy~~ and Spain reaching 27%,<ref>{{cite news |url=https://www.cbsnews.com/~~8301-505123_162-57591731~~news/eurozone-unemployment-at-record-high-in-may/ |title=Eurozone unemployment at record high in May |work=CBS News |date=1 July 2013 |access-date=6 July 2013 |url-status=live |archive-url=https://web.archive.org/web/20130927224047/https://www.cbsnews.com/8301-505123_162-57591731/eurozone-unemployment-at-record-high-in-may/ |archive-date=27 September 2013}}</ref> and was blamed for subdued economic growth, not only for the entire eurozone but for the entire European Union. The austerity policies implemented as a result of the crisis also produced a sharp rise in poverty levels and a significant increase in income inequality across Southern Europe.<ref>{{cite journal|journal=New Political Economy|author=last1: Perez | title=The Political Economy of Austerity in Southern Europe | date=2017 |volume=23 |issue=2 |pages=192–207 |doi=10.1080/13563467.2017.1370445 |hdl=11311/1034637 |url=https://www.tandfonline.com/doi/full/10.1080/13563467.2017.1370445|hdl-access=free }}</ref> It had a major political impact on the ruling governments in 10 out of 19 eurozone countries, contributing to power shifts in Greece, Ireland, France, Italy, Portugal, Spain, Slovenia, Slovakia, Belgium, and the Netherlands as well as outside of the eurozone in the United Kingdom.<ref>{{cite journal |last1=Chiara Casi |title=Bail in -la gestione delle crisi bancarie |url=https://www.academia.edu/40537955 |journal=Bail in e la Nuova Gestione delle Crisi Bancarie |date=January 2019 |access-date=6 October 2019}}</ref>

==Causes==

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The eurozone crisis resulted from the structural problem of the eurozone and a combination of complex factors. There is a consensus that the root of the eurozone crisis lay in a [[~~Currency crisis|~~balance-of-payments crisis]] (a sudden stop of foreign capital into countries that were dependent on foreign lending), and that this crisis was worsened by the fact that states could not resort to [[devaluation]] (reductions in the value of the national currency to make exports more competitive in foreign markets).<ref name="Copelovitch-2016">{{Cite journal|last1=Copelovitch|first1=Mark|last2=Frieden|first2=Jeffry|last3=Walter|first3=Stefanie|date=14 March 2016|title=The Political Economy of the Euro Crisis|journal=Comparative Political Studies|language=en-US|volume=49|issue=7|pages=811–840|doi=10.1177/0010414016633227|s2cid=18181290|issn=0010-4140|url=http://nrs.harvard.edu/urn-3:HUL.InstRepos:33694190}}</ref><ref name="Frieden-2017">{{Cite journal|last1=Frieden|first1=Jeffry|last2=Walter|first2=Stefanie|date=11 May 2017|title=Understanding the Political Economy of the Eurozone Crisis|journal=Annual Review of Political Science|volume=20|issue=1|pages=371–390|doi=10.1146/annurev-polisci-051215-023101|s2cid=15431111|issn=1094-2939|url=http://nrs.harvard.edu/urn-3:HUL.InstRepos:33459439|doi-access=free}}</ref> Other important factors include the [[Financialization|globalisation of finance]]; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices;<ref>{{Cite book |title=The government and politics of the European Union |last=Nugent |first=Neil |publisher=[[Palgrave Macmillan]] |year=2017 |isbn=978-1-137-45409-6 |edition=8th |pages=2}}</ref> the [[financial crisis of 2007–08]]; international trade imbalances; [[real estate bubble]]s that have since burst; the [[Great Recession]] of 2008–2012; fiscal policy choices related to government revenues and expenses; and approaches used by states to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.

Macroeconomic divergence among eurozone member states led to imbalanced capital flows between the member states. Despite different macroeconomic conditions, the European Central Bank could only adopt one interest rate, choosing one that meant that real interest rates in Germany were high (relative to inflation) and low in Southern eurozone member states. This incentivized investors in Germany to lend to the South, whereas the South was incentivized to borrow (because interest rates were very low). Over time, this led to the accumulation of deficits in the South, primarily by private economic actors.<ref name="Copelovitch-2016" /><ref name="Frieden-2017" />

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Comparative [[political economy]] explains the fundamental roots of the European crisis in varieties of national institutional structures of member countries (north vs. south), which conditioned their asymmetric development trends over time and made the union susceptible to external shocks. Imperfections in the Eurozone's governance construction to react effectively exacerbated macroeconomic divergence.<ref name="Zhorayev 2020">{{Cite journal|last=Zhorayev|first=Olzhas|date=2020|title=The Eurozone Debt Crisis: Causes and Policy Recommendations|url=http://rgdoi.net/10.13140/RG.2.2.23914.24001|doi=10.13140/RG.2.2.23914.24001}}</ref>

Eurozone member states could have alleviated the imbalances in capital flows and debt accumulation in the South by coordinating national fiscal policies. Germany could have adopted more expansionary fiscal policies (to boost domestic demand and reduce the outflow of capital) and Southern eurozone member states could have adopted more restrictive fiscal policies (to curtail domestic demand and reduce borrowing from the North).<ref name="Copelovitch-2016" /><ref name="Frieden-2017" /> Per the requirements of the 1992 [[Maastricht Treaty]], governments pledged to limit their [[deficit spending]] and debt levels. However, some of the signatories, including Germany and France, failed to stay within the confines of the [[Maastricht criteria]] and turned to [[Securitization|securitising]] future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards.<ref name="euromoney.com">"[http://www.euromoney.com/Article/1000384/How-Europes-governments-have-enronized-their-debts.html How Europe's Governments have Enronized their debts]," Mark Brown and Alex Chambers, Euromoney, September 2005</ref> This allowed the sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions, and the use of complex currency and credit derivatives structures.<ref name="euromoney.com" /> From late 2009 on, after Greece's newly elected, [[PASOK]] government stopped masking its true indebtedness and budget deficit, fears of [[sovereign default]]s in certain [[~~European State|~~European states]] developed in the public, and the government debt of several states was downgraded. The crisis subsequently spread to Ireland and Portugal, while raising concerns about Italy, Spain, and the European banking system, and more fundamental imbalances within the eurozone.<ref>Paul Belkin, Martin A. Weiss, Rebecca M. Nelson and Darek E. Mix "The Eurozone Crisis: Overview and Issues For Congress", Congressional Research Service Report R42377, 29 February 2012.</ref> The under-reporting was exposed through a revision of the forecast for the 2009 budget deficit from "6–8%" of [[GDP]] (no greater than 3% of GDP was a rule of the [[Maastricht Treaty]]) to 12.7%, almost immediately after PASOK won the [[2009 Greek legislative election|October 2009 Greek national elections]]. Large upwards revision of budget deficit forecasts due to the international financial crisis were not limited to Greece: for example, in the United States forecast for the 2009 budget deficit was raised [[2009 United States federal budget#Deficit|from $407 billion projected in the 2009 fiscal year budget, to $1.4 trillion]], while in the United Kingdom there was a final forecast more than 4 times higher than the original.<ref>{{cite news |title=Budget 2009 in figures |url=http://news.bbc.co.uk/2/hi/business/8002618.stm |work=BBC News |date=22 April 2009 |access-date=6 January 2014}}</ref><ref name="Media Coverage">{{cite news |url=https://www.academia.edu/6655991|title= Media Coverage of the 2010 Greek Debt Crisis: Inaccuracies and Evidence of Manipulation |work= Academia.edu|date=January 2014 }}</ref> In Greece, the low ("6–8%") forecast was reported until very late in the year (September 2009), clearly not corresponding to the actual situation.

Fragmented [[financial regulation]] contributed to irresponsible lending in the years prior to the crisis. In the eurozone, each country had its own financial regulations, which allowed financial institutions to exploit gaps in monitoring and regulatory responsibility to resort to loans that were high-yield but very risky. Harmonization or centralization in financial regulations could have alleviated the problem of risky loans. Another factor that incentivized risky financial transaction was that national governments could not credibly commit not to bailout financial institutions who had undertaken risky loans, thus causing a [[moral hazard]] problem.<ref name="Copelovitch-2016" /><ref name="Frieden-2017" /> The Eurozone can incentivize overborrowing through a [[tragedy of the commons]].<ref>{{cite journal | url=https://doi.org/10.1007/s00182-020-00722-4 | doi=10.1007/s00182-020-00722-4 | title=Can players avoid the tragedy of the commons in a joint debt game? | date=2020 | last1=Takahashi | first1=Hiromasa | last2=Takemoto | first2=Toru | last3=Suzuki | first3=Akihiro | journal=International Journal of Game Theory | volume=49 | issue=4 | pages=975–1002 }}</ref>

==Evolution of the crisis==

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Overall the share of the population living at "risk of poverty or social exclusion" did not increase notably during the first two years of the crisis. The figure was measured to 27.6% in 2009 and 27.7% in 2010 (only being slightly worse than the EU27-average at 23.4%),<ref name="Eurostat -poverty in 2009 and 2010">{{cite news |url=http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-08022012-AP/EN/3-08022012-AP-EN.PDF|archive-url=https://web.archive.org/web/20120209201829/http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-08022012-AP/EN/3-08022012-AP-EN.PDF|url-status=dead|archive-date=9 February 2012 |title=Eurostat Newsrelease 21/2012: In 2010, 23% of the population were at risk of poverty or social exclusion |work=Eurostat |date=8 February 2012 |access-date=5 March 2012}}</ref> but for 2011 the figure was now estimated to have risen sharply above 33%.<ref name="guardian-social-explosion">{{cite news |url=https://www.theguardian.com/world/2012/feb/12/greece-cant-take-any-more |title=I fear for a social explosion: Greeks can't take any more punishment |work=Guardian |date=12 February 2012 |access-date=13 February 2012 |first=Helena |last=Smith |location=London}}</ref> In February 2012, an IMF official negotiating Greek austerity measures admitted that excessive spending cuts were harming Greece.<ref name="IMF-2012"/> The IMF predicted the Greek economy to contract by 5.5% by 2014. Harsh austerity measures led to an actual contraction after six years of recession of 17%.<ref name="IBPE">{{cite book |last1=Basu |first1=Dipak |last2=Miroshnik |first2=Victoria |url=https://books.google.com/books?id=t6F_DAAAQBAJ&pg=PA99 |year=2015 |title=International Business and Political Economy |page=99 |publisher=Springer |isbn=9781137474865}}</ref>

Some economic experts argue that the best option for Greece, and the rest of the EU, would be to engineer an "orderly [[default (finance)|default]]", allowing Athens to withdraw simultaneously from the eurozone and reintroduce its national currency the drachma at a debased rate.<ref name="ReferenceB" /><ref name="Roubini-orderly-default">{{cite news |url=http://www.ft.com/cms/s/0/a3874e80-82e8-11df-8b15-00144feabdc0.html#axzz1YqwjSbNl |author=Nouriel Roubini |title=Greece's best option is an orderly default |work=Financial Times |date=28 June 2010 |access-date=24 September 2011}}</ref> If Greece were to leave the euro, the economic and political consequences would be devastating. According to Japanese financial company [[Nomura Holdings|Nomura]] an exit would lead to a 60% [[devaluation]] of the new drachma. Analysts at French bank [[BNP Paribas]] added that the fallout from a Greek exit would wipe 20% off Greece's GDP, increase Greece's debt-to-GDP ratio to over 200%, and send inflation soaring to 40–50%.<ref name="Guardian-13-May-2012">{{cite news |url=https://www.theguardian.com/business/2012/may/13/greece-leave-eurozone-five-difficult-steps |title=How Greece could leave the eurozone – in five difficult steps |work=[[The Guardian]] |location=UK |date=13 May 2012 |access-date=16 May 2012 |first=Julia |last=Kollewe}}</ref> Also [[UBS]] warned of [[hyperinflation]], a [[bank run]] and even "[[military coup]]s and possible civil war that could afflict a departing country".<ref name="NYT-Greece">{{cite news |url=http://topics.nytimes.com/top/news/international/countriesandterritories/greece/index.html |title=Greece |work=[[The New York Times]] |date=22 January 2012 |access-date=23 January 2012 |first=Paul |last=Taylor}}</ref><ref>{{cite news |url=https://www.nytimes.com/2011/12/13/business/global/a-greek-what-if-draws-concern-dropping-the-euro.html?_r=1&hp |title=Pondering a Dire Day: Leaving the Euro |work=The New York Times |date=12 December 2011 |access-date=23 January 2012}}</ref> [[European Central Bank#Organization|Eurozone National Central Banks]] (NCBs) may lose up to €100bn in debt claims against the [[Bank of Greece|Greek national bank]] through the ECB's [[TARGET2]] system. The [[Deutsche Bundesbank]] alone may have to write off €27bn.<ref>{{cite news |url=http://www.sueddeutsche.de/politik/cducsu-zu-target-ein-risiko-von-milliarden-euro-1.1429253 |title=Ein Risiko von 730 Milliarden Euro |access-date=3 August 2012 |newspaper=[[~~Süddeutsche Zeitung|~~Sueddeutsche]] |date=2 August 2012}}</ref>

To prevent this from happening, the Troika (EC, IMF and ECB) eventually agreed in February 2012 to provide a second bailout package worth {{Nowrap|€130 billion}},<ref name="bbc-2012-02-09">{{cite news |url=https://www.bbc.co.uk/news/business-13798000 |title=Q&A: Greek debt crisis |work=BBC News |date=9 February 2012 |access-date=5 May 2014}}</ref> conditional on the implementation of another harsh austerity package that would reduce Greek expenditure by €3.3bn in 2012 and another €10bn in 2013 and 2014.<ref name="SZ-staat-neu"/>

Then, in March 2012, the Greek government did finally default on parts of its debt - as there was a new law passed by the government so that private holders of Greek government bonds (banks, insurers and investment funds) would "voluntarily" accept a bond swap with a 53.5% nominal write-off, partly in short-term EFSF notes, partly in new Greek bonds with lower interest rates and the maturity prolonged to 11–30 years (independently of the previous maturity).<ref name="53.5%-cut">{{cite web |title=Greek rescue package is no long-term solution, says HSBC's Willem Sels |url=http://www.investmenteurope.net/investment-europe/opinion/2155438/greek-rescue-package-term-solution-hsbcs-willem-sels |author=Willem Sels |publisher=Investment Europe |date=27 February 2012 |access-date=3 March 2012}}</ref> This counted as a "credit event" and holders of credit default swaps were paid accordingly.<ref>{{cite news |url=https://www.wsj.com/news/articles/SB10001424052702304636404577291281319135996 |title=Payouts on Greek CDS Will Be 78.5¢ on Dollar |date=19 March 2012 |work=WSJ |access-date=14 October 2014 |first1=Charles |last1=Forelle |first2=Katy |last2=Burne}}</ref> It was the world's biggest [[debt restructuring]] deal ever done, affecting some {{Nowrap|€206 billion}} of Greek government bonds.<ref>{{cite news |url=https://www.reuters.com/article/us-europe-greece-idUSTRE81S0NP20120229 |title=Insight: How the Greek debt puzzle was solved |access-date=29 February 2012 |work=Reuters |date=29 February 2012}}</ref> The debt write-off had a size of {{Nowrap|€107 billion}}, and caused the Greek debt level to temporarily fall from roughly €350bn to €240bn in March 2012 (it would subsequently rise again, due to the resulting bank recapitalization needs), with improved predictions about the debt burden.<ref name="sueddeutsche.de">{{cite news |url=http://www.sueddeutsche.de/wirtschaft/folgen-des-reformen-griechenland-spart-sich-auf-schwellenland-niveau-herunter-1.1307351 |title=Griechenland spart sich auf Schwellenland-Niveau herunter |access-date=13 March 2012 |newspaper=[[~~Süddeutsche Zeitung|~~Sueddeutsche]] |date=13 March 2012}}</ref><ref name="autogenerated3">{{cite news |url=http://www.sueddeutsche.de/wirtschaft/gutachten-von-eu-und-iwf-griechenland-braucht-keine-weiteren-hilfen-1.1335227 |title=EU drängt auf drastische Lohnsenkungen in Griechenland |publisher=Sueddeutsche |date=17 April 2012 |access-date=18 April 2012}}</ref><ref name="second-bailout-agreement">{{cite news |url=http://consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/128075.pdf |title=Eurogroup statement |access-date=21 February 2012 |publisher=[[Eurogroup]] |date=21 February 2012}}</ref><ref name="2nd-bailout">{{cite news |url=https://www.theguardian.com/business/2012/feb/21/greece-bailout-key-elements-deal |title=Greece bailout: six key elements of the deal |access-date=21 February 2012 |work=The Guardian |date=21 February 2012 |location=London |first=Nils |last=Pratley}}</ref> In December 2012, the Greek government bought back €21 billion ($27 billion) of their bonds for 33 cents on the euro.<ref>{{cite news |url=http://uk.reuters.com/article/uk-greece-buyback-idUKBRE8B905920121210 |archive-url=https://web.archive.org/web/20160130112528/http://uk.reuters.com/article/uk-greece-buyback-idUKBRE8B905920121210 |url-status=dead |archive-date=30 January 2016 |title=Greece extends buyback offer to reach 30 billion euro target ~~| Reuters~~ |work=Reuters |date=10 December 2012}}</ref>

[[File:Creditors of Greece.png|thumb|upright=1.35|Creditors of Greece 2011 and 2015]]

Critics such as the director of [[London School of Economics|LSE]]'s Hellenic Observatory<ref>{{cite web|url=http://www2.lse.ac.uk/europeanInstitute/research/hellenicObservatory/home.aspx|title=Hellenic Observatory|first=London School of Economics and Political|last=Science|access-date=30 July 2012|archive-date=20 June 2012|archive-url=https://web.archive.org/web/20120620060732/http://www2.lse.ac.uk/europeanInstitute/research/hellenicObservatory/home.aspx|url-status=dead}}</ref> argue that the billions of taxpayer euros are not saving Greece but financial institutions.<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? |author=Kevin Featherstone |date=23 March 2012 |work=Greece@LSE |publisher=LSE |access-date=27 March 2012}}</ref> Of all €252bn in bailouts between 2010 and 2015, just 10% has found its way into financing continued public deficit spending on the Greek government accounts. Much of the rest went straight into refinancing the old stock of Greek government debt (originating mainly from the high general government deficits being run in previous years), which was mainly held by private banks and hedge funds by the end of 2009.<ref name="Guardian-2015-01-18">{{cite news |title=A new idea steals across Europe – should Greece's debt be forgiven? |url=https://www.theguardian.com/world/2015/jan/18/should-greece-debt-forgiven-new-idea-europe-syriza |access-date=20 January 2015 |newspaper=The Guardian |date=18 January 2015 |author=Heather Stewart}}</ref> According to LSE, "more than 80% of the rescue package" is going to refinance the expensive old maturing Greek government debt towards private creditors (mainly private banks outside Greece), replacing it with new debt to public creditors on more favourable terms, that is to say paying out their private creditors with new debt issued by its new group of public creditors known as the Troika.<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 |publisher=[[Presseurop]] |access-date=12 March 2012 |archive-date=59 September 2012 |archive-url=https://~~www~~archive.~~webcitation.org~~today/20120909193658/~~6ARpquoBA?url=~~http://www.presseurop.eu/en/content/news-brief/1599061-greek-aid-will-go-banks |url-status=dead }}</ref>

The shift in liabilities from European banks to European taxpayers has been staggering. One study found that the public debt of Greece to foreign governments, including debt to the EU/IMF loan facility and debt through the Eurosystem, increased from €47.8bn to €180.5bn (+132,7bn) between January 2010 and September 2011,<ref name="lums.lancs">{{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 |archive-url=https://web.archive.org/web/20111125004634/http://www.lums.lancs.ac.uk/files/23558.pdf |url-status=dead |archive-date=25 November 2011 |publisher=Lancaster University Management School |access-date=2 April 2012 }}</ref> while the combined exposure of foreign banks to (public and private) Greek entities was reduced from well over €200bn in 2009 to around €80bn (−€120bn) by mid-February 2012.<ref name="Steph 16Feb2012">{{cite news |url=https://www.bbc.co.uk/news/business-17062333 |title=Greece: Costing the exit |author=Stephanie Flanders |date=16 February 2012 |work=BBC News |access-date=5 April 2012}}</ref> {{As of|2015}}, 78% of Greek debt is owed to public sector institutions, primarily the EU.<ref name="Guardian-2015-01-18" /> According to a study by the [[European School of Management and Technology]] only €9.7bn or less than 5% of the first two bailout programs went to the Greek fiscal budget, while most of the money went to French and German banks<ref>{{cite web |url=https://www.esmt.org/where-did-greek-bailout-money-go |title=Where did the Greek bailout money go? |publisher=[[European School of Management and Technology|ESMT]] |date=4 May 2016 |access-date=9 May 2016}}</ref> (In June 2010, France's and Germany's foreign claims vis-a-vis Greece were $57bn and $31bn respectively. German banks owned $60bn of Greek, Portuguese, Irish and Spanish government debt and $151bn of banks' debt of these countries).<ref>{{cite web |url=http://cep.lse.ac.uk/pubs/download/special/cepsp25.pdf |title=The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts - Special Paper No. 25 |date=March 2012 |publisher=[[London School of Economics and Political Science|LSE]] |last1=Ardagna |first1=Silvia |last2=Caselli |first2=Francesco |access-date=28 January 2017}}</ref>

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In mid May 2012, the crisis and impossibility to form a new government after elections and the possible victory by the anti-austerity axis led to new speculations Greece would have to [[Greek withdrawal from the eurozone|leave the eurozone]] shortly.<ref>{{cite news |url=https://www.wsj.com/articles/SB10001424052702303703004577472650011463124?mod=WSJ_Opinion_LEADTop |title=A Greek Reprieve: The Germans might have preferred a victory by the left in Athens |date=18 June 2012 |newspaper=Wall Street Journal}}</ref><ref name="grexit 1">{{cite web |url=https://www.cnbc.com/id/47350056 |title=Huge Sense of Doom Among 'Grexit' Predictions |publisher=[[CNBC]] |date=14 May 2012 |access-date=17 May 2012}}</ref><ref name="grexit 2">{{cite news |last=Ross |first=Alice |url=http://ftalphaville.ft.com/blog/2012/05/14/998631/grexit-and-the-euro-an-exercise-in-guesswork/ |title=Grexit and the euro: an exercise in guesswork |newspaper=[[Financial Times]] |date=14 May 2012 |access-date=16 May 2012}}</ref> This phenomenon became known as "Grexit" and started to govern international market behaviour.<ref name="Hubbard 2013 P. 204">Hubbard, Glenn and Tim Kane. (2013). ''Balance: The Economics of Great Powers From Ancient Rome to Modern America''. Simon & Schuster. P. 204. {{ISBN|978-1-4767-0025-0}}</ref><ref>{{cite web |url=http://gogreece.about.com/od/Glossary-of-Greek-Terms/g/Grexit-What-does-Grexit-Mean.htm |title=Grexit – What does Grexit mean? |publisher=Gogreece.about.com |date=10 April 2012 |access-date=16 May 2012 |archive-date=19 May 2012 |archive-url=https://web.archive.org/web/20120519033426/http://gogreece.about.com/od/Glossary-of-Greek-Terms/g/Grexit-What-does-Grexit-Mean.htm |url-status=dead }}</ref><ref>{{cite web |author=Buiter, Willem |url=http://willembuiter.com/grexit.pdf |title=Rising Risks of Greek Euro Area Exit |publisher=Willem Buiter |access-date=17 May 2012 |archive-url=https://web.archive.org/web/20120616202755/http://willembuiter.com/grexit.pdf |archive-date=16 June 2012 |url-status=dead |author-link=Willem Buiter }}</ref> The centre-right's narrow victory in 17 June election gave hope that Greece would honour its obligations and stay in the Euro-zone.

Due to a delayed reform schedule and a worsened economic recession, the new government immediately asked the Troika to be granted an extended deadline from 2015 to 2017 before being required to restore the budget into a self-financed situation; which in effect was equal to a request of a third bailout package for 2015–16 worth €32.6bn of extra loans.<ref name="Troika report November 2012">{{cite web |url=http://sup.kathimerini.gr/xtra/media/files/fin/troika_ekthesi.pdf |title=Troika report (Draft version 11 November 2012) |publisher=European Commission |date=11 November 2012 |access-date=12 November 2012 |url-status=dead |archive-url=https://web.archive.org/web/20130627065720/http://sup.kathimerini.gr/xtra/media/files/fin/troika_ekthesi.pdf |archive-date=27 June 2013 }}</ref><ref name="Greece seeks 2-year austerity extension">{{cite news |url=http://www.ft.com/intl/cms/s/979cd2f4-e635-11e1-ac5f-00144feab49a,Authorised=false.html |title=Greece seeks 2-year austerity extension |newspaper=Financial Times |access-date=1 September 2012 |date=14 August 2012}}</ref> On 11 November 2012, facing a default by the end of November, the Greek parliament passed a new austerity package worth €18.8bn,<ref name="Greece needs bailout payment in November">{{cite web |url=http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_05/10/2012_464693 |title=Samaras raises alarm about lack of liquidity, threat to democracy |publisher=Ekathimerini |access-date=7 October 2012 |date=5 October 2012}}</ref> including a "labour market reform" and "mid term fiscal plan 2013–16".<ref name="Troika report slated for Nov.2012">{{cite news |url=http://news.kathimerini.gr/4dcgi/_w_articles_politics_100042_04/10/2012_497524 |title=Unsustainable debt, restructuring or new stimulus package |language=el |newspaper=Kathimerini |date=4 October 2012 |access-date=4 October 2012 |url-status=dead |archive-url=https://archive.today/20130107153209/http://news.kathimerini.gr/4dcgi/_w_articles_politics_100042_04/10/2012_497524 |archive-date=7 January 2013 }}</ref><ref name="Troika report ETA">{{cite news |url=http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_03/10/2012_464286 |title=One step forward, two back for Greece on debt |newspaper=[[~~Kathimerini|~~eKathimerini]] |date=3 October 2012 |access-date=4 October 2012}}</ref> In return, the Eurogroup agreed on the following day to lower interest rates and prolong debt maturities and to provide Greece with additional funds of around €10bn for a [[debt-buy-back]] programme. The latter allowed Greece to retire about half of the {{Nowrap|€62 billion}} in debt that Athens owes private creditors, thereby shaving roughly {{Nowrap|€20 billion}} off that debt. This should bring Greece's debt-to-GDP ratio down to 124% by 2020 and well below 110% two years later.<ref>{{cite news |url=https://www.wsj.com/articles/SB10001424127887324024004578173080175399670# |title=Greece's Buyback Effort Advances |date=11 December 2012 |newspaper=Wall Street Journal |first1=Stelios |last1=Bouras |first2=Costas |last2=Paris |first3=Matthew |last3=Dalton}}</ref> Without agreement the debt-to-GDP ratio would have risen to 188% in 2013.<ref name="EC-autumn-forecast">{{cite web |title=European economic forecast – autumn 2012 |url=http://ec.europa.eu/economy_finance/eu/forecasts/2012_autumn_forecast_en.htm |publisher=[[European Commission]] |date=7 November 2012 |access-date=7 November 2012}}</ref>

The ''[[Financial Times]]'' special report on the future of the European Union argues that the liberalisation of labour markets has allowed Greece to narrow the cost-competitiveness gap with other southern eurozone countries by approximately 50% over the past two years.<ref name="FT Writers">{{cite news |last=FT Writers |title=Hint of southern comfort shows need to bolster reform process |url=http://www.ft.com/intl/cms/s/0/bb53cd56-b17d-11e2-9315-00144feabdc0.html#axzz2TO9HHgbj |access-date=15 May 2013 |newspaper=Financial Times |date=9 May 2013}}</ref> This has been achieved primary through wage reductions, though businesses have reacted positively.<ref name="FT Writers" /> The opening of product and service markets is proving tough because interest groups are slowing reforms.<ref name="FT Writers" /> The biggest challenge for Greece is to overhaul the tax administration with a significant part of annually assessed taxes not paid.<ref name="FT Writers" /> Poul Thomsen, the IMF official who heads the bailout mission in Greece, stated that "in structural terms, Greece is more than halfway there".<ref name="FT Writers" />

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During the second half of 2014, the Greek government again negotiated with the Troika. The negotiations were this time about how to comply with the programme requirements, to ensure activation of the payment of its last scheduled eurozone bailout tranche in December 2014, and about a potential update of its remaining bailout programme for 2015–16. When calculating the impact of the 2015 fiscal budget presented by the Greek government, there was a disagreement, with the calculations of the Greek government showing it fully complied with the goals of its agreed ''"Midterm fiscal plan 2013–16"'', while the Troika calculations were less optimistic and returned a not covered financing gap at €2.5bn (being required to be covered by additional austerity measures). As the Greek government insisted their calculations were more accurate than those presented by the Troika, they submitted an unchanged fiscal budget bill on 21 November, to be voted for by the parliament on 7 December. The [[Eurogroup]] was scheduled to meet and discuss the updated review of the Greek bailout programme on 8 December (to be published on the same day), and the potential adjustments to the remaining programme for 2015–16. There were rumours in the press that the Greek government has proposed immediately to end the previously agreed and continuing IMF bailout programme for 2015–16, replacing it with the transfer of €11bn unused bank recapitalization funds currently held as reserve by the [[Hellenic Financial Stability Fund]] (HFSF), along with establishment of a new precautionary Enhanced Conditions Credit Line (ECCL) issued by the [[European Stability Mechanism]]. The ECCL instrument is often used as a follow-up precautionary measure, when a state has exited its sovereign bailout programme, with transfers only taking place if adverse financial/economic circumstances materialize, but with the positive effect that it help calm down financial markets as the presence of this extra backup guarantee mechanism makes the environment safer for investors.<ref>{{cite news |url=http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_16/11/2014_544644 |title=Analysis: Markets keep government in check |newspaper=Kathimerini |date=16 November 2014}}</ref>

The positive economic outlook for Greece—based on the return of seasonally adjusted real GDP growth across the first three quarters of 2014—was replaced by a new fourth recession starting in Q4-2014.<ref name="Greece hit by a new 4th recession">{{cite web |url=http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0704/PressReleases/A0704_SEL84_DT_QQ_01_2015_01_E_EN.pdf|archive-url=https://web.archive.org/web/20150518084533/http://www.statistics.gr/portal/page/portal/ESYE/BUCKET/A0704/PressReleases/A0704_SEL84_DT_QQ_01_2015_01_E_EN.pdf|url-status=dead|archive-date=18 May 2015 |title=Quarterly National Accounts – 1st Quarter 2015 (Flash Estimates) |publisher=ELSTAT |date=13 May 2015}}</ref> This new fourth recession was widely assessed as being direct related to the premature [[January 2015 Greek legislative election|snap parliamentary election]] called by the Greek parliament in December 2014 and the following formation of a [[~~Coalition of the Radical Left|~~Syriza]]-led government refusing to accept respecting the terms of its current bailout agreement. The rising political uncertainty of what would follow caused the Troika to suspend all scheduled remaining aid to Greece under its second programme, until such time as the Greek government either accepted the previously negotiated conditional payment terms or alternatively could reach a mutually accepted agreement of some new updated terms with its public creditors.<ref name="Bailout suspended until formation of a new-elect government">{{cite news |url=http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_29/12/2014_545787 |title=IMF suspends aid to Greece ahead of new elections |newspaper=Kathimerini |date=29 December 2014}}</ref> This rift caused a renewed increasingly growing liquidity crisis (both for the Greek government and Greek financial system), resulting in plummeting stock prices at the [[Athens Stock Exchange]] while interest rates for the Greek government at the private lending market spiked to levels once again making it inaccessible as an alternative funding source.

Faced by the threat of a sovereign default and potential resulting exit of the eurozone, some final attempts were made by the Greek government in May 2015 to settle an agreement with the Troika about some adjusted terms for Greece to comply with in order to activate the transfer of the frozen bailout funds in its second programme. In the process, the Eurogroup granted a six-month technical extension of its second bailout programme to Greece.

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The Irish sovereign debt crisis arose not from government over-spending, but from the state guaranteeing the six main Irish-based banks who had financed a [[property bubble]]. On 29 September 2008, Finance Minister [[Brian Lenihan Jnr]] issued a two-year guarantee to the banks' depositors and bondholders.<ref>{{cite news |url=http://www.independent.ie/national-news/remember-how-ireland-was-ruined-by-bankers-2538092.html |title=Remember how Ireland was ruined by bankers |publisher=Independent News & Media PLC |last=McConnell |first=Daniel |date=13 February 2011 |access-date=6 June 2012}}</ref> The guarantees were subsequently renewed for new deposits and bonds in a slightly different manner. In 2009, a [[National Asset Management Agency]] (NAMA) was created to acquire large property-related loans from the six banks at a market-related "long-term economic value".<ref>{{cite web |url=http://www.thejournal.ie/obituary-brian-lenihan-td-1959-2011-153136-Jun2011/ |title=Brian Lenihan, Jr, Obituary and Info |date=10 June 2011 |publisher=The Journal |access-date=30 June 2012}}</ref>

Irish banks had lost an estimated 100 billion euros, much of it related to defaulted loans to property developers and homeowners made in the midst of the property bubble, which burst around 2007. The economy collapsed during 2008. Unemployment rose from 4% in 2006 to 14% by 2010, while the national budget went from a surplus in 2007 to a deficit of 32% GDP in 2010, the highest in the history of the eurozone, despite austerity measures.<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 web |url=https://www.cia.gov/the-world-factbook/countries/ireland/ |title=CIA World Factbook-Ireland-Retrieved 2 December 2011 |publisher=[[~~Central Intelligence Agency|~~CIA]] |access-date=14 May 2012}}</ref>

With Ireland's credit rating falling rapidly in the face of mounting estimates of the banking losses, guaranteed depositors and bondholders cashed in during 2009–10, and especially after August 2010. (The necessary funds were borrowed from the central bank.) With yields on Irish Government debt rising rapidly, it was clear that the Government would have to seek assistance from the EU and IMF, resulting in a {{Nowrap|€67.5 billion}} "bailout" agreement of 29 November 2010.<ref>{{cite news |url=https://www.economist.com/blogs/freeexchange/2010/09/irelands_economy_0 |newspaper=[[The Economist]] |title=The money pit |date=30 September 2010}}</ref> Together with additional {{Nowrap|€17.5 billion}} coming from Ireland's own reserves and pensions, the government received {{Nowrap|€85 billion}},<ref>[https://money.cnn.com/2010/11/28/news/international/ireland_bailout/index.htm EU unveils Irish bailout], [[CNN]], 2 December 2010</ref> of which up to {{Nowrap|€34 billion}} was to be used to support the country's failing financial sector (only about half of this was used in that way following stress tests conducted in 2011).<ref name="sueddeutsche">{{cite news |url=http://www.sueddeutsche.de/wirtschaft/ueberschuldete-staaten-ihr-krisenlaender-europas-schaut-auf-irland-1.1195187 |work=[[Süddeutsche Zeitung]] |title=Ihr Krisenländer, schaut auf Irland! |last1=Gammelin |first1=Cerstin |last2=Oldag |first2=Andreas |date=21 November 2011 |access-date=21 November 2011}}</ref> In return the government agreed to reduce its budget deficit to below three per cent by 2015.<ref name="sueddeutsche"/> In April 2011, despite all the measures taken, [[Moody's]] downgraded the banks' debt to [[junk status]].<ref>{{cite news |url=http://www.rte.ie/news/2011/0418/rating-business.html |work=[[RTÉ]] |title=Moody's cuts all Irish banks to junk status |date=18 April 2011 |access-date=6 June 2012}}</ref>

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Unlike other European countries that were also severely hit by the Great Recession in the late 2000s and eventually received bailouts in the early 2010s (such as [[Greek government-debt crisis|Greece]] and [[Post-2008 Irish economic downturn|Ireland]]), Portugal had the characteristic that the 2000s were not marked by economic growth, but were already a period of economic crisis, marked by stagnation, two recessions (in 2002–03<ref>{{cite news |url=https://www.publico.pt/2003/03/13/economia/noticia/portugal-entrou-em-recessao-no-quarto-trimestre-de-2002-284735 |title=Portugal entrou em recessão no quarto trimestre de 2002 |last=Melo |first=Eduardo |date=13 March 2003 |newspaper=Público |language=pt |trans-title=Portugal entered recession in the fourth quarter of 2002 |access-date=5 July 2018 }}</ref> and 2008–09<ref>{{cite web |url=https://www.rtp.pt/noticias/economia/portugal-fechou-2008-em-recessao_v183214 |title=Portugal fechou 2008 em recessão |date=13 February 2009 |publisher=RTP |language=pt |trans-title=Portugal ended 2008 in recession |access-date=5 July 2018 }}</ref>) and government-sponsored fiscal austerity in order to reduce the budget deficit to the limits allowed by the European Union's [[Stability and Growth Pact]].<ref>{{cite news |url=https://www.publico.pt/2002/06/28/jornal/medidas-de-austeridade-poderao-evitar-multas-por-defice-excessivo-172124 |title=Medidas de austeridade poderão evitar multas por défice excessivo |last=Arriaga e Cunha |first=Isabel |date=28 June 2002 |newspaper=Público |language=pt |trans-title=Austerity measures may avoid fines due to excessive deficit |access-date=28 June 2018 }}</ref><ref>{{cite news |date=25 March 2004 |title=Stability pays |url=http://www.economist.com/node/2545844 |newspaper=The Economist |access-date=5 July 2018 }}</ref><ref>{{cite news |last=Cambon |first=Diane |date=27 June 2008 |title=Budget, impôts, retraite : la leçon d'austérité du Portugal |trans-title=Budget, taxes, reforms: Portugal's lesson of austerity |url=http://www.lefigaro.fr/economie/2008/06/27/04001-20080627ARTFIG00357-budget-impots-retraite-la-lecon-d-austerite-du-portugal.php |language=fr |newspaper=Le Figaro |access-date=5 July 2018 }}</ref>

According to a report by the ''[[Diário de Notícias]]'',<ref>{{in lang|pt}} [https://www.dn.pt/inicio/tv/interior.aspx?content_id=1797055&seccao=Media "O estado a que o Estado chegou" no 2.º lugar do top] {{webarchive |url=https://web.archive.org/web/20130513031840/http://www.dn.pt/inicio/tv/interior.aspx?content_id=1797055&seccao=Media |date=13 May 2013 }}, [[Diário de Notícias]] (2 March 2011)</ref> Portugal had allowed considerable [[slippage (finance)|slippage]] in state-managed [[public works]] and inflated top management and head officer bonuses and wages in the period between the [[Carnation Revolution]] in 1974 and 2010. Persistent and lasting recruitment policies boosted the number of redundant public servants. Risky [[~~credit (finance)|~~credit]], [[public debt]] creation, and European [[structural and cohesion funds]] were mismanaged across almost four decades.<ref>{{in lang|pt}} [https://www.dn.pt/inicio/tv/interior.aspx?content_id=1797055&seccao=Media "O estado a que o Estado chegou" no 2.º lugar do top] {{webarchive |url=https://web.archive.org/web/20130513031840/http://www.dn.pt/inicio/tv/interior.aspx?content_id=1797055&seccao=Media |date=13 May 2013 }}, [[Diário de Notícias]] (2 March 2012)</ref> When the global crisis disrupted the markets and the world economy, together with the US [[subprime mortgage crisis]] and the eurozone crisis, Portugal was one of the first economies to succumb, and was affected very deeply.

In the summer of 2010, [[Moody's]] Investors Service cut Portugal's [[sovereign bond]] rating,<ref>[[Bond credit rating]]s</ref> which led to an increased pressure on Portuguese government bonds.<ref>{{cite news |url=http://news.bbc.co.uk/2/hi/business/10610673.stm |title=Moody's downgrades Portugal debt |work=BBC News |date=13 July 2010 |access-date=3 August 2013}}</ref> In the first half of 2011, Portugal requested a €78 billion IMF-EU bailout package in a bid to stabilise its [[public finances]].<ref>{{cite news |url=http://www.csmonitor.com/World/Europe/2011/0407/Portugal-requests-bailout.-Will-Europe-s-debt-crisis-stop-there |author=Andres Cala |title=Portugal requests bailout |newspaper=[[The Christian Science Monitor]] |date=7 April 2011 |access-date=30 June 2012}}</ref>

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Nevertheless, in June 2012, [[2008–2012 Spanish financial crisis|Spain]] became a prime concern for the Euro-zone<ref name="guardian1">{{cite news |url=https://www.theguardian.com/business/2012/jun/06/spain-euro-finished-fiscal-union |title=Spain calls for new tax pact to save euro: Madrid calls for Europe-wide plan but resists 'humiliation' of national bailout |date=6 June 2012 |author1=Ian Traynor |author2=Nicholas Watt |newspaper=The Guardian |location=London}}</ref> when interest on Spain's 10-year bonds reached the 7% level and it faced difficulty in accessing bond markets. This led the Eurogroup on 9 June 2012 to grant Spain a financial support package of up to €100 billion.<ref>{{cite web |url=http://www.diariodeavisos.com/comunicado-integro-del-eurogrupo-sobre-el-rescate-a-la-banca-espanola/ |title=Comunicado íntegro del Eurogrupo sobre el rescate a la banca española |publisher=Diario de Avisos |date=9 June 2012 |access-date=26 March 2013}}</ref> The funds will not go directly to Spanish banks, but be transferred to a government-owned Spanish fund responsible to conduct the needed bank recapitalisations (FROB), and thus it will be counted for as additional sovereign debt in Spain's national account.<ref name=economist20120616>{{cite news |url=http://www.economist.com/node/21556953 |title=The Spanish bail-out: Going to extra time |date=16 June 2012 |newspaper=The Economist}}</ref><ref>{{cite news |url=https://www.wsj.com/articles/SB10001424052702303962304577511013474397138 |title=Doubts Emerge in Bloc's Rescue Deal |date=6 July 2012 |newspaper=Wall Street Journal |author=Matina Stevis}}</ref><ref>{{cite news |url=https://www.telegraph.co.uk/finance/financialcrisis/9363900/Debt-crisis-Germany-caves-in-over-bond-buying-bank-aid-after-Italy-and-Spain-threaten-to-block-everything.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/financialcrisis/9363900/Debt-crisis-Germany-caves-in-over-bond-buying-bank-aid-after-Italy-and-Spain-threaten-to-block-everything.html |archive-date=12 January 2022 |url-access=subscription |url-status=live |title=Debt crisis: Germany caves in over bond buying, bank aid after Italy and Spain threaten to block 'everything' |author=Bruno Waterfield |newspaper=Telegraph |date=29 June 2012 |location=London}}{{cbignore}}</ref> An economic forecast in June 2012 highlighted the need for the arranged bank recapitalisation support package, as the outlook promised a negative growth rate of 1.7%, unemployment rising to 25%, and a continued declining trend for housing prices.<ref name="wsj20120611"/> In September 2012 the ECB removed some of the pressure from Spain on financial markets, when it announced its "unlimited bond-buying plan", to be initiated if Spain would sign a new sovereign bailout package with EFSF/ESM.<ref name=NYT20120907>{{cite news |url=https://www.nytimes.com/2012/09/08/business/global/daily-euro-zone-watch.html |title=Bond Plan Lowers Debt Costs, but Germany Grumbles |author1=Stephen Castle |author2=Melissa Eddy |date=7 September 2012 |newspaper=[[The New York Times]]}}</ref><ref>{{cite news |url=https://www.wsj.com/articles/SB10000872396390443995604578003662551064492 |title=Spain Debt Sells Despite Bailout Pressure |author=Emese Bartha |author2=Jonathan House |newspaper=Wall Street Journal |date=18 September 2012}}{{cbignore|bot=medic}}</ref> Strictly speaking, Spain was not hit by a sovereign debt-crisis in 2012, as the financial support package that they received from the ESM was earmarked for a bank recapitalization fund and did not include financial support for the government itself.

According to the latest debt sustainability analysis published by the European Commission in October 2012, the fiscal outlook for Spain, if assuming the country will stick to the fiscal consolidation path and targets outlined by the country's current EDP programme, will result in a [[debt-to-GDP ratio]] reaching its maximum at 110% in 2018—followed by a declining trend in subsequent years. In regards of the [[structural deficit]] the same outlook has promised, that it will gradually decline to comply with the maximum 0.5% level required by the [[~~European Fiscal Compact|~~Fiscal Compact]] in 2022/2027.<ref>{{cite web |url=http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp118_en.pdf |title=European Economy Occasional Papers 118: The Financial Sector Adjustment Programme for Spain |publisher=European Commission |date=16 October 2012 |access-date=28 October 2012}}</ref>

Though Spain was suffering with 27% unemployment and the economy was shrinking 1.4% in 2013, Mariano Rajoy's conservative government has pledged to speed up reforms, according to the ''[[Financial Times]]'' special report on the future of the European Union.<ref name=autogenerated2>{{cite news |last=FT writers |title=Hint of southern comfort shows need to bolster reform process |url=http://www.ft.com/intl/cms/s/0/bb53cd56-b17d-11e2-9315-00144feabdc0.html#axzz2TO9HHgbj |access-date=15 May 2013 |newspaper=Financial Times |date=9 May 2013}}</ref> "Madrid is reviewing its labour market and pension reforms and has promised by the end of this year to liberalize its heavily regulated professions".<ref name="FT Writers"/> But Spain is benefiting from improved labour cost competitiveness.<ref name="FT Writers"/> "They have not lost export market share," says Eric Chaney, chief economist at [[Axa]].<ref name="FT Writers"/> "If credit starts flowing again, Spain could surprise us".<ref name="FT Writers"/>

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On 30 November the Troika (the European Commission, the International Monetary Fund, and the European Central Bank) and the Cypriot Government had agreed on the bailout terms with only the amount of money required for the bailout remaining to be agreed upon.<ref>{{cite news |last=Tugwell |first=Paul |url=https://www.bloomberg.com/news/2012-11-30/cyprus-troika-agree-bailout-terms-ecb-demetriades-says.html |archive-url=https://web.archive.org/web/20121204194335/http://www.bloomberg.com/news/2012-11-30/cyprus-troika-agree-bailout-terms-ecb-demetriades-says.html |url-status=dead |archive-date= 4 December 2012 |title=Cyprus, Troika Agree Bailout Terms, ECB Demetriades Says |publisher=Bloomberg L.P. |date=30 November 2012 |access-date=26 March 2013 }}</ref> Bailout terms include strong austerity measures, including cuts in civil service salaries, social benefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges.<ref>{{cite web |url=http://dspace.iconad.in:8080/jspui/handle/123456789/339 |title=Euro-zone crisis Scope or Scoop for Healthcare Professionals and Health Tourism in India |author1=K S Ramakrishnan |author2=Mrs Vidyalaxmi |publisher=[[PRDLC, Mumbai]] |date=18 February 2013 |access-date=26 March 2013 |url-status=dead |archive-url=https://web.archive.org/web/20150518095907/http://dspace.iconad.in:8080/jspui/handle/123456789/339 |archive-date=18 May 2015 }}</ref><ref>{{cite web |url=https://www.researchgate.net/publication/273084072 |title=Eurozone crisis and its impact on Healthcare Professionals seeking employment in Europe |author1=Ramakrishnan KS |author2=Vidyalaxmi Venkataramani |work=UGC sponsored National Research Compendium 1.1 (2013): 30–38 |date=2013 |access-date=29 January 2017}}</ref><ref>{{cite web |url=http://www.politis-news.com/upload/20121130/1354292326-07337.pdf |archive-url=https://web.archive.org/web/20130124023012/http://www.politis-news.com/upload/20121130/1354292326-07337.pdf |url-status=dead |archive-date=24 January 2013 |title=Cyprus MoU 29 Nov to EWG.doc |access-date=26 March 2013 }}</ref> At the insistence of the Commission negotiators, at first the proposal also included an unprecedented one-off levy of 6.7% for deposits up to €100,000 and 9.9% for higher deposits on all domestic bank accounts.<ref>{{cite news |url=https://www.theguardian.com/world/2013/mar/16/cyprus-eurozone-bailout-anger |title=Cyprus eurozone bailout prompts anger as savers hand over possible 10% levy: Angry Cypriots try in vain to withdraw savings as eurozone bailout terms break taboo of hitting bank depositors |newspaper=The Guardian |agency=Reuters |date=16 March 2013 |access-date=16 March 2013 |location=London}}</ref> Following public outcry, the eurozone finance ministers were forced to change the levy, excluding deposits of less than €100,000, and introducing a higher 15.6% levy on deposits of above €100,000 ($129,600)—in line with the [[Deposit Guarantee Scheme#European Union|EU minimum deposit guarantee]].<ref>{{cite news |url=https://www.reuters.com/article/eurozone-cyprus-levy-idUSB5E8KL00Z20130318 |title=Euro zone wants no Cypriot deposit levy up to 100,000 euros |newspaper=Reuters |agency=Reuters |date=18 March 2013 |access-date=19 March 2013}}</ref> This revised deal was also rejected by the Cypriot parliament on 19 March 2013 with 36 votes against, 19 abstentions and one not present for the vote.<ref>{{cite news |url=https://www.reuters.com/article/us-cyprus-parliament-idUSBRE92G03I20130319 |title=Cyprus lawmakers reject bank tax; bailout in disarray Reuters |date=19 March 2013}}</ref>

The final agreement was settled on 25 March 2013, with the proposal to close the most troubled [[Laiki Bank]], which helped significantly to reduce the needed loan amount for the overall bailout package, so that €10bn was sufficient without need for imposing a general levy on bank deposits.<ref name="Eurogroup bailout package agreement on 25 March">{{cite web |url=http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/136487.pdf |title=Eurogroup Statement on Cyprus |publisher=Eurogroup |date=25 March 2013 |access-date=25 March 2013}}</ref> The final conditions for activation of the bailout package was outlined by the Troika's [[~~Memorandum of Understanding|~~MoU]] agreement, which was endorsed in full by the [[House of Representatives (Cyprus)|Cypriot House of Representatives]] on 30 April 2013. It includes:<ref name="Eurogroup bailout package agreement on 25 March"/><ref name="Economic Adjustment Programme for Cyprus">{{cite web |url=http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/ocp149_en.pdf |title=The Economic Adjustment Programme for Cyprus |work=Occasional Papers 149 (yield spreads displayed by graph 19) |publisher=European Commission |date=17 May 2013 |access-date=19 May 2013}}</ref>

# Recapitalisation of the entire financial sector while accepting a closure of the Laiki bank,

# Implementation of the [[anti-money laundering]] framework in Cypriot financial institutions,

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The Cypriot debt-to-GDP ratio is on this background now forecasted only to peak at 126% in 2015 and subsequently decline to 105% in 2020, and thus considered to remain within sustainable territory.<ref name="Economic Adjustment Programme for Cyprus"/>

Although the bailout support programme feature sufficient financial transfers until March 2016, Cyprus began slowly to regain its access to the private lending markets already in June 2014. At this point of time, the government sold €0.75bn of bonds with a five-year maturity, to the tune of a 4.85% yield. A continued selling of bonds with a ten-year maturity, which would equal a regain of complete access to the private lending market (and mark the end of the era with need for bailout support), is expected to happen sometime in 2015.<ref>{{cite news |url=https://www.bloomberg.com/news/2014-06-18/cyprus-said-to-start-selling-bond-ending-exile.html |title=Cyprus Sells Bonds, Bailed-Out Nations' Market Exile |publisher=Bloomberg |date=18 June 2014 |first=Eshe |last=Nelson}}</ref> The Cypriot minister of finance recently confirmed, that the government plan to issue two new European Medium Term Note (EMTN) bonds in 2015, likely shortly ahead of the expiry of another €1.1bn bond on 1 July and a second expiry of a €0.9bn bond on 1 November.<ref>{{cite web |url=http://www.financialmirror.com/news-details.php?nid=33677 |title=CYPRUS: Two new EMTN issues in 2015 |publisher=Financial Mirror |date=7 January 2015 |access-date=23 January 2015 |archive-date=24 April 2017 |archive-url=https://web.archive.org/web/20170424063251/http://www.financialmirror.com/news-details.php?nid=33677 |url-status=dead }}</ref> As announced in advance, the Cypriot government issued €1bn of seven-year bonds with a 4.0% yield by the end of April 2015.<ref>{{cite web |url=http://in-cyprus.com/nicosia-satisfied-with-cyprus-bond-sale/|archive-url=https://web.archive.org/web/20150928151157/http://in-cyprus.com/nicosia-satisfied-with-cyprus-bond-sale/|url-status=dead|archive-date=28 September 2015 |title=Nicosia satisfied with Cyprus bond sale |publisher=In Cyprus |date=28 April 2015}}</ref><ref>{{cite web |url=http://www.mof.gov.cy/mof/mof.nsf/All/5B81B81847C333C3C2257E36001DFCDF/$file/Announcement%20%CE%95%CE%9C%CE%A4%CE%9D%20Eglish.pdf |title=29/04/2015 Announcement – New EMTN Termsheet |publisher=Cypriot Ministry of Finance (Public Debt Management Office) |date=28 April 2015}}{{dead link|date=February 2017}}</ref>

{{Maplink|frame=yes

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;Usage of EFSF funds

The EFSF only raises funds after an aid request is made by a country.<ref>{{cite news |last=Stearns |first=Jonathan |url=https://www.bloomberg.com/apps/news?pid=20601068&sid=ajCcUH0_os58|archive-url=https://archive.today/20120721222442/http://www.bloomberg.com/apps/news?pid=20601068&sid=ajCcUH0_os58|url-status=dead|archive-date=21 July 2012 |title=Euro-Area Ministers Seal Rescue-Fund Deal to Stem Debt Crisis |publisher=Bloomberg.com |access-date=16 May 2012}}</ref> As of the end of July 2012, it has been activated various times. In November 2010, it financed {{Nowrap|€17.7 billion}} of the total {{Nowrap|€67.5 billion}} rescue package for Ireland (the rest was loaned from individual European countries, the European Commission and the IMF). In May 2011 it contributed one-third of the €78 billion package for Portugal. As part of the second bailout for Greece, the loan was shifted to the EFSF, amounting to {{Nowrap|€164 billion}} (130bn new package plus 34.4bn remaining from Greek Loan Facility) throughout 2014.<ref name="EFSF-FAQ">{{cite news |url=http://www.efsf.europa.eu/attachments/faq_en.pdf|archive-url=https://web.archive.org/web/20110122114429/http://www.efsf.europa.eu/attachments/faq_en.pdf|url-status=dead|archive-date=22 January 2011 |title=European Financial Stability Facility (EFSF) |publisher=European Commission |access-date=16 March 2012 |date=15 March 2012}}</ref> On 20 July 2012, European finance ministers sanctioned the first tranche of a partial bailout worth up to €100 billion for Spanish banks.<ref name="Economist-28-07-2012">{{cite news |url=http://www.economist.com/node/21559659 |title=The Spanish patient |date=28 July 2012 |newspaper=Economist |access-date=3 August 2012}}</ref> This leaves the EFSF with {{Nowrap|€148 billion}}<ref name="Economist-28-07-2012"/> or an equivalent of {{Nowrap|€444 billion}} in leveraged firepower.<ref name="Sueddeutsche">{{cite news |url=http://www.sueddeutsche.de/politik/euro-rettungsfonds-esfs-der-schirm-ist-gross-genug-1.1225315 |title=Welches Land gehört zu den großen Sorgenkindern? |date=2 December 2011 |newspaper=[[~~Süddeutsche Zeitung|~~Sueddeutsche]] |access-date=3 December 2011}}</ref>

The EFSF is set to expire in 2013, running some months parallel to the permanent {{Nowrap|€500 billion}} rescue funding program called the [[European Stability Mechanism]] (ESM), which will start operating as soon as member states representing 90% of the capital commitments have ratified it. (see section: [[#European Stability Mechanism (ESM)|ESM]])

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====European Financial Stabilisation Mechanism (EFSM)====

On 5 January 2011, the European Union created the European Financial Stabilisation Mechanism (EFSM), 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.<ref>{{cite news |url=http://news.xinhuanet.com/english2010/world/2011-01/06/c_13678088.htm |title=EU bonds for Ireland bailout well-received on market |agency=[[~~Xinhua News Agency|~~Xinhua]] |date=6 January 2011 |access-date=26 April 2011 |url-status=dead |archive-url=https://web.archive.org/web/20120325225325/http://news.xinhuanet.com/english2010/world/2011-01/06/c_13678088.htm |archive-date=25 March 2012 }}</ref> It runs under the supervision of the Commission<ref>{{cite news |agency=AFP |url=https://www.google.com/hostednews/afp/article/ALeqM5gTYQGEdx2fNsLoryy0QixCgbAtuQ?docId=CNG.7f52d5080666c6faeec68359512796af.941|archive-url=https://web.archive.org/web/20130224080538/http://www.google.com/hostednews/afp/article/ALeqM5gTYQGEdx2fNsLoryy0QixCgbAtuQ?docId=CNG.7f52d5080666c6faeec68359512796af.941|url-status=dead|archive-date=24 February 2013 |title=AFP: First EU bond for Ireland attracts strong demand: HSBC |date=5 January 2011 |access-date=26 April 2011}}</ref> and aims at preserving financial stability in Europe by providing financial assistance to EU member states in economic difficulty.<ref>{{cite news |last=Bartha |first=Emese |url=https://www.wsj.com/articles/SB10001424052748704405704576063642535867146 |title=A Mixed Day for European Debt |work=The Wall Street Journal |date=5 January 2011 |access-date=26 April 2011}}</ref> The Commission fund, backed by all 27 [[European Union]] members, has the authority to raise up to {{Nowrap|€60 billion}}<ref>{{cite news |url=https://www.nytimes.com/2011/01/06/business/global/06euro.html?_r=1&src=busln |work=The New York Times |first=David |last=Jolly |title=Irish Bailout Begins as Europe Sells Billions in Bonds |date=5 January 2011}}</ref> and is rated [[Bond credit rating|AAA]] by [[Fitch Group|Fitch]], [[Moody's]] and [[Standard & Poor's]].<ref>{{cite news |last=Robinson |first=Frances |url=https://www.wsj.com/articles/SB10001424052748704405704576063151138069390?mod=googlenews_wsj |title=EU's Bailout Bond Three Times Oversubscribed |work=The Wall Street Journal |date=21 December 2010 |access-date=26 April 2011}}</ref>

Under the EFSM, the EU successfully placed in the capital markets an {{Nowrap|€5 billion}} issue of bonds as part of the financial support package agreed for Ireland, at a borrowing cost for the EFSM of 2.59%.<ref>{{cite web |url=http://www.movisol.org/11news005.htm |title=il bond è stato piazzato al tasso del 2,59% |publisher=Movisol.org |access-date=26 April 2011 |archive-date=22 March 2019 |archive-url=https://web.archive.org/web/20190322134550/http://www.movisol.org/11news005.htm |url-status=dead }}</ref>

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====Brussels agreement and aftermath====

On 26 October 2011, leaders of the 17 eurozone countries met in Brussels and agreed on a 50% write-off of Greek sovereign debt held by banks, a fourfold increase (to about €1 trillion) in bail-out funds held under the [[European Financial Stability Facility]], 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. Also pledged was {{Nowrap|€35 billion}} in "credit enhancement" to mitigate losses likely to be suffered by European banks. [[President of the European Commission|European Commission president]] [[José Manuel Barroso]] characterised the package as a set of "exceptional measures for exceptional times".<ref name=BBCleaders>{{cite news |title=Leaders agree eurozone debt deal after late-night talks |url=https://www.bbc.co.uk/news/world-europe-15472547 |access-date=27 October 2011 |newspaper=BBC News |date=27 October 2011}}</ref><ref>{{cite news |last=Bhatti |first=Jabeen |title=EU leaders reach a deal to tackle debt crisis |url=https://www.usatoday.com/money/world/story/2011-10-25/euro-summit/50919216/1?csp=34news |access-date=27 October 2011 |newspaper=USA Today |date=27 October 2011}}</ref>

The package's acceptance was put into doubt on 31 October when Greek Prime Minister George Papandreou announced that a [[2012 Greek economy referendum|referendum]] would be held so that the Greek people would have the final say on the bailout, upsetting financial markets.<ref>{{cite news |url=https://www.bbc.co.uk/news/business-15533940 |title=Greece debt crisis: Markets dive on Greek referendum |publisher=Bbc.co.uk |date=1 November 2011 |access-date=16 May 2012}}</ref> On 3 November 2011 the promised Greek referendum on the bailout package was withdrawn by Prime Minister Papandreou.

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The move took some pressure off Greek government bonds, which had just been downgraded to junk status, making it difficult for the government to raise money on capital markets.<ref name="Lesova">{{cite web |last=Lesova |first=Polya |url=http://www.marketwatch.com/story/ecb-suspends-rating-threshold-for-greek-debt-2010-05-03-3400 |title=ECB suspends rating threshold for Greece debt |website=MarketWatch |date=5 March 2010 |access-date=5 May 2010}}</ref>

On 30 November 2011, the ECB, the US [[Federal Reserve]], the [[central bank]]s of [[Bank of Canada|Canada]], [[Bank of Japan|Japan]], [[Bank of England|Britain]] and the [[Swiss National Bank]] provided global financial markets with additional liquidity to ward off the debt crisis and to support the [[real economy]]. The central banks agreed to lower the cost of dollar [[currency swap]]s by 50 basis points to come into effect on 5 December 2011. They also agreed to provide each other with abundant liquidity to make sure that commercial banks stay liquid in other currencies.<ref>{{cite news |url=http://www.nzz.ch/finanzen/nachrichten/grosse_notenbanken_fluten_globale_finanzmaerkte_mit_geld_1.13468265.html |title=Grosse Notenbanken versorgen Banken mit Liquidität – Kursfeuerwerk an den Börsen – auch SNB beteiligt |newspaper=[[~~Neue Zürcher Zeitung|~~NZZ Online]] |date=23 November 2010 |access-date=14 May 2012}}</ref>

With the aim of boosting the recovery in the eurozone economy by lowering interest rates for businesses, the ECB cut its [[bank rate]]s in multiple steps in 2012–2013, reaching an historic low of 0.25% in November 2013. The lowered borrowing rates have also caused the euro to fall in relation to other currencies, which is hoped will boost exports from the eurozone and further aid the recovery.<ref name="ecb-25"/>

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;Outright Monetary Transactions (OMTs)

On 6 September 2012, the [[European Central Bank|ECB]] announced to offer additional financial support in the form of some yield-lowering bond purchases ([[Outright Monetary Transactions|OMT]]), for all eurozone countries involved in a sovereign state bailout program from [[~~European Financial Stability Facility|~~EFSF]]/[[European Stability Mechanism|ESM]].<ref name="ecb" /> A eurozone country can benefit from the program if -and for as long as- it is found to suffer from stressed bond yields at excessive levels; but only at the point of time where the country possesses/regains a complete market access -and only if the country still complies with all terms in the signed [[Memorandum of Understanding]] (MoU) agreement.<ref name="ecb"/><ref name="NYT20120907" /> Countries receiving a precautionary programme rather than a sovereign bailout will, by definition, have complete market access and thus qualify for OMT support if also suffering from stressed interest rates on its government bonds. In regards of countries receiving a sovereign bailout (Ireland, Portugal and Greece), they will on the other hand not qualify for OMT support before they have regained complete market access, which will normally only happen after having received the last scheduled bailout disbursement.<ref name="ecb"/><ref name="http"/> Despite none OMT programmes were ready to start in September/October, the financial markets straight away took notice of the additionally planned OMT packages from ECB, and started slowly to price-in a decline of both short-term and long-term interest rates in all European countries previously suffering from stressed and elevated interest levels (as OMTs were regarded as an extra potential back-stop to counter the frozen liquidity and highly stressed rates; and just the knowledge about their potential existence in the very near future helped to calm the markets).

===European Stability Mechanism (ESM)===

Line 639 ⟶ 640:

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<ref name="EU-PR-20121209">{{cite web |url=http://consilium.europa.eu/press/press-releases/latest-press-releases/newsroomrelated?bid=76&grp=20199&lang=en&cmsId=339 |title=European Council Press releases |publisher=European Council |date=9 December 2011 |access-date=9 December 2011}}</ref> but it had to be postponed until after the [[Federal Constitutional Court of Germany]] had confirmed the legality of the measures on 12 September 2012.<ref>{{cite news |url=http://www.spiegel.de/international/europe/german-constitutional-court-to-rule-on-sept-12-on-esm-and-fiscal-pact-a-844552.html |title=Court to Rule on Euro Measures on Sept. 12 |date=16 July 2012 |work=[[Spiegel Online]] |access-date=3 August 2012}}</ref><ref name="germancourt">{{cite news |url=http://www.ft.com/cms/s/0/23f69368-fcaf-11e1-9dd2-00144feabdc0.html#axzz26Nl4Dulk |title=German court backs ESM bailout fund |newspaper=[[Financial Times]] |date=12 September 2012 |access-date=12 September 2012 |last=Peel |first=Quentin}}</ref> The permanent bailout fund entered into force for 16 signatories on 27 September 2012. It became effective in Estonia on 4 October 2012 after the completion of their ratification process.<ref name="DECLARATION">{{cite news |url=http://www.spiegel.de/international/europe/esm-agreement-euro-zone-states-seek-to-assuage-german-court-a-857027.html |title=Euro Zone Changing ESM to Satisfy German Court |last1=Kaiser |first1=Stefan |last2=Rickens |first2=Christian |newspaper=Spiegel Online |date=20 September 2012 |access-date=27 September 2012}}</ref>

On 16 December 2010 the European Council agreed a two line amendment to the EU [[~~Treaty of Lisbon|~~Lisbon Treaty]] to allow for a permanent bail-out mechanism to be established<ref>[http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf#page=6 EUROPEAN COUNCIL 16–17 December 2010 CONCLUSIONS], European Council 17 December 2010</ref> including stronger sanctions. In March 2011, the European Parliament approved the treaty amendment after receiving assurances that the [[European Commission]], rather than EU states, would play 'a central role' in running the ESM.<ref>[https://archive.today/20120803231347/http://www.europarl.europa.eu/en/pressroom/content/20110322IPR16114/html/Parliament-approves-Treaty-change-to-allow-stability-mechanism Parliament approves Treaty change to allow stability mechanism], European Parliament</ref><ref>{{cite web |url=http://www.monstersandcritics.com/news/europe/news/article_1628217.php/EU-parliament-backs-treaty-change-to-allow-permanent-euro-fund |archive-url=https://web.archive.org/web/20110519082606/http://www.monstersandcritics.com/news/europe/news/article_1628217.php/EU-parliament-backs-treaty-change-to-allow-permanent-euro-fund |url-status=dead |archive-date=19 May 2011 |title=Retrieved 22 March 2011 Published 22 March 2011 |publisher=Monstersandcritics.com |date=23 March 2011 |access-date=14 May 2012 }}</ref> The ESM is an [[intergovernmental organisation]] under public international law. It is located in Luxembourg.<ref>{{cite web |url=http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/120296.pdf |title=EUROPEAN COUNCIL 24/25 March 2011 CONCLUSIONS |access-date=14 May 2012}}</ref><ref>[http://consilium.europa.eu/media/1216793/esm%20treaty%20en.pdf TREATY ESTABLISHING THE EUROPEAN STABILITY MECHANISM (ESM)] {{webarchive|url=https://web.archive.org/web/20110812184411/http://consilium.europa.eu/media/1216793/esm%20treaty%20en.pdf |date=12 August 2011 }} between Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia, Slovakia, and Finland; Council of the European Union.</ref>

Such a mechanism serves as a "financial firewall". Instead of a default by one country rippling through the entire interconnected financial system, the firewall mechanism can ensure that downstream nations and banking systems are protected by guaranteeing some or all of their obligations. Then the single default can be managed while limiting [[financial contagion]].

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[[File:Eurozone Countries Public Debt to GDP Ratio 2010 vs. 2011.png|right|thumb|upright=1.35|alt=Public debt to GDP ratio for selected eurozone countries and the UK|Public debt to GDP ratio for selected eurozone countries and the UK—2008 to 2011. Source Data: Eurostat.]]

In March 2011 a new reform of the [[Stability and Growth Pact#Reform 2005|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 3% deficit or the 60% debt rules.<ref>{{cite web |url=http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/119888.pdf |title=Council reaches agreement on measures to strengthen economic governance |access-date=15 April 2011 }}</ref> By the end of the year, Germany, 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.<ref name=fiscal_union>{{cite news |last=Pidd |first=Helen |url=https://www.theguardian.com/business/2011/dec/02/angela-merkel-eurozone-fiscal-union |title=Angela Merkel vows to create 'fiscal union' across eurozone |work=The Guardian |date=2 December 2011 |access-date=2 December 2011 |location=London}}</ref><ref name=20111202Guardian>{{cite news |url=https://www.theguardian.com/business/2011/dec/02/european-fiscal-union-experts |title=European fiscal union: what the experts say |work=The Guardian |date=2 December 2011 |access-date=2 December 2011 |location=London}}</ref> On 9 December 2011 at the [[European Council]] meeting, all 17 members of the eurozone and six countries that aspire to join agreed on a new intergovernmental treaty to put strict caps on government spending and borrowing, with penalties for those countries who violate the limits.<ref>{{cite news |last=Baker |first=Luke |url=https://www.reuters.com/article/eurozone-idUSL5E7N900120111209 |title=WRAPUP 5-Europe moves ahead with fiscal union, UK isolated |work=Reuters |date=9 December 2011 |access-date=9 December 2011}}</ref> All other non-eurozone countries apart from the UK are also prepared to join in, subject to parliamentary vote.<ref name="EU-PR-20121209"/> The treaty will enter into force on 1 January 2013, if by that time 12 members of the [[~~eurozone|~~euro area]] have ratified it.<ref>{{cite web |url=http://european-council.europa.eu/home-page/highlights/the-fiscal-compact-ready-to-be-signed-(2)?lang=en |title=The fiscal compact ready to be signed |date=31 January 2012 |access-date=5 February 2013 |work=[[European Commission]] |url-status=dead |archive-url=https://web.archive.org/web/20121022095150/http://european-council.europa.eu/home-page/highlights/the-fiscal-compact-ready-to-be-signed-%282%29?lang=en |archive-date=22 October 2012 }}</ref>

Originally EU leaders planned to change existing EU treaties but this was blocked by British prime minister [[David Cameron]], who demanded that the [[City of London]] be excluded from future financial regulations, including the proposed [[~~European Union financial transaction tax|~~EU financial transaction tax]].<ref name=20111209Guardian>{{cite news |last=Fletcher |first=Nick |url=https://www.theguardian.com/business/2011/dec/09/european-leaders-brussels-summit-talks-live |title=European leaders resume Brussels summit talks: live coverage |work=The Guardian |date=9 December 2011 |access-date=9 December 2011 |location=London}}</ref><ref>{{cite news |last1=Faiola |first1=Anthony |last2=Birnbaum |first2=Michael |url=https://www.washingtonpost.com/world/europe/23-european-union-leaders-agree-to-fiscal-curbs-but-britain-blocks-broad-deal/2011/12/09/gIQAFi5UhO_story.html |title=23 European Union leaders agree to fiscal curbs, but Britain blocks broad deal |newspaper=The Washington Post |date=9 December 2011 |access-date=9 December 2011}}</ref> By the end of the day, 26 countries had agreed to the plan, leaving the United Kingdom as the only country not willing to join.<ref>{{cite news |author=Chris Morris |url=https://www.bbc.co.uk/news/world-europe-16115373 |title=UK alone as EU agrees fiscal deal |publisher=Bbc.co.uk |date=9 December 2011 |access-date=16 May 2012}}</ref> Cameron subsequently conceded that his action had failed to secure any safeguards for the UK.<ref>[http://www.politics.co.uk/news/2012/01/06/end-of-the-veto-honeymoon-cameron-on-backfoot-over-euro-poli End of the veto honeymoon? Cameron on backfoot over euro policy] Politics.co.uk, Ian Dunt, Friday, 6 January 2012</ref> Britain's refusal to be part of the fiscal compact to safeguard the eurozone constituted a ''de facto'' refusal (PM [[David Cameron]] vetoed the project) to engage in any radical revision of the [[Lisbon Treaty]]. John Rentoul of ''The Independent'' concluded that "Any Prime Minister would have done as Cameron did".<ref>John Rentoul, "any PM would have done as Cameron did" ''The Independent'' 11 December 2011</ref>

==Economic reforms and recovery proposals==

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There has been substantial criticism over the austerity measures implemented by most European nations to counter this debt crisis. US economist and Nobel laureate [[Paul Krugman]] argues that an abrupt return to "'non-[[Keynesian economics|Keynesian' financial policies]]" is not a viable solution.<ref>{{cite news |url=https://krugman.blogs.nytimes.com/2012/02/06/the-greek-vise/ |access-date=7 February 2012 |title=The Greek Vise |work=The New York Times |location=New York |date=6 February 2012 |first=Anatole |last=Kaletsky}}</ref> Pointing at historical evidence, he predicts that [[Debt deflation|deflationary policies]] now being imposed on countries such as Greece and Spain will prolong and deepen their recessions.<ref>{{cite news |url=http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article7022509.ece |access-date=15 February 2010 |archive-url=https://web.archive.org/web/20110605011633/http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article7022509.ece |archive-date=5 June 2011 |title='Greek tragedy won't end in the euro's death' |work=The Times |location=London |date=11 February 2010 |first=Anatole |last=Kaletsky |url-status=dead }}</ref> Together with over 9,000 signatories of ''"A Manifesto for Economic Sense"''<ref>{{cite web |title=Signatories |url=http://www.manifestoforeconomicsense.org/?AllSigned=1 |access-date=15 November 2012 |url-status=dead |archive-url=https://web.archive.org/web/20121105035229/http://www.manifestoforeconomicsense.org/?AllSigned=1 |archive-date=5 November 2012 }}</ref> Krugman also dismissed the belief of austerity focusing policy makers such as EU economic commissioner [[Olli Rehn]] and most European finance ministers<ref>{{cite news |title=Europe must realize austerity doesn't work |url=https://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/europe-must-realize-austerity-doesnt-work/article4607683/ |work=The Globe and Mail |author=Pierre Briançon |date=11 October 2012 |access-date=15 November 2012 |location=Toronto |archive-date=3 February 2013 |archive-url=https://archive.today/20130203233509/http://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/europe-must-realize-austerity-doesnt-work/article4607683/ |url-status=dead }}</ref> that "budget consolidation" revives confidence in financial markets over the longer haul.<ref>{{cite web |title=EU hits back at IMF over austerity |url=http://www.ft.com/intl/cms/s/0/35735e76-28d5-11e2-b92c-00144feabdc0.html#axzz2BYZijzoE |work=Financial Times |author=Peter Spiegel |date=7 November 2012 |access-date=15 November 2012}}</ref><ref>{{cite web |title=A manifesto for economic sense |url=http://www.ft.com/intl/cms/s/0/6c1d7960-bee6-11e1-8ccd-00144feabdc0.html#axzz2BzjEfx5l |work=Financial Times |author=[[Paul Krugman]] and [[Richard Layard]] |date=27 June 2012 |access-date=15 November 2012}}</ref> In a 2003 study that analysed 133 IMF austerity programmes, the IMF's independent evaluation office found that policy makers consistently underestimated the disastrous effects of rigid spending cuts on economic growth.<ref>International Monetary Fund: Independent Evaluation Office, ''Fiscal Adjustment in IMF-supported Programs'' (Washington, D.C.: International Monetary Fund, 2003); see for example [https://books.google.com/books?id=HAIq1XtyoKgC&pg=PR7 page vii].</ref><ref>{{cite news |title=Europe is in dire need of lazy spendthrifts |url=https://www.theguardian.com/commentisfree/2012/feb/18/europe-lazy-spendthrifts-germany |work=The Guardian |author=Fabian Lindner |date=18 February 2012 |access-date=18 February 2012 |location=London}}</ref> In early 2012 an IMF official, who negotiated Greek austerity measures, admitted that spending cuts were harming Greece.<ref name="IMF-2012"/> In October 2012, the IMF said that its forecasts for countries which implemented [[austerity]] programmes have been consistently overoptimistic, suggesting that tax hikes and spending cuts have been doing more damage than expected, and countries which implemented [[fiscal stimulus]], such as Germany and Austria, did better than expected.<ref name="PlumerIMF">Brad Plumer (12 October 2012) [https://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/ "IMF: Austerity is much worse for the economy than we thought"] {{Webarchive|url=https://web.archive.org/web/20160311083234/https://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/ |date=11 March 2016 }} ''The Washington Post''</ref> Also Portugal did comparably better than Spain. The latter introduced drastic austerity measures but was unable not meet its EU budget deficit targets. On the other hand, [[XXI Constitutional Government of Portugal|Portugal's leftist coalition]] fought austerity (it increased the minimum wage by 25 percent and took back cuts in the pension system and the public sector) and at the same time reduced its budget deficit to below three percent in 2016.<ref>{{cite web |url=https://derstandard.at/2000061158436/Spaniens-Aufschwung-geht-an-der-Bevoelkerung-vorbei |title=Spaniens Aufschwung geht an der Bevölkerung vorbei |work=[[Der Standard]] |location=Madrid |language=de |date=12 July 2017}}</ref> According to historian Florian Schui from [[University of St. Gallen]] no austerity program has ever worked. Schui particularly notes [[Winston Churchill]]'s attempt in 1925 and [[Heinrich Brüning]]'s attempt in 1930 during the [[Weimar Republic]]. Both led to disastrous consequences.<ref>{{cite web |title=Austerität: Eine Geschichte des Scheiterns |url=http://science.orf.at/stories/1761231/ |access-date=3 August 2015 |archive-date=4 March 2016 |archive-url=https://web.archive.org/web/20160304072402/http://science.orf.at/stories/1761231/ |url-status=dead }}</ref>

[[File:Greece - Public revenue vs expenditure.png|thumb|upright=1.35|alt=Greek public revenue and expenditure in % of GDP|~~Despite~~National ~~years~~finances of ~~draconian austerity measures~~ Greece, ~~has failed to reach a [[balanced budget]] as public revenues remain low.~~2002-2014]]

According to Keynesian economists "growth-friendly austerity" relies on the false argument that public cuts would be compensated for by more spending from consumers and businesses, a theoretical claim that has not materialised.<ref>{{cite news |url=https://www.google.com/publicdata/explore?ds=k3s92bru78li6_&ctype=l&strail=false&bcs=d&nselm=h&met_y=nid_ngdp&scale_y=lin&ind_y=false&rdim=world&idim=country_group:163:511&idim=world:Earth&idim=country:GR:IE:ES:PT:CY:CN&ifdim=world&hl=en&ind=false |title=Investment (% of GDP) |work=Google/IMF |date=9 October 2012 |access-date=10 November 2012}}</ref>

The case of Greece shows that excessive levels of private indebtedness and a collapse of public confidence (over 90% of Greeks fear unemployment, poverty and the closure of businesses)<ref name="Public Issue">{{cite web |title=Μνημόνιο ένα χρόνο μετά: Αποδοκιμασία, αγανάκτηση, απαξίωση, ανασφάλεια|trans-title=One Year after the Memorandum: Disapproval, Anger, Disdain, Insecurity |url=http://www.skai.gr/news/politics/article/169875/mnimonio-ena-hrono-meta-apodokimasia-aganaktisi-apaxiosi-anasfaleia |publisher=skai.gr |access-date=18 May 2011 |date=18 May 2011 |language=el}}</ref> led the private sector to decrease spending in an attempt to [[Savings rate|save up]] for rainy days ahead.

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Apart from arguments over whether or not austerity, rather than increased or frozen spending, is a macroeconomic solution,<ref>Vendola, Nichi, [https://www.theguardian.com/commentisfree/2011/jul/14/italian-debt-austerity-berlusconi "Italian debt: Austerity economics? That's dead wrong for us"], ''The Guardian'', 13 July 2011.</ref> union leaders have also argued that the working population is being unjustly held responsible for the economic mismanagement errors of economists, investors, and bankers. Over 23 million EU workers have become unemployed as a consequence of the global economic crisis of 2007–2010, and this has led many to call for additional regulation of the banking sector across not only Europe, but the entire world.<ref>{{cite news |url=https://www.bbc.co.uk/news/world-europe-11432579 |work=BBC News |title=European cities hit by anti-austerity protests |date=29 September 2010}}</ref>

In the turmoil of the [[2007–2012 global economic crisis|Global Financial Crisis]], the focus across all [[EU member states]] has been gradually to implement [[austerity]] measures, with the purpose of lowering the [[budget deficits]] to levels below 3% of GDP, so that the debt level would either stay below -or start decline towards- the 60% limit defined by the [[Stability and Growth Pact]]. To further restore the confidence in Europe, 23 out of 27 EU countries also agreed to adopt the [[Euro Plus Pact]], consisting of political reforms to improve fiscal strength and competitiveness; 25 out of 27 EU countries also decided to implement the [[~~European Fiscal Compact|~~Fiscal Compact]] which include the commitment of each participating country to introduce a [[balanced budget amendment]] as part of their national law/constitution. The Fiscal Compact is a direct successor of the previous Stability and Growth Pact, but it is more strict, not only because criteria compliance will be secured through its integration into national law/constitution, but also because it starting from 2014 will require all ratifying countries not involved in ongoing bailout programmes, to comply with the new strict criteria of only having a [[structural deficit]] of either maximum 0.5% or 1% (depending on the debt level).<ref name="fiscal_union"/><ref name="20111202Guardian"/> Each of the eurozone countries being involved in a bailout programme (Greece, Portugal, and Ireland) was asked both to follow a programme with fiscal consolidation/austerity, and to restore competitiveness through implementation of structural reforms and [[internal devaluation]], i.e. lowering their relative [[production costs]].<ref name="krugman-2011-10-22"/> The measures implemented to restore competitiveness in the weakest countries are needed, not only to build the foundation for GDP growth, but also in order to decrease the current account imbalances among eurozone member states.<ref name="google-current-account-linechart">{{cite news |url=https://www.google.com/publicdata/explore?ds=k3s92bru78li6_&ctype=l&strail=false&bcs=d&nselm=h&met_y=bca_ngdpd&scale_y=lin&ind_y=false&rdim=world&idim=country:GR:PT:ES:IE:DE:AT:BE:CY:FI:EE:FR:IT:LU:NL:SI:SK&ifdim=world&tstart=942274800000&tend=1510354800000&hl=en&ind=false&icfg&iconSize=0.5 |title=Current account balance (%) |work=Google/IMF |date=9 October 2012 |access-date=10 November 2012}}</ref><ref name="google-current-account-bubblechart">{{cite news |url=https://www.google.com/publicdata/explore?ds=k3s92bru78li6_&ctype=b&strail=false&bcs=d&nselm=h&met_x=bca&scale_x=lin&ind_x=false&met_y=bca_ngdpd&scale_y=lin&ind_y=false&met_s=bca&scale_s=lin&ind_s=false&met_c=bca_ngdpd&scale_c=lin&ind_c=false&idim=country:GR:PT:ES:IE:DE:AT:BE:CY:FI:EE:FR:IT:LU:NL:SI:SK&ifdim=country:world:Earth&tunit=Y&pit=942274800000&hl=en&ind=false&icfg&iconSize=0.5 |title=Current account balance (%) and Current account balance (US$) (animation) |work=Google/IMF |date=9 October 2012 |access-date=10 November 2012}}</ref>

Germany has come under pressure due to not having a government budget deficit and funding it by borrowing more. As of late 2014, the government (federal and state) has spent less than it receives in revenue, for the third year in a row, despite low economic growth.<ref>[https://web.archive.org/web/20160130112529/http://uk.reuters.com/article/uk-germany-economy-idUKKBN0GW2BV20140901 Booming budget surplus puts pressure on Germany to spend] Reuters</ref> The 2015 budget includes a surplus for the first time since 1969. Current projections are that by 2019 the debt will be less than required by the [[Stability and Growth Pact]].

It has been a long known belief that austerity measures will always reduce the GDP growth in the short term. Some economists believing in [[~~Keynesian economics|~~Keynesian]] policies criticised the timing and amount of austerity measures being called for in the bailout programmes, as they argued such extensive measures should not be implemented during the crisis years with an ongoing recession, but if possible delayed until the years after some positive real GDP growth had returned. In October 2012, a report published by [[International Monetary Fund]] (IMF) also found, that tax hikes and spending cuts during the most recent decade had indeed damaged the GDP growth more severely, compared to what had been expected and forecasted in advance (based on the "GDP damage ratios" previously recorded in earlier decades and under different economic scenarios).<ref name="PlumerIMF"/> Already a half-year earlier, several European countries as a response to the problem with subdued GDP growth in the eurozone, likewise had called for the implementation of a new reinforced growth strategy based on additional public investments, to be financed by growth-friendly taxes on property, land, wealth, and financial institutions. In June 2012, EU leaders agreed as a first step to moderately increase the funds of the [[European Investment Bank]], in order to kick-start infrastructure projects and increase loans to the private sector. A few months later 11 out of 17 eurozone countries also agreed to introduce a new [[~~European Union financial transaction tax|~~EU financial transaction tax]] to be collected from 1 January 2014.<ref>{{cite news |url=http://uk.reuters.com/article/uk-eurozone-idUKBRE8980UG20121009 |archive-url=https://web.archive.org/web/20160130112528/http://uk.reuters.com/article/uk-eurozone-idUKBRE8980UG20121009 |url-status=dead |archive-date=30 January 2016 |title=Eleven euro states back financial transaction tax |work=Reuters |date=9 October 2012 |access-date=15 October 2012}}</ref>

;Progress

[[File:Changing projections of Greek debt.png|thumb|Projections of Greek debt in percent of GDP (2008-2020)]]

In April 2012, [[Olli Rehn]], the European commissioner for economic and monetary affairs in Brussels, "enthusiastically announced to EU parliamentarians in mid-April that 'there was a breakthrough before Easter'. He said the European heads of state had given the green light to pilot projects worth billions, such as building highways in Greece".<ref name="Böll_et_al_2012">{{cite web |title=Austerity Backlash: What Merkel's Isolation Means For the Euro Crisis |last1=Böll |~~first~~first1=Sven |last2=Pauly |first2=Christoph |last3=Reiermann |first3=Christian |last4=Sauga |first4=Michael |last5=Schult |first5=Christoph |others=translated by Paul Cohen |work=Spiegel Online |date=1 May 2012 |access-date=14 July 2015 |url=http://www.spiegel.de/international/europe/merkel-isolated-as-austerity-backlash-continues-in-euro-crisis-a-830594.html}}</ref> Other growth initiatives include "project bonds" wherein the EIB would "provide guarantees that safeguard private investors. In the pilot phase until 2013, EU funds amounting to €230 million are expected to mobilise investments of up to €4.6 billion".<ref name="Böll_et_al_2012"/> ''[[Der Spiegel]]'' also said: "According to sources inside the German government, instead of funding new highways, Berlin is interested in supporting innovation and programs to promote small and medium-sized businesses. To ensure that this is done as professionally as possible, the Germans would like to see the southern European countries receive their own state-owned development banks, modeled after Germany's [Marshall Plan-era-origin] KfW [''{{lang|de|[[Kreditanstalt für Wiederaufbau]]}}''] banking group. It's hoped that this will get the economy moving in Greece and Portugal".<ref name="Böll_et_al_2012"/>

In multiple steps during 2012–2013, the ECB lowered its [[bank rate]] to historical lows, reaching 0.25% in November 2013. Soon after the rates were shaved to 0.15%, then on 4 September 2014 the central bank shocked financial markets by cutting the razor-thin rates by a further two thirds from 0.15% to 0.05%, the lowest on record.<ref name="ECBcuts">{{cite news |title=Draghi slashes interest rates, unveils bond buying plan |url=http://www.europenews.net/index.php/sid/225407609 |date=4 September 2014 |access-date=5 September 2014 |publisher=Europe News.Net}}</ref> The moves were designed to make it cheaper for banks to borrow from the ECB, with the aim that lower cost of money would be passed on to businesses taking out loans, boosting investment in the economy. The lowered borrowing rates caused the euro to fall in relation to other currencies, which it was hoped would boost exports from the eurozone.<ref name="ecb-25"/>

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;Fiscal devaluation

Another option would be to implement [[fiscal devaluation]], based on an idea originally developed by [[John Maynard Keynes]] in 1931.<ref name="Keynes-1931">Keynes, J M, (1931), Addendum to: Great Britain. Committee on Finance and Industry Report [Macmillan Report] (London:His Majesty ́s Stationery Office, 1931) 190–209. Reprinted in Donald Moggridge, ''The Collected Writings of John Maynard Keynes'', vol. 20 (London: Macmillan and Cambridge: Cambridge Press for the Royal Economic Society, 1981), 283–309.</ref><ref name="Keynes-Collected-Writings">{{cite book |last=Keynes |first=John Maynard |year=1998 |title=The Collected Writings of John Maynard Keynes |publisher=[[Cambridge University Press]] |location=[[Cambridge]] |isbn=978-0-521-30766-6}}</ref> According to this [[~~Neo-Keynesian economics|~~neo-Keynesian]] logic, policy makers can increase the competitiveness of an economy by lowering corporate tax burden such as employer's [[Tax#Social-security contributions|social security contributions]], while offsetting the loss of government revenues through higher taxes on consumption ([[VAT]]) and pollution, i.e. by pursuing an [[ecological tax reform]].<ref>{{cite news |url=http://www.lemonde.fr/idees/article/2012/10/24/pour-une-devaluation-fiscale_1780211_3232.html |title=Pour une dévaluation fiscale |author=[[Philippe Aghion]], Gilbert Cette, [[Emmanuel Farhi]], et Elie Cohen |newspaper=[[Le Monde]] |date=24 October 2012}}</ref><ref name="fiscal-devaluation-boston">{{cite web |url=http://www.bostonfed.org/economic/wp/wp2012/wp1210.pdf |title=Fiscal Devaluations (Federal Reserve Bank Boston Working Paper No. 12-10) |author1=Emmanuel Farhi |author2=[[Gita Gopinath]] |author3=[[Oleg Itskhoki]] |publisher=[[Federal Reserve Bank of Boston]] |date=18 October 2012 |access-date=11 November 2012 }}</ref><ref name="fiscal-devaluation-portugal">{{cite web |url=http://www.bportugal.pt/en-US/BdP%20Publications%20Research/AB201113_e.pdf |archive-url=https://web.archive.org/web/20121115141834/http://www.bportugal.pt/en-US/BdP%20Publications%20Research/AB201113_e.pdf |url-status=dead |archive-date=15 November 2012 |title=Fiscal Devaluation (Economic Bulletin and Financial Stability Report Articles |author=Isabel Horta Correia |publisher=[[Banco de Portugal]] |date=Winter 2011 |access-date=11 November 2012 }}</ref>

Germany has successfully pushed its economic competitiveness by increasing the [[value added tax]] (VAT) by three percentage points in 2007, and using part of the additional revenues to lower employer's [[unemployment insurance]] contribution. Portugal has taken a similar stance<ref name="fiscal-devaluation-portugal"/> and also France appears to follow this suit. In November 2012 French president [[François Hollande]] announced plans to reduce tax burden of the corporate sector by {{Nowrap|€20 billion}} within three years, while increasing the standard VAT from 19.6% to 20% and introducing additional eco-taxes in 2016. To minimise negative effects of such policies on [[purchasing power]] and economic activity the French government will partly offset the tax hikes by decreasing employees' social security contributions by {{Nowrap|€10 billion}} and by reducing the lower VAT for convenience goods (necessities) from 5.5% to 5%.<ref>{{cite news |url=http://faz-community.faz.net/blogs/fazit/archive/2012/11/04/man-keine-eigene-waehrung-um-abzuwerten-die-finanzpolitik-tut-es-auch-aus-aktuellem-anlass-das-konzept-der-fiskalischen-abwertung.aspx |archive-url=https://web.archive.org/web/20121107115107/http://faz-community.faz.net/blogs/fazit/archive/2012/11/04/man-keine-eigene-waehrung-um-abzuwerten-die-finanzpolitik-tut-es-auch-aus-aktuellem-anlass-das-konzept-der-fiskalischen-abwertung.aspx |url-status=dead |archive-date= 7 November 2012 |title=Man braucht keine eigene Währung, um abzuwerten. Die Finanzpolitik kann es auch. Aus aktuellem Anlass: Das Konzept der fiskalischen Abwertung |author=Gerald Braunberger |newspaper=[[Frankfurter Allgemeine Zeitung|FAZ]] |date=4 November 2012 }}</ref>

Line 738 ⟶ 739:

Either way, many of the countries involved in the crisis are on the euro, so devaluation, individual interest rates, and capital controls are not available. The only solution left to raise a country's level of saving is to reduce budget deficits and to change consumption and savings habits. For example, if a country's citizens saved more instead of consuming imports, this would reduce its trade deficit.<ref name=CNN01>{{cite news |url=https://money.cnn.com/magazines/fortune/fortune_archive/1998/09/07/247884/index.htm |publisher=CNN |first=Paul |last=Krugman |title=Saving Asia: It's Time To Get Radical |date=7 September 1998}}</ref> It has therefore been suggested that countries with large trade deficits (e.g., Greece) consume less and improve their exporting industries.

On the other hand, export driven countries with a large trade surplus, such as Germany, Austria and the Netherlands would need to shift their economies more towards domestic services and increase wages to support domestic consumption.<ref name="MWBOP">{{cite news |url=http://www.ft.com/cms/s/0/396ff020-1ffd-11e1-8662-00144feabdc0.html#axzz1fwLi3F1I |title=Merkozy failed to save the eurozone |work=Financial Times |author=Martin Wolf |date=6 December 2011 |access-date=9 December 2011|author-link=Martin Wolf }}</ref><ref>{{cite news |url=http://www.sueddeutsche.de/meinung/eu-gipfel-und-der-kampf-um-den-euro-starker-mann-was-nun-1.1229181 |newspaper=[[~~Süddeutsche Zeitung|~~Sueddeutsche]] |first=Alexander |last=Hagelüken |title=Starker Mann, was nun? |date=8 December 2012}}</ref>

Economic evidence indicates the crisis may have more to do with trade deficits (which require private borrowing to fund) than public debt levels. Economist [[Paul Krugman]] wrote in March 2013: "... the really strong relationship within the [eurozone countries] is between interest spreads and current account deficits, which is in line with the conclusion many of us have reached, that the euro area crisis is really a [[balance of payments crisis]], not a debt crisis".<ref>{{cite news |url=https://krugman.blogs.nytimes.com/2013/03/08/fatal-fiscal-attractions/ |title=Fatal Fiscal Attractions |date=8 March 2013 |access-date=29 January 2017}}</ref> A February 2013 paper from four economists concluded that, "Countries with debt above 80% of GDP and persistent current-account [trade] deficits are vulnerable to a rapid fiscal deterioration..".<ref>{{cite web |url=https://economix.blogs.nytimes.com/2013/02/22/predicting-a-crisis-repeatedly/ |title=Predicting a Crisis, Repeatedly |first=Binyamin |last=Appelbaum |date=22 February 2013 }}</ref><ref>{{cite web |url=http://research.chicagobooth.edu/igm/usmpf/download2.aspx |archive-url=https://web.archive.org/web/20130226092538/http://research.chicagobooth.edu/igm/usmpf/download2.aspx |url-status=dead |archive-date=26 February 2013 |title=Greenlaw, Hamilton, Hooper, Mishkin Crunch Time: Fiscal Crises and the Role of Monetary Policy-February 2013 |publisher=Research.chicagobooth.edu |date=29 July 2013 |access-date=3 August 2013 }}</ref><ref>{{cite magazine |url=https://www.theatlantic.com/business/archive/2013/03/no-the-united-states-will-never-ever-turn-into-greece/273748/ |title=The Atlantic-No, the United States Will Never, Ever Turn Into Greece |author=Mathew O'Brien |magazine=[[The Atlantic]] |date=7 March 2013 |access-date=3 August 2013}}</ref>

;Progress

In its spring 2012 economic forecast, the European Commission finds "some evidence that the current-account rebalancing is underpinned by changes in relative prices and competitiveness positions as well as gains in export market shares and expenditure switching in deficit countries".<ref name="EC-spring-forecast">{{cite web |title=European economic forecast – spring 2012 |url=http://ec.europa.eu/economy_finance/publications/european_economy/2012/ee1upd_en.htm |publisher=European Commission |date=1 May 2012 |access-date=27 July 2012 |page=38}}</ref> In May 2012 German finance minister [[Wolfgang Schäuble]] has signalled support for a significant increase in German wages to help decrease current account imbalances within the eurozone.<ref>{{cite news |url=http://www.sueddeutsche.de/politik/tarifverhandlungen-in-deutschland-schaeuble-findet-deutliche-lohnerhoehungen-berechtigt-1.1349340 |newspaper=[[~~Süddeutsche Zeitung|~~Sueddeutsche]] |title=Schäuble findet deutliche Lohnerhöhungen berechtigt |date=5 May 2012}}</ref>

According to the Euro Plus Monitor Report 2013, the collective current account of Greece, Ireland, Italy, Portugal, and Spain is improving rapidly and is expected to balance by mid 2013. Thereafter these countries as a group would no longer need to import capital.<ref name="Euro_Plus_Monitor_2013_update"/> In 2014, the current account surplus of the eurozone as a whole almost doubled compared to the previous year, reaching a new record high of 227.9bn Euros.<ref>{{cite news |url=http://www.rte.ie/news/business/2014/0321/603678-euro-zone-current-account/ |publisher=[[RTÉ]] |title=Euro zone current account surplus grows – ECB |date=21 March 2014}}</ref>

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The key policy issue that has to be addressed in the long run is how to harmonise different political-economic institutional set-ups of the north and south European economies to promote economic growth and make the currency union sustainable. The Eurozone member states must adopt structural reforms, aimed at promoting labour market mobility and wage flexibility, restoring the south's economies’ competitiveness by increasing their productivity.<ref>{{Cite journal|last=Zhorayev|first=Olzhas|date=31 January 2020|title=The Eurozone Debt Crisis: Causes and Policy Recommendations|url=https://econpapers.repec.org/paper/pramprapa/106331.htm}}</ref>

At the same time, it is vital to keep in mind that just putting emphasis on emulating LME's wage-setting system to CMEs and mixed-market economies will not work. Therefore, apart from wage issues, structural reforms should be focused on developing capacities for innovations, technologies, education, R&D, etc., i.e. all institutional subsystems, crucial for firms’ success.<ref>{{Cite journal|last=Hall|first=Peter A.|date=2 January 2018|title=Varieties of capitalism in light of the euro crisis|url=https://www.tandfonline.com/doi/full/10.1080/13501763.2017.1310278|journal=Journal of European Public Policy|language=en|volume=25|issue=1|pages=7–30|doi=10.1080/13501763.2017.1310278|s2cid=46417329|issn=1350-1763}}</ref> In economies of the south special attention should be given to creating less labour-intensive industries to avoid price competition pressure from emerging low-cost countries (such as China) via an exchange rate channel, and providing a smooth transition of workers from old unsustainable industries to new ones based on the so-called Nordic-style ‘flexicurity’ market model.<ref>{{Cite web|url=https://www.files.ethz.ch/isn/13888/|title=The Nordic model: A recipe for European success?~~|url=https://www.files.ethz.ch/isn/13888/~~}}</ref><ref name="Zhorayev 2020"/>

===European fiscal union===

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European banks are estimated to have incurred losses approaching €1 trillion between the outbreak of the financial crisis in 2007 and 2010. The European Commission approved some €4.5 billion in state aid for banks between October 2008 and October 2011, a sum which includes the value of taxpayer-funded recapitalisations and public guarantees on banking debts.<ref name="IT-6-6-2012">{{cite news |title=EU Commission unveils proposals on bondholder 'bail-ins' for banks |url=https://www.irishtimes.com/newspaper/world/2012/0606/1224317369172.html |access-date=27 October 2012 |newspaper=[[Irish Times]] |date=6 June 2012 |archive-date=9 June 2012 |archive-url=https://web.archive.org/web/20120609022802/http://www.irishtimes.com/newspaper/world/2012/0606/1224317369172.html |url-status=dead }}</ref> This has prompted some economists such as [[Joseph Stiglitz]] and [[Paul Krugman]] to note that Europe is not suffering from a sovereign debt crisis but rather from a [[banking crisis]].<ref name="IT-6-6-2012b">{{cite news |title=Zweifel an echter Bankenunion in Europa |url=http://derstandard.at/1350258899239/Zweifel-an-echter-Bankenunion-in-Europa |access-date=27 October 2012 |newspaper=Der Standard |date=19 October 2012}}</ref>

On 6 June 2012, the European Commission adopted a legislative proposal for a harmonised bank recovery and resolution mechanism. The proposed framework sets out the necessary steps and powers to ensure that bank failures across the EU are managed in a way that avoids financial instability.<ref>{{cite web |title=New crisis management measures to avoid future bank bail-outs |url=http://europa.eu/rapid/press-release_IP-12-570_en.htm?locale=en |access-date=27 October 2012 |publisher=[[European Commission]] |date=6 June 2012}}</ref> The new legislation would give member states the power to impose losses, resulting from a bank failure, on the bondholders to minimise costs for taxpayers. The proposal is part of a new scheme in which banks will be compelled to "bail-in" their creditors whenever they fail, the basic aim being to prevent taxpayer-funded bailouts in the future.<ref>{{cite web |ssrn=2294100 |title=Anatomy of a Bail-In by Thomas Conlon, John Cotter |publisher=SSRN |date=15 July 2013|doi=10.2139/ssrn.2294100 |url=https://dx.doi.org/10.2139/ssrn.2294100 }}</ref> The public authorities would also be given powers to replace the management teams in banks even before the lender fails. Each institution would also be obliged to set aside at least one per cent of the deposits covered by their national guarantees for a special fund to finance the resolution of banking crisis starting in 2018.<ref name="IT-6-6-2012"/>

===Eurobonds===

A growing number of investors and economists say [[Eurobond (eurozone)|eurobonds]] would be the best way of solving a debt crisis,<ref name="euractiv-barroso">{{cite news |title=Barroso to table eurobond blueprint |url=http://www.euractiv.com/euro-finance/barroso-table-eurobond-blueprint-news-509014 |access-date=21 November 2011 |agency=Associated Press |date=17 November 2011}}</ref> though their introduction matched by tight financial and budgetary co-ordination may well require changes in EU treaties.<ref name="euractiv-barroso"/> On 21 November 2011, the European Commission suggested that eurobonds issued jointly by the 17 euro nations would be an effective way to tackle the financial crisis. Using the term "stability bonds", 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.<ref>{{cite news |title=Europe Agrees to Basics of Plan to Resolve Euro Crisis |url=https://www.google.com/hostednews/ap/article/ALeqM5jA1xCfq5lszH-UcHpWH9vWh57Thg?docId=24c47c7dd54b46388c7ed6d9f7224717 |access-date=21 November 2011 |agency=Associated Press |date=21 November 2011}}{{~~Dead~~dead link|date=June ~~2016~~2024|bot=medic}}{{cbignore|bot=medic}}</ref><ref>{{cite news |title=EU's Barroso: Will present options on euro bonds |url=https://www.reuters.com/article/us-eurozone-barroso-eurobonds-idUSTRE78D1GT20110914 |access-date=21 November 2011 |agency=Associated Press |date=14 September 2011 |work=Reuters}}</ref>

Germany remains largely opposed at least in the short term to a collective takeover of the debt of states that have run excessive budget deficits and borrowed excessively over the past years.<ref>{{cite news |title=German Resistance to Pooling Debt May Be Shrinking |url=http://www.spiegel.de/international/business/euro-bonds-debate-german-resistance-to-pooling-debt-may-be-shrinking-a-799692.html |access-date=9 January 2017 |agency=Spiegel |date=24 November 2011 |work=Spiegel}}</ref>

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To reach sustainable levels the eurozone must reduce its overall debt level by €6.1 trillion. According to BCG, this could be financed by a one-time [[wealth tax]] of between 11 and 30% for most countries, apart from the crisis countries (particularly Ireland) where a write-off would have to be substantially higher. The authors admit that such programmes would be "drastic", "unpopular" and "require broad political coordination and leadership" but they maintain that the longer politicians and central bankers wait, the more necessary such a step will be.<ref name="BCG-Mesopotamia"/>

[[Thomas Piketty]], French economist and author of the bestselling book ''[[Capital in the Twenty-First Century]]'' regards taxes on capital as a more favorable option than ''austerity'' (inefficient and unjust) and ''inflation'' (only affects cash but neither real estates nor business capital). According to his analysis, a [[flat tax]] of 15 percent on private wealth would provide the state with nearly a year's worth national income, which would allow for immediate reimbursement of the entire public debt.<ref>{{cite book |last=Piketty |first=Thomas |author-link=Thomas Piketty |title=Capital in the Twenty-First Century |publisher=[[~~Harvard University Press|~~Belknap Press of Harvard University Press]] |edition=1st |location=Cambridge, USA |date=2013 |page=[https://archive.org/details/isbn_9780674430006/page/540 540] |isbn=9780674430006 |url-access=registration |url=https://archive.org/details/isbn_9780674430006/page/540 }}</ref>

Instead of a one-time write-off, German economist [[Harald Spehl]] has called for a 30-year debt-reduction plan, similar to the one Germany used after World War II to share the burden of reconstruction and development.<ref>{{cite news |url=http://www.zeit.de/2011/44/Deutschland-Schuldenabbau/komplettansicht |title=Harald Spehl: ''Tschüss, Kapitalmarkt'' |newspaper=Die Zeit |access-date=14 May 2012}}</ref> Similar calls have been made by political parties in Germany including the [[Greens (Germany)|Greens]] and [[The Left (Germany)|The Left]].<ref>{{cite news |url=https://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/vermoegensabgabe-wie-die-gruenen-100-milliarden-einsammeln-wollen-1575784.html |title=Wie die Grünen 100 Milliarden einsammeln wollen |newspaper=Faz.net |date=17 January 2011 |language=de |access-date=27 January 2014|last1=Göbel |first1=Heike }}</ref><ref>{{cite web |url=http://www.die-linke.de/nc/dielinke/nachrichten/detail/artikel/vermoegensabgabe-ist-die-beste-schuldenbremse/ |archive-url=https://web.archive.org/web/20110811112432/http://die-linke.de/nc/dielinke/nachrichten/detail/artikel/vermoegensabgabe-ist-die-beste-schuldenbremse/ |url-status=dead |archive-date=11 August 2011 |title=DIE LINKE: Vermögensabgabe ist die beste Schuldenbremse |publisher=Die-linke.de |date=9 August 2011 |access-date=14 May 2012 |language=de }}</ref><ref>{{cite web |url=http://www.gruene-bundestag.de/cms/finanzen/dok/367/367285.die_gruene_vermoegensabgabe.html |title=Die grüne Vermögensabgabe |website=Bundestagsfraktion Bündnis 90/Die Grünen |archive-url=https://web.archive.org/web/20110122080732/http://gruene-bundestag.de/cms/finanzen/dok/367/367285.die_gruene_vermoegensabgabe.html|archive-date=22 January 2011}}</ref>

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==Controversies==

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"/><ref name="lums.lancs"/><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=59 September 2012 |archive-url=https://~~www~~archive.~~webcitation.org~~today/20120909193658/~~6ARpquoBA?url=~~http://www.presseurop.eu/en/content/news-brief/1599061-greek-aid-will-go-banks |url-status=dead }}</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 |author=Robert 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 |author=Ronald Jansse |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 |author=Nouriel Roubini |date=7 March 2012 |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]]. As regards government finance, the states agreed that the annual [[government budget deficit]] should not exceed 3% of gross domestic product (GDP) and that the gross [[government debt]] to GDP should not exceed 60% of 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 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> Around 2005 most eurozone members violated the pact, resulting in no action taken against violators.

====Credit rating agencies====

[[File:StandardPoors Headquarters.JPG|thumb|alt=Picture of Standard & Poor's Headquarters|Standard & Poor's Headquarters in Lower Manhattan, New York City]]

The international US-based [[~~Credit rating agency|~~credit rating agencies]]—[[Moody's]], [[Standard & Poor's]] and [[Fitch Ratings|Fitch]]—which have already been under fire during the [[housing bubble]]<ref>{{cite news |last=Lowenstein |first=Roger |title=Moody's – Credit Rating – Mortgages – Investments – Subprime Mortgages – New York Times |url=https://www.nytimes.com/2008/04/27/magazine/27Credit-t.html |work=[[The New York Times]] |date=27 April 2008 |access-date=2 May 2010}}</ref><ref>{{cite web |title=Moody's chief admits failure over crisis |author1=Kirchgaessner, Stephanie |author2=Kevin Sieff |url=http://www.ft.com/cms/s/0/9456f280-4f03-11df-b8f4-00144feab49a.html |work=Financial Times |access-date=2 May 2010}}</ref> and the [[2008–11 Icelandic financial crisis|Icelandic crisis]]<ref>{{cite web |title=Iceland row puts rating agencies in firing line |url=http://www.thisislondon.co.uk/standard-business/article-23572533-iceland-row-puts-rating-agencies-in-firing-line.do |archive-url=https://web.archive.org/web/20100612005722/http://www.thisislondon.co.uk/standard-business/article-23572533-iceland-row-puts-rating-agencies-in-firing-line.do |url-status=dead |archive-date=12 June 2010 |access-date=2 May 2010 }}</ref><ref>{{cite news |title=Ratings agencies admit mistakes |url=http://news.bbc.co.uk/2/hi/business/7856929.stm |date=28 January 2009 |access-date=2 May 2010 |work=BBC News}}</ref>—have also played a central and controversial role<ref name="telegraph">{{cite news |last=Waterfield |first=Bruno |title=European Commission's angry warning to credit rating agencies as debt crisis deepens |url=https://www.telegraph.co.uk/news/worldnews/europe/greece/7646434/European-Commissions-angry-warning-to-credit-rating-agencies-as-debt-crisis-deepens.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/news/worldnews/europe/greece/7646434/European-Commissions-angry-warning-to-credit-rating-agencies-as-debt-crisis-deepens.html |archive-date=12 January 2022 |url-access=subscription |url-status=live |date=28 April 2010 |access-date=2 May 2010 |location=London |work=The Daily Telegraph}}{{cbignore}}</ref> in the current European bond market crisis.<ref>{{cite news |last=Wachman |first=Richard |title=Greece debt crisis: the role of credit rating agencies |work=The Guardian |location=London |url=https://www.theguardian.com/business/2010/apr/28/greece-debt-crisis-standard-poor-credit-agencies |date=28 April 2010 |access-date=2 May 2010}}</ref> 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 |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"/>

According to a study by economists at [[St Gallen University]] credit rating agencies have fuelled 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 |author=Emma 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> On a side note: as of the end of November 2013 only three countries in the eurozone retain AAA ratings from [[Standard & Poor]], (i.e. Germany, Finland and Luxembourg.)<ref>{{cite news |url=https://www.washingtonpost.com/world/europe/netherlands-loses-sandp-triple-a-credit-rating/2013/11/29/021b80b6-58d2-11e3-bdbf-097ab2a3dc2b_story.html|archive-url=https://web.archive.org/web/20131129140148/http://www.washingtonpost.com/world/europe/netherlands-loses-sandp-triple-a-credit-rating/2013/11/29/021b80b6-58d2-11e3-bdbf-097ab2a3dc2b_story.html|archive-date=29 November 2013 |title=Netherlands loses S&P triple-A credit rating |date=29 November 2013 |url-status=dead}}</ref>

European policy makers have criticised ratings agencies for acting politically, accusing the [[Big Three (credit rating agencies)|Big Three]] of bias towards European assets and fuelling 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 |last=Luke |first=Baker |title=UPDATE 2-EU attacks credit rating agencies, suggests bias |newspaper=Reuters |date=6 July 2011 |url=https://www.reuters.com/article/eurozone-ratings-barroso-idUSLDE7650ST20110706}}</ref>

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====Media====

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, 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 [[George Papandreou|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" |author=Larry 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 |author=Barbara 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 |author=Gavin Hewitt |title=Conspiracy and the euro |url=https://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 Centre, CNI in Spanish) to investigate the role of the "[[Anglo-Saxon]] media" in fomenting the crisis.<ref>{{cite 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 |date=14 February 2010 |access-date=2 May 2010 |url=https://www.reuters.com/article/idUSLDE61D04V20100214}}</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><ref>{{cite web |title=Spanish Intelligence Investigating "Anglo-Saxon" Media |url=http://washingtonindependent.com/76705/spanish-intelligence-investigating-anglo-saxon-media |publisher=The Washington Independent |access-date=2 May 2010 |url-status=dead |archive-url=https://web.archive.org/web/20100221050936/http://washingtonindependent.com/76705/spanish-intelligence-investigating-anglo-saxon-media |archive-date=21 February 2010 }}</ref> So far, no results have been reported from this investigation.

Other commentators believe that the euro is under attack so that countries, such as the UK and the US, can continue to fund their large [[List of countries by current account balance|external deficits]] and [[Government budget by country|government deficits]],<ref name="telegraph.co.uk">{{cite news |title=Britain's deficit third worst in the world, table |url=https://www.telegraph.co.uk/finance/financetopics/financialcrisis/7269629/Britains-deficit-third-worst-in-the-world-table.html |archive-url=https://web.archive.org/web/20100222004849/http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7269629/Britains-deficit-third-worst-in-the-world-table.html |url-status=dead |archive-date=22 February 2010 |work=[[The Daily Telegraph]] |location=London |date=19 February 2010 |access-date=29 April 2010}}</ref> and to avoid the collapse of the US$.<ref>{{cite news |title=Dollar faces collapse |url=http://www.swissinfo.ch/eng/business/Dollar_faces_collapse.html?cid=30012940 |work=Current Concerns |author=Samuel Jaberg |publisher=[[Swiss Broadcasting Corporation]] |date=16 April 2011 |access-date=11 December 2011 |archive-date=23 April 2014 |archive-url=https://web.archive.org/web/20140423110350/http://www.swissinfo.ch/eng/business/Dollar_faces_collapse.html?cid=30012940 |url-status=dead }}</ref><ref>{{cite web |title=When Will The Bond Vigilantes Attack The U.S. And U.K.? |url=http://seekingalpha.com/article/311730-when-will-the-bond-vigilantes-attack-the-u-s-and-u-k |publisher=[[Seeking Alpha]] |date=4 December 2011 |access-date=11 December 2011}}</ref><ref>{{cite news |title=Euro crisis and deconstruction of the European Union |url=http://www.currentconcerns.ch/index.php?id=1085 |work=[[Current Concerns]] |last=Paye |first=Jean-Claude, Belgium |location=Zürich |issue=14 |date=July 2010 |access-date=30 January 2014 |archive-url=https://web.archive.org/web/20181213131243/https://www.currentconcerns.ch/index.php?id=1085 |archive-date=13 December 2018 |url-status=dead }}</ref> The US and UK do not have large domestic savings pools to draw on and therefore are dependent on external savings e.g. from China.<ref>{{cite web |author=Elwell, Craig K. |author2=Labonte, Marc |author3=Morrison, Wayne M. |title=CRS Report for Congress: Is China a Threat to the U.S. Economy? |url=https://fas.org/sgp/crs/row/RL33604.pdf |publisher=[[Congressional Research Service]] |date=23 January 2007 |access-date=8 November 2011}} (see CRS-43 on page 47)</ref><ref>{{cite news |author=Larry Elliot |title=London School of Economics' Sir Howard Davies tells of need for painful correction |url=https://www.theguardian.com/business/2009/jan/28/davies-global-economy-davos |work=The Guardian |location=London |date=28 January 2009 |access-date=13 May 2010}}</ref> This is not the case in the eurozone, which is self-funding.<ref>{{cite web |title=Euro area balance of payments (December 2009 and preliminary overall results for 2009) |url=http://www.ecb.europa.eu/press/pr/stats/bop/2010/html/bp100219.en.html |publisher=[[European Central Bank]] |date=19 February 2010 |access-date=13 May 2010}}</ref><ref>{{cite web |author=Irvin, George |author2=Izurieta, Alex |title=European Policy Brief: The US Deficit, the EU Surplus and the World Economy |url=http://www.ipc-undp.org/publications/srp/Federal%20Trust%20Note%20(US,%20EU,%20World),%20Irvin%20&%20Izurieta%20March%2006.pdf |publisher=The Federal Trust |date=March 2006 |access-date=8 November 2011 |url-status=dead |archive-url=https://web.archive.org/web/20130516154440/http://www.ipc-undp.org/publications/srp/Federal%20Trust%20Note%20%28US%2C%20EU%2C%20World%29%2C%20Irvin%20%26%20Izurieta%20March%2006.pdf |archive-date=16 May 2013 }}</ref><ref>{{cite news |url=https://www.google.com/publicdata/explore?ds=k3s92bru78li6_&ctype=m&strail=false&bcs=d&nselm=s&met_c=bca&scale_c=lin&ind_c=false&met_s=bca&scale_s=lin&ind_s=false&ifdim=country&tunit=Y&pit=1510268400000&hl=en&dl=en&ind=false&xMax=-170.93884249999996&xMin=-170.58727999999996&yMax=-56.9494765553139&yMin=73.82252054755509&mapType=t&icfg&iconSize=0.5 |title=Current account balance (US$) |work=Google/IMF |date=9 October 2012 |access-date=10 November 2012}}</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 |author=Sean 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 |author=Alex 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 |access-date=11 May 2010 |title=Merkel Slams Euro Speculation, Warns of 'Resentment' |work=[[BusinessWeek]] |author=Patrick Donahue |date=23 February 2010 |url-status=dead |archive-url=https://web.archive.org/web/20100501083030/http://www.businessweek.com/news/2010-02-23/merkel-slams-euro-speculation-warns-of-resentment-update1-.html |archive-date=1 May 2010 }}</ref>

[[Goldman Sachs]] and other banks faced an inquiry by the [[Federal Reserve]] over their derivatives arrangements with Greece. The ''Guardian'' reported that "Goldman was reportedly the most heavily involved of a dozen or so Wall Street banks" that assisted the Greek government in the early 2000s "to structure complex derivatives deals early in the decade and 'borrow' billions of dollars in exchange rate swaps, which did not officially count as debt under eurozone rules".<ref name="Clark">{{cite news |last1=Clark |first1=Andrew |last2=Stewart |first2=Heather |last3=Moya |first3=Elena |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 |location=London |date=26 February 2010 |access-date=11 May 2010}}</ref> Critics of the bank's conduct said that these deals "contributed to unsustainable public finances" which in turn destabilized the eurozone.<ref name="Clark"/>

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===Speculation about the break-up of the eurozone===

Some 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=26 July 2011 |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 |author=Wynne Godley |journal=[[London Review of Books]]|author-link=Wynne Godley }}</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 that the eurozone does not fulfil the necessary criteria for an [[optimum currency area]], though it is moving in that direction.<ref name="Euro_Plus_Monitor_2011"/><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="ReferenceB">M. Nicolas J. Firzli, "Greece and the Roots the EU Debt Crisis" ''The Vienna Review'', March 2010</ref><ref name="Roubini-orderly-default"/><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 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 L.P. |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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Iceland, not part of the EU, is regarded as one of Europe's recovery success stories. It defaulted on its debt and drastically devalued its currency, which has effectively reduced wages by 50% making exports more competitive.<ref>{{cite news |url=https://www.wsj.com/articles/SB10001424052702304203604577396171007652042?mod=ITP_pageone_0 |title=In European Crisis, Iceland Emerges as an Island of Recovery |author=Charles Forelle |newspaper=Wall Street Journal |date=19 May 2012}}</ref> Lee Harris argues that floating exchange rates allows wage reductions by currency devaluations, a politically easier option than the economically equivalent but politically impossible method of lowering wages by political enactment.<ref>{{cite magazine |url=http://american.com/archive/2012/may/the-hayek-effect-the-political-consequences-of-planned-austerity |title=The Hayek Effect: The Political Consequences of Planned Austerity |date=17 May 2012 |author=Lee Harris |magazine=The American |access-date=20 May 2012 |archive-url=https://web.archive.org/web/20121103135130/http://american.com/archive/2012/may/the-hayek-effect-the-political-consequences-of-planned-austerity |archive-date=3 November 2012 |url-status=dead }}</ref> Sweden's floating rate currency gives it a short-term advantage, structural reforms and constraints account for longer-term prosperity. Labour concessions, a minimal reliance on public debt, and tax reform helped to further a pro-growth policy.<ref>{{cite news |url=https://www.wsj.com/articles/SB10001424052702303360504577412171533705392 |title=The Swedish Reform Model, Believe It or Not |author=Anne Jolis |newspaper=The Wall Street Journal |date=19 May 2012}}</ref>

British discount retailer [[Poundland]] chose the name [[Dealz]] and not "Euroland" for its 2011 expansion into Ireland because, CEO Jim McCarthy said, "'Eurozone' ... is usually reported in association with bad news — job losses, debts and increased taxes". His company planned to use Dealz in continental Europe; McCarthy stated that "There is less certainty about the longevity [of the currency union] now".<ref name="bowers20110802">{{Cite news |last=Bowers |first=Simon |url=https://www.theguardian.com/business/2011/aug/02/poundland-open-stores-ireland |title=Poundland to open 4 stores in Ireland – just don't mention the euro |date=2 August 2011 |work=The Guardian |access-date=20 April 2020 |language=en-GB |issn=0261-3077}}</ref> ''[[The Wall Street Journal]]'' conjectured as well that Germany could return to the Deutsche Mark,<ref>{{cite news |last=Auerback |first=Marshall |url=http://wallstreetpit.com/76397-to-save-the-euro-germany-has-to-quit-the-euro-zone |title=To Save the Euro, Germany has to Quit the Euro Zone |newspaper=Wall Street Pit |date=25 May 2011 |access-date=25 May 2011}}</ref> or create another [[currency union]]<ref>{{cite web |last=Demetriades |first=Panicos |url=http://www.ft.com/cms/s/0/67c66cfc-819b-11e0-8a54-00144feabdc0.html#axzz1NKSfAFsI |title=It is Germany that should leave the eurozone |work=Financial Times |date=19 May 2011 |access-date=25 May 2011}}</ref> with the Netherlands, Austria, Finland, Luxembourg and other European countries such as Denmark, Norway, Sweden, Switzerland, and the Baltics.<ref>{{cite news |last=Joffe |first=Josef |url=https://www.nytimes.com/roomfordebate/2011/09/12/will-culture-clash-splinter-the-european-union/the-euro-widened-the-culture-gap |title=The Euro Widens the Culture Gap |work=[[The New York Times]] |date=12 September 2011 |access-date=2 October 2011}}</ref> A monetary union of these countries with current account surpluses would create the world's largest creditor bloc, bigger than China<ref>{{cite web |last=Rogers |first=Jim |url=http://jimrogers-investments.blogspot.com/2009/09/largest-creditor-nations-are-in-asia.html|archive-url=https://web.archive.org/web/20091012053433/http://jimrogers-investments.blogspot.com/2009/09/largest-creditor-nations-are-in-asia.html|url-status=dead|archive-date=12 October 2009 |title=The Largest Creditor Nations Are in Asia |publisher=Jim Rogers Blog |date=26 September 2009 |access-date=1 June 2011}}</ref> or Japan. ''The Wall Street Journal'' added that without the German-led bloc, a residual euro would have the flexibility to keep [[interest rate]]s low<ref>{{cite news |last=Mattich |first=Alen |url=https://www.wsj.com/articles/SB10001424052702304259304576375590770135026 |title=Germany's Interest Rates Have Become a Special Case |work=[[The Wall Street Journal]] |date=10 June 2011 |access-date=17 June 2011}}</ref> and engage in [[quantitative easing]] or [[~~Stimulus (economics)|~~fiscal stimulus]] in support of a job-targeting economic policy<ref>{{cite news |last=Evans-Pritchard |first=Ambrose |url=https://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8643512/A-modest-proposal-for-eurozone-break-up.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8643512/A-modest-proposal-for-eurozone-break-up.html |archive-date=12 January 2022 |url-access=subscription |url-status=live |title=A modest proposal for eurozone break-up |newspaper=The Telegraph |date=17 July 2011 |access-date=18 July 2011 |location=London}}{{cbignore}}</ref> instead of [[inflation targeting]] in the current configuration.

;Breakup vs. deeper integration

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 post-War 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 |access-date=18 July 2012 |newspaper=The New York Times |date=20 May 2012 |author=Steven 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".}}</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 |archive-url=https://web.archive.org/web/20111007211008/http://www.bloomberg.com/news/2011-09-08/trichet-loses-his-cool-at-prospect-of-deutsche-mark-s-revival-in-germany.html |url-status=dead |archive-date= 7 October 2011 |title=Trichet Loses His Cool at Prospect of Deutsche Mark's Revival in Germany |publisher=Bloomberg L.P. |date=9 September 2011 |access-date=2 October 2011 |first=John |last=Fraher }}</ref>

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===Odious debt===

Some protesters, 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 characterised as odious debt.<ref>{{cite web |url=http://www.cadtm.org/Greece-must-deny-to-pay-an-odious |title=Greece must deny to pay an odious debt |publisher=[[~~Committee for the Abolition of the Third World Debt|~~CADTM]] |date=11 June 2011 |access-date=7 October 2011}}</ref> The Greek documentary ''[[Debtocracy]]'',<ref>{{cite video |year=2011 |title=Debtocracy (international version) |url=http://www.dailymotion.com/video/xik4kh_debtocracy-international-version_shortfilms |publisher=[[ThePressProject]] |archive-url=https://web.archive.org/web/20120913105343/http://www.dailymotion.com/video/xik4kh_debtocracy-international-version_shortfilms |archive-date=13 September 2012 |access-date=18 July 2012 |url-status=dead }}</ref> and a book of the same title and content examine whether the recent [[2008 Siemens scandal|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.<ref>{{cite book |title=Debtocracy |last1=Kitidē |first1=Katerina |last2=Vatikiōtēs |first2=Lēōnidas |first3=Arēs |last3=Chatzēstephanou |year=2011 |publisher=Ekdotikos organismōs livanē |isbn=978-960-14-2409-5 |page=239}}</ref>

===Manipulated debt and deficit statistics===

In 1992, members of the European Union signed an agreement known as the [[Maastricht Treaty]], under which they pledged to limit their deficit spending and debt levels. Some EU member states, 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.<ref name=Secret>{{cite journal |ssrn=1323190 |title=Secret Liens and the Financial Crisis of 2008 |first=Michael |last=Simkovic |journal=[[American Bankruptcy Law Journal]] |volume=83 |page=253 |year=2009}}{{dead link|date=February 2017}}</ref><ref name="World Bank">{{cite journal |ssrn=1738539 |title=Michael Simkovic, Bankruptcy Immunities, Transparency, and Capital Structure, Presentation at the World Bank |doi=10.2139/ssrn.1738539 |publisher=[[~~Social Science Research Network|~~SSRN]] |date=11 January 2011 |last1=Simkovic |first1=Michael |s2cid=153617560 }}{{dead link|date=February 2017}}</ref> The structures were designed by prominent US 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 minimising 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 |volume=29 |issue=3 |publisher=SSRN |date=1 January 2010 }}{{dead link|date=February 2017}}</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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The focus has naturally remained on Greece due to its debt crisis. There have been reports about manipulated statistics by EU and other nations aiming, as was the case for Greece, to mask the sizes of public debts and deficits. These have included analyses of examples in several countries<ref>{{cite news |title=Greece not alone in exploiting EU accounting flaws |url=https://www.reuters.com/article/idUSTRE61L3EB20100222 |work=Reuters |date=22 February 2010 |access-date=20 August 2010}}</ref><ref>{{cite news |title=Greece is far from the EU's only joker |url=http://www.newsweek.com/blogs/wealth-of-nations/2010/02/19/greece-is-far-from-the-eu-s-only-joker.html |work=[[Newsweek]] |date=19 February 2010 |access-date=16 May 2011}}</ref><ref>{{cite news |title=The Euro PIIGS out |url=http://librus.ca/2010/10/the-euro-piigs-out |work=Librus Magazine |date=22 October 2010 |access-date=17 May 2011 |url-status=dead |archive-url=https://web.archive.org/web/20110820012838/http://librus.ca/2010/10/the-euro-piigs-out/ |archive-date=20 August 2011 }}</ref><ref>{{cite news |title='Creative accounting' masks EU budget deficit problems |url=http://www.highbeam.com/doc/1G1-133622280.html |archive-url=https://web.archive.org/web/20130515060036/http://www.highbeam.com/doc/1G1-133622280.html |url-status=dead |archive-date=15 May 2013 |work=[[Sunday Business]] |date=26 June 2005 |access-date=17 May 2011}}</ref><ref>{{cite news |title=How Europe's governments have enronized their debts |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>

the United Kingdom,<ref>{{cite news |title=UK Finances: A Not-So Hidden Debt |url=http://www.egovmonitor.com/node/41679 |archive-url=https://web.archive.org/web/20110415014436/http://www.egovmonitor.com/node/41679 |url-status=dead |archive-date=15 April 2011 |work=eGovMonitor |date=12 April 2011 |access-date=16 May 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 |access-date=16 May 2011 |last=Butler}}{{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 |access-date=16 May 2011 |last=Newmark}}</ref><ref>{{cite news |first=Patience |title=Time to remove the mask from debt |url=https://www.wsj.com/articles/SB10001424052748704431404575067312370615300 |work=The Wall Street Journal |date=16 February 2010 |access-date=16 May 2011 |last=Wheatcroft}}</ref><ref>{{cite news |title=Brown accused of 'Enron accounting' |url=http://news.bbc.co.uk/2/hi/uk_news/politics/2525805.stm |work=BBC News |date=28 November 2002 |access-date=16 May 2011}}</ref> Spain,<ref>{{cite news |title='Hidden' debt raises Spain bond fears |url=http://www.ft.com/intl/cms/s/0/6e89358c-7fee-11e0-b018-00144feabdc0.html#axzz1Mgr4Zc82 |work=Financial Times |date=16 May 2011 |access-date=16 May 2011}}</ref> the United States,<ref>{{cite news |title=Cox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt |url=https://www.wsj.com/articles/SB10001424127887323353204578127374039087636 |work=[[The Wall Street Journal]] |date=26 November 2012 |access-date=5 February 2013}}</ref><ref>{{cite news |title=Bill Gross says US is Out-Greeking the Greeks on Debt |url=https://www.bloomberg.com/news/2011-03-30/bill-gross-says-u-s-is-out-greeking-the-greeks-on-debt-1-.html |archive-url=https://web.archive.org/web/20110404010251/http://www.bloomberg.com/news/2011-03-30/bill-gross-says-u-s-is-out-greeking-the-greeks-on-debt-1-.html |url-status=dead |archive-date= 4 April 2011 |work=Bloomberg L.P. |date=30 March 2011 |access-date=17 May 2011 |first=Wes |last=Goodman }}</ref><ref>{{cite news |title=Botox and beancounting Do official statistics cosmetically enhance America's economic appearance? |url=http://www.economist.com/node/18618589?story_id=18618589&fsrc=rss |work=Economist |date=28 April 2011 |access-date=16 May 2011}}</ref> and even Germany.<ref>{{cite news |title=Germany's enormous hidden debt |url=http://www.presseurop.eu/en/content/news-brief-cover/981581-germany-s-enormous-hidden-debt |work=[[Presseurop]] |date=23 September 2011 |access-date=28 September 2011 |archive-url=https://web.archive.org/web/20120407125913/http://www.presseurop.eu/en/content/news-brief-cover/981581-germany-s-enormous-hidden-debt |archive-date=7 April 2012 |url-status=dead }}</ref><ref>{{cite news |title=Germany Has 5 Trillion Euros of Hidden Debt, Handelsblatt Says |url=https://www.bloomberg.com/news/2011-09-23/germany-has-5-trillion-euros-of-hidden-debt-handelsblatt-says.html |archive-url=https://web.archive.org/web/20110924080929/http://www.bloomberg.com/news/2011-09-23/germany-has-5-trillion-euros-of-hidden-debt-handelsblatt-says.html |url-status=dead |archive-date=24 September 2011 |work=Bloomberg L.P. |date=23 September 2011 |access-date=28 September 2011 |first=Christian |last=Vits }}</ref><ref>{{cite news |title=Finger-wagging Germany secretly accumulating trillions in debt |url=http://worldcrunch.com/business-finance/finger-wagging-germany-secretly-accumulating-trillions-in-debt/c2s5692/|archive-url=https://web.archive.org/web/20121120172024/http://worldcrunch.com/business-finance/finger-wagging-germany-secretly-accumulating-trillions-in-debt/c2s5692/|url-status=dead|archive-date=20 November 2012 |work=[[Worldcrunch]]/[[Die Welt]] |date=21 June 2012 |access-date=24 December 2012}}</ref>

===Collateral for Finland===

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In February 2012, the four largest Greek banks agreed to provide the €880 million in collateral to Finland to secure the second bailout programme.<ref>{{cite news |title=The second Greek bailout: Ten unanswered questions |url=http://www.openeurope.org.uk/Content/Documents/Pdfs/Greecetenquestions.pdf |archive-url=https://web.archive.org/web/20120219190434/http://www.openeurope.org.uk/Content/Documents/Pdfs/Greecetenquestions.pdf |url-status=dead |archive-date=19 February 2012 |publisher=[[Open Europe]] |date=16 February 2012 |access-date=16 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 |author=STT |url=https://www.iltalehti.fi/talous/a/2012082715999914 |title=Yle: Suomalaisvirkamiehet salaa neuvomaan Italiaa talousasioissa | Talous |publisher=Iltalehti.fi |date=27 August 2012 |access-date=26 March 2013}}</ref> in addition to spending cuts and [[bad bank]]ing.

==Political impact==

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* Slovenia – September 2011 – Following the failure of [[2011 Slovenian referendum|June referendums]] on measures to combat the economic crisis and the departure of coalition partners, the [[Borut Pahor]] government lost a [[motion of confidence]] and [[2011 Slovenian parliamentary election|December 2011 early elections]] were set, following which [[Janez Janša]] became PM.<ref>{{cite web |url=http://www.rtvslo.si/slovenija/poslanci-izrekli-nezaupnico-vladi-boruta-pahorja/266631 |title=Foto: Poslanci izrekli nezaupnico vladi Boruta Pahorja :: Prvi interaktivni multimedijski portal, MMC RTV Slovenija |publisher=Rtvslo.si |date=20 September 2011 |access-date=23 October 2011}}</ref> After a year of rigorous saving measures, and also due to continuous opening of ideological question, the centre-right government of Janez Janša was ousted on 27 February 2013 by nomination of [[Alenka Bratušek]] as the PM-designated of a new centre-left coalition government.<ref>{{cite news |url=http://newsinfo.inquirer.net/366463/slovenias-troubled-government-ousted |title=Dusan Stojanovic: Slovenia's troubled government ousted |agency=Associated Press |publisher=Newsinfo.inquirer.net |date=28 February 2013 |access-date=17 August 2013}}</ref>

* Slovakia – October 2011 – In return for the approval of the EFSF by her coalition partners, PM [[Iveta Radičová]] had to concede [[2012 Slovak parliamentary election|early elections in March 2012]], following which [[Robert Fico]] became PM.

* Italy – November 2011 – Following market pressure on government bond prices in response to concerns about levels of debt, the [[right-wing]] [[Berlusconi IV Cabinet|cabinet]], of the long-time [[Prime Minister of Italy|~~Prime~~prime ~~Minister~~minister]] [[Silvio Berlusconi]], lost its majority: Berlusconi resigned on 12 November and four days later was replaced by the technocratic [[Monti Cabinet|government]] of [[Mario Monti]].<ref name="reuters-2011-11-11">{{cite news |url=https://www.reuters.com/article/eurozone-idUSL5E7MB0VY20111111 |title=Italy pushes through austerity, US applies pressure |work=Reuters |date=11 November 2011 |access-date=11 November 2011 |first=Barry |last=Moody}}</ref>

* Greece – November 2011 – After intense criticism from within his own party, the opposition and other EU governments, for his proposal to hold a [[referendum]] on the austerity and bailout measures, PM [[George Papandreou]] of the [[Panhellenic Socialist Movement|PASOK party]] announced his resignation in favour of a national unity government between three parties, of which only two currently remain in the coalition.<ref name="Guardian 10.11.2011"/> Following the vote in the Greek parliament on the austerity and bailout measures, which both leading parties supported but many MPs of these two parties voted against, Papandreou and [[Antonis Samaras]] expelled a total of 44 MPs from their respective parliamentary groups, leading to PASOK losing its parliamentary majority.<ref name="bailout-vote">{{cite news |url=http://www.cbc.ca/news/world/story/2012/02/12/greece-bailout-vote.html |title=Greece passes new austerity deal amid rioting |publisher=[[CBC News]] |date=12 February 2012 |access-date=13 February 2012}}</ref> The early [[May 2012 Greek legislative election|Greek legislative election, 2012]] were the first time in the history of the country, at which the bipartisanship (consisted of PASOK and New Democracy parties), which ruled the country for over 40 years, collapsed in votes as a punishment for their support to the strict measures proposed by the country's foreign lenders and the Troika (consisted of the European Commission, the IMF and the European Central Bank). The popularity of PASOK dropped from 42.5% in 2010 to [[Next Greek legislative election#Opinion Polls|as low as 7% in some polls in 2012]].<ref name="PollFeb2012">{{cite web |title=Poll Feb2012 |url=http://www.skai.gr/news/politics/article/193925/antigrafotouvarometro-neo-politiko-skiniko-me-okto-kommata-sti-vouli-/ |access-date=14 February 2012 |date=14 February 2012}}</ref> The radical right-wing, extreme left-wing, communist and populist political parties that have opposed the policy of strict measures, won the majority of the votes.

* Netherlands – April 2012 – After talks between the [[VVD]], [[Christian Democratic Appeal|CDA]] and [[Party for Freedom|PVV]] over a new austerity package of about 14 billion euros failed, the [[First Rutte cabinet|Rutte cabinet]] collapsed. Early elections were called for 12 September 2012. To prevent fines from the EU – a new budget was demanded by 30 April – five different parties called the ''Kunduz coalition'' forged together an emergency budget for 2013 in just two days.<ref>{{cite news |title=Wilders wil nieuwe verkiezingen- 'hoe eerder, hoe beter' |url=http://www.nrc.nl/nieuws/2012/04/21/wilders-wil-nieuwe-verkiezingen-hoe-eerder-hoe-beter/ |newspaper=[[NRC Handelsblad]] |date=21 April 2012 |access-date=21 April 2012}}</ref>

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* [[2000s commodities boom]]

* [[1991 Indian economic crisis]]

* [[Stock market crashes in India]]

* [[Corporate debt bubble]]

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

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* [[Great Recession]]

* [[Great Recession in Europe]]

* [[List of stock market crashes and bear markets]]

* [[List of acronyms associated with the eurozone crisis]]

* [[List of countries by credit rating]]

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*{{cite journal |last1=Nedergaard |first1=Peter |last2=Bang |first2=Henrik |last3=Jensen |first3=Mads Dagnis | author-link1 = Peter Nedergaard |title='We the People' versus 'We the Heads of States': the debate on the democratic deficit of the European Union |journal=Policy Studies |volume=36 |issue=2 |pages=196–216 |doi=10.1080/01442872.2014.1000846 |date=March 2015 |s2cid=154326073 |url=https://curis.ku.dk/ws/files/239517627/We_the_People_versus_We_the_Heads_of_States_the_debate_on_the_democratic_deficit_of_the_European_Union.pdf }}

* {{cite journal |last1=Nedergaard |first1=Peter |last2=Snaith |first2=Holly | author-link1 = Peter Nedergaard |title='As I drifted on a river I could not control': the unintended ordoliberal consequences of the Eurozone crisis |journal=[[Journal of Common Market Studies]] |volume=53 |issue=5 |pages=1094–1109 |doi=10.1111/jcms.12249 |date=September 2015 |s2cid=143248038 }}

* {{cite book |last=Tooze |first=Adam |author-link=Adam Tooze |title=Crashed: How a Decade of Financial Crises Changed the World |location=New York |publisher=[[Viking]] |year=2018 |isbn=9780670024933 ~~|title-link=Crashed (book)~~ }}

*[https://www.nber.org/papers/w26229 Markus K. Brunnermeier, Ricardo Reis. 2019. "A Crash Course on the Euro Crisis" NBER paper]

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

* [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)

* [[~~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

* [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

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[[Category:2012 in the European Union]]

[[Category:2013 in the European Union]]

[[Category:Barroso Commission]]