From late 2009, fears of a sovereign debt crisis in some European states developed, with the situation becoming particularly tense in early 2010. [1] [2] Greece was most acutely affected, but fellow Eurozone members Cyprus, Ireland, Italy, Portugal, and Spain were also significantly affected. [3] [4] In the EU, especially in countries where sovereign debt has increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany. [5]
This was the first Eurozone crisis since its creation in 1999. As Samuel Brittan pointed out, [6] Jason Manolopoulos "shows conclusively that the Eurozone is far from an optimum currency area". [7] Niall Ferguson also wrote in 2010 that "the sovereign debt crisis that is unfolding... is a fiscal crisis of the western world". [8] Axel Merk argued in a May 2011 Financial Times article that the dollar was in graver danger than the euro. [9]
Concern about rising government deficits and debt levels [10] [11] across the globe together with a wave of downgrading of European government debt [12] created alarm in financial markets. The debt crisis is mostly centred on events in Greece, where the cost of financing government debt has risen. On 2 May 2010, the Eurozone countries and the International Monetary Fund agreed to a €110 billion loan for Greece, conditional on the implementation of harsh austerity measures. [13] On 9 May 2010, Europe's Finance Ministers approved a comprehensive rescue package worth €750 billion (then almost a trillion dollars) aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility. [14] The Greek bail-out was followed by an €85 billion rescue package for Ireland in November, [15] and a €78 billion bail-out for Portugal in May 2011. [16] [17]
While the sovereign debt increases have been most pronounced in only a few Eurozone countries they have become a perceived problem for the area as a whole. [18] In May 2011, the crisis resurfaced, concerning mostly the refinancing of Greek public debt. [19] The Greek people generally rejected the austerity measures and have expressed their dissatisfaction with protests. [20] [21] In late June 2011, the crisis situation was again brought under control with the Greek government managing to pass a package of new austerity measures and EU leaders pledging funds to support the country. [22] In May 2012 the crisis escalated to new levels following the national Greek legislative election, May 2012. Greek parties failed to form a coalition Government following the election and there was widespread speculation of Greece exiting the Eurozone, termed a "Grexit".
Below is a brief summary of some of the main events since the Greek government debt crisis. [23]
The euro area, commonly called the eurozone (EZ), is a currency union of 20 member states of the European Union (EU) that have adopted the euro (€) as their primary currency and sole legal tender, and have thus fully implemented EMU policies.
While the Hungarian government has been planning since 2003 to replace the Hungarian forint with the euro, as of 2023, there is no target date and the forint is not part of the European Exchange Rate Mechanism. An economic study in 2008 found that the adoption of the euro would increase foreign investment in Hungary by 30%, although current governor of the Hungarian National Bank and former Minister of the National Economy György Matolcsy said they did not want to give up the country's independence regarding corporate tax matters.
The 2008–2014 Spanish financial crisis, also known as the Great Recession in Spain or the Great Spanish Depression, began in 2008 during the world 2007–2008 financial crisis. In 2012, it made Spain a late participant in the European sovereign debt crisis when the country was unable to bail out its financial sector and had to apply for a €100 billion rescue package provided by the European Stability Mechanism (ESM).
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 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).
Greece faced a sovereign debt crisis in the aftermath of the financial crisis of 2007–2008. Widely known in the country as The Crisis, it reached the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, as well as a "humanitarian crisis". In all, the Greek economy suffered the longest recession of any advanced mixed economy to date and became the first developed country to be downgraded to emerging economy in 2013. As a result, the Greek political system was upended, social exclusion increased, and hundreds of thousands of well-educated Greeks left the country.
The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the eurozone to address the European sovereign-debt crisis. It was agreed by the Council of the European Union on 9 May 2010, with the objective of preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty. The Facility's headquarters are in Luxembourg City, as are those of the European Stability Mechanism. Treasury management services and administrative support are provided to the Facility by the European Investment Bank through a service level contract. Since the establishment of the European Stability Mechanism, the activities of the EFSF are carried out by the ESM.
Debt crisis is a situation in which a government loses the ability of paying back its governmental debt. When the expenditures of a government are more than its tax revenues for a prolonged period, the government may enter into a debt crisis. Various forms of governments finance their expenditures primarily by raising money through taxation. When tax revenues are insufficient, the government can make up the difference by issuing debt.
The 2010–2014 Portuguese financial crisis was part of the wider downturn of the Portuguese economy that started in 2001 and possibly ended between 2016 and 2017. The period from 2010 to 2014 was probably the hardest and more challenging part of the entire economic crisis; this period includes the 2011–14 international bailout to Portugal and was marked by intense austerity policies, more intense than the wider 2001-2017 crisis. Economic growth stalled in Portugal between 2001 and 2002, and following years of internal economic crisis, the worldwide Great Recession started to hit Portugal in 2008 and eventually led to the country being unable to repay or refinance its government debt without the assistance of third parties. To prevent an insolvency situation in the debt crisis, Portugal applied in April 2011 for bail-out programs and drew a cumulated €78 billion from the IMF, the EFSM, and the EFSF. Portugal exited the bailout in May 2014, the same year that positive economic growth re-appeared following three years of recession. The government achieved a 2.1% budget deficit in 2016 and in 2017 the economy grew 2.7%.
European debt crisis contagion refers to the possible spread of the ongoing European sovereign-debt crisis to other Eurozone countries. This could make it difficult or impossible for more countries to repay or re-finance their government debt without the assistance of third parties. By 2012 the debt crisis forced 5 out of 17 Eurozone countries to seek help from other nations. Some believed that negative effects could spread further possibly forcing one or more countries into default.
The Greek government-debt crisis is one of a number of current European sovereign-debt crises. In late 2009, fears of a sovereign debt crisis developed among investors concerning Greece's ability to meet its debt obligations because of strong increase in government debt levels. This led to a crisis of confidence, indicated by a widening of bond yield spreads and the cost of risk insurance on credit default swaps compared to the other countries in the Eurozone, most importantly Germany.
The 2012–2013 Cypriot financial crisis was an economic crisis in the Republic of Cyprus that involved the exposure of Cypriot banks to overleveraged local property companies, the Greek government-debt crisis, the downgrading of the Cypriot government's bond credit rating to junk status by international credit rating agencies, the consequential inability to refund its state expenses from the international markets and the reluctance of the government to restructure the troubled Cypriot financial sector.
The eurozone crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties.
The eurozone crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties.
The eurozone crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties.
The Greek government-debt crisis began in 2009 and, as of November 2017, was still ongoing. During this period, many changes had occurred in Greece. The income of many Greeks has declined, levels of unemployment have increased, elections and resignations of politicians have altered the country's political landscape radically, the Greek parliament has passed many austerity bills, and protests have become common sights throughout the country.
The First Economic Adjustment Programme for Greece, initially called the Economic Adjustment Programme for Greece and usually referred to as the first bailout package or the first memorandum, is a memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.
This article details the fourteen austerity packages passed by the Government of Greece between 2010 and 2017. These austerity measures were a result of the Greek government-debt crisis and other economic factors. All of the legislation listed remains in force.
The Economic Adjustment Programme for Portugal, usually referred to as the Bailout programme, is a Memorandum of understanding on financial assistance to the Portuguese Republic in order to cope with the 2010–14 Portuguese financial crisis.
The Troika is a term used to refer to the single decision group created by three entities, the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). It was formed due to the European debt crisis as an ad hoc authority with a mandate to manage the bailouts of Cyprus, Greece, Ireland and Portugal, in the aftermath of their prospective insolvency caused by the world financial crisis of 2007–2008.
In 2009–2010, due to substantial public and private sector debt, and "the intimate sovereign-bank linkages" the eurozone crisis impacted periphery countries. This resulted in significant financial sector instability in Europe; banks' solvency risks grew, which had direct implications for their funding liquidity. The European central bank (ECB), as the monetary union's central bank, responded to the sovereign debt crisis with a series of conventional and unconventional measures, including a decrease in the key policy interest rate, and three-year long-term refinancing operation (LTRO) liquidity injections in December 2011 and February 2012, and the announcement of the outright monetary transactions (OMT) program in the summer of 2012. The ECB acted as a de facto lender-of-last-resort (LOLR) to the euro area banking system, providing banks with cash flow in exchange for collateral, as well as a buyer of last resort (BOLR), purchasing eurozone sovereign bonds. However, the ECB's policies have been criticised for their economic repercussions as well as its political agenda.
Standard & Poor's Ratings Services today lowered the 'AAA' long-term issuer credit rating on the European Financial Stability Facility (EFSF) to 'AA+' from 'AAA' . . . We lowered to 'AA+' the long-term ratings on two of the EFSF's previously 'AAA' rated guarantor members, France and Austria. The outlook on the long-term ratings on France and Austria is negative, indicating that we believe that there is at least a one-in-three chance that we will lower the ratings again in 2012 or 2013. We affirmed the ratings on the other 'AAA' rated EFSF members: Finland, Germany, Luxembourg, and The Netherlands.