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| Supplements to this article include  [[/Timelines|'''links  to contemporary reports''']] of the main events of the crisis; and notes on the  [[/Addendum#The financial status of the PIIGS countries|'''the financial status of the PIIGS''']], their notionally required [[/Addendum#Sustainability adjustments|'''sustainability adjustments''']] and their [[/Addendum#GDP growth|'''GDP growth rates''']]
| In addition to the following text, this article comprises:<br> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- a [[/Addendum#Crisis development by country|'''country-by-country summary''']] of the development of the crisis;<br> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- [[/Timelines|'''links  to contemporary reports''']] of the main events of the crisis;<br>&nbsp;&nbsp;&nbsp;&nbsp; - brief profiles of the [[/Catalogs#The Principal Actors|'''principal actors''']];<br>&nbsp;&nbsp;&nbsp;&nbsp; - notes on [[/Tutorials#The debt trap|'''the debt trap''']], the eurozone's departures from [[/Tutorials#Departures from optimum currency area criteria| '''optimum currency area criteria''']], on the eurozone's [[/Tutorials#Policy options|'''policy options''']]; ,<br>&nbsp;&nbsp;&nbsp;&nbsp; - tabulations of the [[/Addendum#Fiscal characteristics|'''fiscal characteristics of the PIIGS countries''']] and their [[/Addendum#GDP growth|'''GDP growth rates''']]; and,<br>&nbsp;&nbsp;&nbsp;&nbsp;- tabulations concerning the major member countries' [[/Addendum#Attitudes to the crisis|attitudes to the crisis]].
 
It was last updated on 27 November 2012.
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The financial assistance that was  provided to the governments of Greece and Ireland in 2010 did not restore the confidence of the markets in their continued ability to service their debt, and bond market investors became reluctant to buy the bonds being issued by some other eurozone governments. The '''eurozone crisis''' that started in 2010 arose from doubts about the willingness of major eurozone governments to provide the further assistance that may be needed, and fears that there may be a breakup of the eurozone if they do not.
The '''eurozone crisis''' was triggered in 2010 by doubts about the Greek government's ability to service its debt. Investor reluctance to buy its [[bond (finance)|bonds]] spread to affect the bond issues of several other  eurozone members, including Ireland and Portugal; and by  late 2011, it was having some effect upon  the bonds of many of its members, even including Germany. Eurozone loans to  Greece, Ireland, and Portugal had failed to restore investor confidence, and the [[Austerity (fiscal)|austerity]] conditions attached to those loans were hampering their recovery from the [[Great Recession]]. Some other member governments were finding it difficult to [[roll-over]] maturing debt, and it came to be realised that the resources that would be needed to rescue  larger members such as Spain or Italy could be greater than their eurozone partners could raise. What had been uncertainty about the [[fiscal sustainability]] of a few peripheral members had grown into uncertainty about the sustainability of the eurozone system itself. To make matters worse, the eurozone fell back into recession in the third quarter of 2012  as the crisis started to bite more deeply into the core northern economies.  Confidence was partially restored in the course of 2012, despite the partial default of the Greek government, by the European Central Bank's willingness to buy  bonds that had been issued by distressed member governments, but there was awareness of the need for further measures.
As a long-term measure, 25 European Union governments agreed to a set of balanced-budget undertakings termed the [[European Union/Addendum#The Fiscal Compact|"Fiscal Compact"]], and there was agreement in principle to a [[Eurozone crisis#The European Council|"Compact for Growth  and Jobs"]] but the only early action under consideration was the creation of a [[/Tutorials#Banking Union|banking union]] to relieve the pressure on member governments to [[Recapitalisation (banking)|recapitalise]] their banks. Proposals for debt mutualisation, for example by the creation of [[/Tutorials#Eurobonds|"eurobonds"]], were firmly rejected.


==Overview==
==Background to the crisis==
During 2010, prospective investors became increasingly reluctant to buy the [[bond]]s isued by five [[eurozone]] governments (Portugal, Ireland, Italy, Greece and Spain) at the offered interest rates,  and the governments concerned had to make a succession of increases in those rates. Two of those governments - Greece and Ireland - eventually decided that, without help, they  would not be able to continue to  finance their budget deficits,  and they sought - and received - loans from other European governments. Those loans failed to reassure potential investors, and in November  they  demanded further increases in the interest rates on  the government bonds of all five governments (including  those of Portugal, Spain and Italy, because of fears of [[contagion (banking)|contagion]] from Greece and Ireland).  
===The eurozone===
''(A more comprehensive account of the rationale and constitution of the eurozone is available in the [[Eurozone|eurozone article]].)''
====Overview====
The [[eurozone]] was launched in 1991 as an economic and monetary union that was  intended to increase economic efficiency  while preserving  financial stability. Financial vulnerability to [[asymmetric shock]]s as a result of disparities  among member economies was intended to be countered in the medium term by limits on  [[public debt]] and [[budget deficit]]s, and in the long term,  by  progressive economic [[convergence (economics)|convergence]]. By the early years of the 21st century, however, it had became apparent that the fiscal limits could not be enforced,  and that membership had enabled  the governments of some countries - notably Greece - to borrow on more favourable terms than had previously been available. It had also become evident that membership had reduced the international competitiveness of low-productivity countries - such as Greece -, and that it had raised the competitiveness of high-productivity countries - such as Germany. For those and other reasons, it now appears that there had been divergence rather than convergence among the economies of the eurozone, and that their vulnerability to external shocks had been increased rather diminished.


By December 2010, there was widespread uncertainty about future prospects for the eurozone and beyond. There were doubts about the willingness of European governments to provide further financial support to the five "PIIGS" governments, and speculation that financing difficulties might spread to affect other governments. Some commentators considered it inevitable that one or other of the PIIGS governments would default on its loans, and other commentators forecast departures from the eurozone by governments wishing  to escape its  restraints. There were even those who envisaged wholesale departures, leading to a collapse of the common currency - an outcome that would impose substantial losses upon countries with investments in [[euro]]-denominated [[security|securities]], and could threaten the stability of the international financial system.
====Membership====
In 1991, leaders of the 15 countries that then made up the [[European Union]],  set up a monetary union with a single currency. There were strict criteria for joining (including targets for inflation, interest rates and budget deficits), and other rules that were intended to preserve its members' [[fiscal sustainability]] were added later. No provision was made for the expulsion of countries that did not comply with its rules, nor for the voluntary departure of those who no longer wished to remain, but it was intended to impose financial penalties for breaches.


==Causes of the crisis==
Greece joined, what by then was known as the [[eurozone]], in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009.
===Departures from optimum currency area criteria===
The current membership<ref>[http://www.ecb.int/euro/intro/html/map.en.html ''Map of euro area 1999 – 2009'', European Central Bank, 2010]</ref> comprises Belgium,  Germany¸ Ireland,  Greece,  Spain,  France,  Italy,  Cyprus, Luxembourg,  Malta,  The Netherlands,  Austria,  Portugal, Slovenia, Slovakia, and Finland. Bulgaria, Czech Republic.
[[Eurozone/Tutorials#Optimun currency area theory|Currency area theory]] is concerned with extent to which  [[economic efficiency|efficiency]] gains from currency area membership are offset by losses due to increased vulnerability to external [[shock (economics)|economic shocks]], and the term "optimum currency area"  (OCA) denotes an area in which such offsets are absent. Although an idealistic concept, it has practical implications because the increased costs of [[recession]]s, brought about by increased vulnerability to shocks, can be large compared with the benefits of the efficiency gains. For that reason it is generally accepted that a currency area may not succeed unless it goes a substantial way toward meeting OCA criteria. A currency area fully meets OCA criteria if there is complete [[price flexibility]], or complete cross-boarder mobility of labour and capital. An alternative requirement arises from the fact that increased vulnerability to shocks need not occur if every shock has the same impact on all the economies of the member states. The term "convergence" is sometimes used to denote a condition in which the economies of members states are so similar as to eliminate [[asymmetric shock]]s - or to denote an approach to that condition.


The eurozone has not satisfied  the OCA labour migration or price flexibility conditions. Labour mobility is low<ref>[http://ec.europa.eu/economy_finance/publications/publication13173_en.pdf Alexandre Janiak and Etienne Wasmer: ''Mobility in Europe'', European Commission, 2008]</ref> and there is only limited wage and price flexibility<ref>[http://ec.europa.eu/economy_finance/publications/publication9587_en.pdf  Alfonso Arpaia and Karl Pichelmann: ''Nominal and real wage flexibility in EMU'', European Commission, 2007]</ref><ref>[http://ec.europa.eu/economy_finance/publications/publication15196_en.pdf  Emmanuel Dhyne, Jerzy Konieczny, Fabio Rumler and Patrick Sevestre: ''Price Rigidity in the Euro Area'', European Commission, 2009]</ref>. Nor has it satisfied the convergence condition.  There has been less price convergence among eurozone countries than among European Union countries as a whole,<ref> Clas Wihjborg.Thomas Willett and NanZhang: ''The Euro Debt Crisis. It isn't just fiscal'', World Economics, October-December 2010 (figures 3-6)</ref>, and there have been large divergences of productivity, unit labour costs, and current account balances. The progress toward convergence as a result of membership, that was expected by the early proponents of monetary union<ref>[http://ec.europa.eu/economy_finance/publications/publication7454_en.pdf ''One market, one money. An evaluation of the potential benefits and costs of forming an economic and monetary union'', European Economy, No 44 October 1990]</ref>, has not occurred.
The non-members of the eurozone among members of the [[European Union]] are Denmark, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Sweden and the United Kingdom.


===The debt trap===
====The European Central Bank====
If the annual interest payable on a government's debt were to continue to rise faster than the national income, it would eventually exceed the feasible revenue from taxation. The process is normally hastened by the fact that government debt is traded in a well-informed [[market]]. Operators in that market would be aware of the approach of the point at which the government would be forced to [[default (finance)|default]] on its debt,  and they would be increasingly reluctant to allow that government to continue to [[roll-over|roll over]] its debt. The government concerned could seek to  overcome that reluctance by offering them higher interest on future loans, but an increase in the interest to be paid would hasten the process and increase the reluctance of further potential investors. That is what is known as the [[debt trap]], the price formulation of which is the [[Fiscal policy/Tutorials#The debt trap identity|the debt trap identity]].
The [[European Central Bank]]<ref>[http://www.ecb.europa.eu/ecb/html/index.en.html The website of the European Central Bank]</ref> is the core of the "Eurosystem" that consists also of all the national [[central bank]]s of the member countries of the Union (whether or not they are members of the [[eurozone]]). Its governing body<ref>[http://www.ecb.int/ecb/orga/decisions/govc/html/index.en.html ''The Governing Council'', European Central Bank, 2010]</ref> consists of the six members of its Executive Board, and  the governors of the national central banks of the 17 eurozone countries. It  is responsible  for the execution of the Union's [[monetary policy]]. Its statutory remit requires that, "without prejudice to the objective of price stability", it is  to "support the general economic policies in the Community" including a  "high level of employment" and "sustainable and non-inflationary growth"<ref>[http://www.ecb.europa.eu/mopo/intro/objective/html/index.en.html ''Objective of Monetary Policy'', European Central Bank, 2009]</ref>. The bank's governing board sets the eurozone's [[discount rate]]s and has been responsible for the introduction and management of refinancing operations
<ref>[http://www.ecb.int/mopo/decisions/html/mb200906_pp9_10.pdf?930ba6a2c7fe907c4894771fdfe9e468 ''Governing Council Decisions on Non-Standard Measures'', European Central Bank, 2010]</ref>. Article 101 of the European Treaty expressly forbids the ECB from lending to governments and Article 103 prohibits the euro zone from becoming liable for the debts of member states.


The debt trap could be escaped: 
The Bank is an independent decision-making body, being protected from political control by article 107 of the Maastricht Treaty: " ”…, neither the ECB, nor a national central bank, nor any member of their decision making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body". It takes decisions by majority voting, which therefore cannot be vetoed by individual member-states.
: - (i)  by repudiation of the debt;
: - (ii) (temporarily) by a negotiation with creditors to ease the terms of repayment (termed [[restructuring of debt|restructuring]]);<br>
: - (iii) (temporarily) by getting the country's [[central bank]] to purchase the debt; or,
: - (iv) by a programme of reductions in [[public expenditure]] and/or increases in  rates of [[taxation]].<br>
Options (i) and (ii) have the drawback of making future investors reluctant to buy the government's [[bond]]s. Option (iii) can also have that effect if it causes an [[inflation]] that reduces the value of the currency in which the debt is to be repaid. Option (iv) is free from  that drawback,  but is effective only if it avoids creating a [[recession]] that increases the deficit (by the operation of the country's [[automatic stabilisers]]).  


Fewer options are available to members of a currency union, however.  Option (iii) may be excluded by the fact that [[monetary policy]] is  no longer under the control of the borrowing government. That fact also prevents the use of monetary policy to counter the recessionary consequences of (iv), (without which that option may be ineffective);  and the rules  of the currency union prevent the exchange rate deprecation that might otherwise counter them. To make (iii) possible and (iv) easier, a further option would be (v) - to leave the currency union.
====The Stability and Growth Pact====
The Stability and Growth Pact<ref>[http://europa.eu/legislation_summaries/economic_and_monetary_affairs/stability_and_growth_pact/index_en.htm ''Stability and growth pact and economic policy coordination'', Europa 2010]</ref>
<ref>[http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/index_en.htm?cs_mid=570 ''Stability and Growth Pact'', European Commission 2009]</ref> that was introduced as part of the [[European Union#The EU Treaties| Maastricht Treaty]] in 1992, set arbitrary limits upon member countries' [[budget deficit]]s and levels of [[public debt]] at 3 per cent and 60 per cent of gdp respectively. Following multiple breaches of those limits by France and Germany<ref>[http://www.euractiv.com/en/euro/stability-growth-pact/article-133199 ''Stability and Growth Pact'', Euroactiv, 19 February 2007]</ref>, the pact has since been renegotiated to introduce the flexibility  announced as necessary to take account of changing economic conditions. Revisions introduced in 2005 relaxed the pact's enforcement procedures by introducing "medium-term budgetary objectives" that are differentiated across countries and  can be revised when a major structural reform is implemented;  and by providing for abrogation of the procedures during periods of low or negative economic growth <ref>[http://ec.europa.eu/economy_finance/emu10/emu10report_en.pdf "Fiscal Governance". para 10.2 of ''EMU@10 Successes and Challenges After 10 Years of Economic and Monetary Union'', European Commission, 2008]</ref>. A clarification of the concepts and methods of calculation involved was issued by the European Union's The Economic and Financial Affairs Council in November 2009
<ref>[http://ec.europa.eu/economy_finance/sgp/pdf/coc/2009-11-19_code_of_conduct_(consolidated)_en.pdf ''Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format and content of Stability and Convergence Programmes'', as endorsed by the Economic and Financial Affairs Council  on 10 November 2009]</ref> which includes an explanation of its excessive deficit procedure. According to the Commission services 2011 Spring forecasts, the government deficit exceeded
3% of GDP in 22 of the 27 European Union countries in 2010.


===The eurozone dilemmas===
====The European Financial Stability Facility====
Two dilemmas face Eiurozone policymakers. The first and more immediate dilemma is whether a debt-trap-threatened  member should be:
In May 2010, the [[European Union#The Council of the European Union|Council of Ministers]] established a ''Financial Stability Facility'' (EFSF)<ref>[http://www.efsf.europa.eu/about/index.htm European Financial Stability Facility website]</ref>  to assist eurozone governments  in    difficulties "caused by exceptional circumstances beyond their control". It was empowered to raise up €440 billion by issuing bonds guaranteed by member states <ref>[http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114324.pdf ''Extraordinary Council meeting: Economic and Financial Affairs'', Council of the European Union, Brussels, 9/10 May 2010]</ref>. It was to supplement an  existing provision for loans of up to €60 billion by the [[European Financial Stability Mechanism ]] (EFSM), and loans by  the [[International Monetary Fund]]. Proposals to [[leverage]] the €440 billion by loans from the [[European Central Bank]] were not  authorised until October 2011. Loans are subject to conditions negotiated with  European Commission and the IMF, and accepted by the   eurozone Finance Ministers.  
: - (a) rescued by their loans or guarantees, or
: - (b) left to tackle its problem without their assistance.<br>
Option (a) sets a precedent that reduces incentive upon individual members' to abide by the collectively-agreed  rules of fiscal conduct, and thereby increases the long-term danger that the dilemma will recur (the [[moral hazard]] consideration).<br>
Option (b) involves the more immediate danger of a [[default (finance)|default]] by the member concerned that might put  other members in a similar situation (the [[contagion (banking)| contagion]] consideration),  or of its departure from the eurozone in order to escape from its policy restraints.


The second dilemma concerns the means of preventing the creation of national debt traps. The options are:
The EFSF and the EFSM are to be replaced in 2013 by a permanent crisis resolution regime,  to be called the ''European Stability Mechanism'' (ESM)<ref>[http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/636 in 2013. ''European Stability Mechanism - Q&A'', Europa Press Release, 1  December 2010]</ref>, which is to be a supranational institution, established by international treaty, with an independent decision-making power. (A comprehensive explanation of the EFSF and the ESM is available in question-and-answer form<ref>[http://www.efsf.europa.eu/attachments/faq_en.pdf FAQs on the European Financial Stability Facility, 2 December 2011]</ref>.)
: - (a) the creation of regulations to deter the adoption of unsustainable fiscal policies, or
: - (b) the transfer of control over fiscal policy from national government to a central authority<br>
An intermediate possibility is the creation of a "transfer union" involving the automatic transfer of resources from surplus countries to deficit countries<ref>[http://www.voxeu.org/index.php?q=node/5166 Paul De Grauwe ''How to embed the Eurozone in a political union'', Vox, 17 June 2010]</ref>.


The  effectiveness of avoidance by regulation is limited by a version of [[time inconsistency]] in which the government of a member country agrees at the outset to submit to a prudential regulation, such as a limit on deficits, but subsequently changes its mind under the pressure of unforeseen developments. The transfer of the power to control fiscal policy involves a loss of national sovereignty that would be almost equivalent amalgamation into a political union. A transfer union is a less radical option, but it does not solve the moral hazard problem.
====Pre-crisis performance====
Neither a [[Eurozone/Addendum#Growth rate comparison|1999-2008 growth rate comparison]], nor a
[[Great Recession/Addendum#The European Union|2008-2011 growth rate comparison]] shows a significant difference between the performance of the eurozone as a whole and of the European Union as a whole, However, there is clear evidence that the [[Great Recession]] had imposed an [[asymmetric shock]] on the eurozone, causing  [[downturn (economic)|downturns]] of above average severity in the economies of the [[PIIGS]] countries (Portugal, Italy, Ireland, Greece and Spain), that are  attributable to [[/Tutorials#Departures from optimum currency area criteria|departures from currency area criteria]], including large differences in member country [[trade balance]]s, limited  labour mobility and [[price flexibility]].


===The problem of the PIIGS===
===The PIIGS===
Since the inception of the eurozone, five of its members  - Portugal, Italy, Ireland, Greece and Spain - had suffered increases in the interest rates payable on their [[bond]] issues,  reflecting investors' fears  that they might [[default (finance)|default]]. Those fears were mainly attributable to [[recession]]-induced increases in their [[budget deficit]]s or in their [[public debt]] that raised doubts about their [[fiscal sustainability]]. Two of them - Greece and Ireland - have been given financial support, conditional upon their adoption of deficit-reduction programmes. In neither case has that been followed by an improvement in their [[Credit rating agency|credit ratings]], suggesting that doubts remained concerning their ability to implement those programmes. Their [[/Addendum#The financial status of the PIIGS countries|current financial status]] remained a matter of concern, on their own account and because of the possibility that the bond market's loss of confidence might spread and affect the fiscal stability of Belgium and other EU countries. It was suggested that the future of the eurozone was at stake<ref>[http://www.bbc.co.uk/blogs/thereporters/gavinhewitt/2010/11/fear_and_the_euro.html  Gavin Hewitt ''Fear and the euro'', BBC News, 16 November 2010]</ref><ref>[http://www.ft.com/cms/s/0/58ebec36-62aa-11df-b1d1-00144feab49a.html#axzz16ZvOXbKJ  Martin Wolf: ''Eurozone plays "beggar my neighbour"'', Financial Times, May 18 2010]</ref> (even in 2009, before the eurozone crisis had gathered strength, the Managing Director of the International Monetary Fund was warning that "most advanced economies will not accept any more [bailouts]...the political reaction will be very strong, putting some democracies at risk"<ref>[http://business.timesonline.co.uk/tol/business/economics/article6928147.ece Angela Jameson and Elizabeth Judge: ''IMF warns second bailout would "threaten democracy"'', Times, November 23, 2009]</ref>). If the euro were allowed to collapse, however, it has been estimated that reversion to national currencies would be followed by devaluations that would cost British, French and German banks about €360 billion<ref>[http://www.guardian.co.uk/business/marketforceslive/2010/nov/25/banks-lower-euro-worries Arturo de Frias, quoted in the Guardian blog Posted by Nick Fletcher on 25 November 2010]</ref> creating a [[supply shock]] comparable to the collapse of the ''Lehmans Brothers'' bank that had triggered the [[Great Recession]].
The  economies of the PIIGS countries differed  in several respects from those of the others. Unlike most of the others, they had developed deficits on their [[balance of payments]] current accounts (largely attributable to the effect of the euro's exchange rate upon the competitiveness of their exports). [[Deleveraging]] of corporate and household debt had amplified the effects of the recession to a greater extent - especially in those with  larger-than-average financial sectors, and those that had experienced debt-financed housing booms. In common with the others,  they had developed  [[cyclical  deficit]]s under the action of their economies' [[automatic stabilisers]] and of their governments' discretionary  [[fiscal stimulus|fiscal stimuli]],  and  increases in existing [[structural deficit]]s as a result of  losses of revenue-generating productive capacity. In some cases, their [[budget deficit]]s had been further increased by subventions and guarantees to distressed banks.


==Background to the crisis==
==Overview of the crisis==
===The eurozone===
It became evident early in  2010 that, without external assistance, the Greek government would be forced to [[default (finance)|default]] on its debt. Eurozone governments,  in conjunction with  the International Monetary Fund, responded with [[Eurozone crisis/Tutorials#Conditional loans|conditional loans]] to enable the  Greek government to continue to [[roll-over]] its maturing debts. Investors' fears of [[sovereign default]]  by other eurozone governments developed in the course of 2010 and  conditional loans had to be  provided to the governments of  [[/Addendum#Ireland|Ireland]] and [[/Addendum#Portugal|Portugal]]. The crisis deepened when, in the latter half of 2011, it  became evident that a default by the Greek government could no longer be avoided.  On October 26 2011 there was provisional agreement for a further EU/IMF loan and a partial  write-off of private sector holdings of Greek government debt, but it was not until the following February that the conditions required of the Greek government were deemed to have been met. In the meantime there was substantial  [[/Addendum#Sovereign spread contagion|sovereign spread contagion]] by Spain, Italy and modest contagion by other eurozone countries including France. By early 2012, however, there had been substantial falls in  sovereign spreads as a result of bond purchases by eurozone banks using loans from the European Central Bank, and by late February, confidence had been further restored by reduced expectations of a Greek default.


====Membership====
==The PIIGS crisis (March 2010 to October 2011)==
In 1991,  the 15 members of the European Union, meeting in the Dutch town of Maastricht, agreed to set up a monetary union with a single currency. They agreed upon  strict criteria for joining, including targets for inflation, interest rates and budget deficits, and they subsequently agreed upon rules of conduct that were intended to preserve its members' [[fiscal sustainability]]. No provision was made for the expulsion of countries that did not comply with its rules, nor for the voluntary departure of those who no longer wished to, but the intention was announced of imposing  financial penalties for breaches.
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| The blue  country  links in this section are to country reports on the [[/Addendum#Crisis development by country|addendum subpage]].
|}
===Overview===
The [[Great Recession]] brought about large increases in the indebtedness of the eurozone governments
and by 2009, twelve member states had [[public debt]]/GDP ratios of over 60% of GDP<ref>[http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-22042010-BP/EN/2-22042010-BP-EN.PDF ''Provision of deficit and debt data for 2009 - first notification, Eurostat April 2010]</ref>.
Concern developed in early 2010 concerning the [[fiscal sustainability]] of the economies of the "PIIGS" countries ([[Great Recession/Addendum#Portugal|Portugal]], [[Great Recession/Addendum#Ireland|Ireland]], [[Great Recession/Addendum#Italy|Italy]], [[Great Recession/Addendum#Greece|Greece]] and [[Great Recession/Addendum#Spain|Spain]]) and a eurozone fund was set up to assist members in difficulty. Bond markets were eventually reassured by the conditional loans provided to Ireland, but despite a eurozone loan to Greece, they demanded increasing  [[risk premium]]s for lending to its government. In late 2010 there were signs of [[contagion (finance)|contagion]] of market fears by the governments of other eurozone countries, and it appeared that the integrity of the eurozone was being put in question.


Greece joined the eurozone in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009.  
===[[/Addendum#Greece|The Greek problem]]===
The current membership<ref>[http://www.ecb.int/euro/intro/html/map.en.html ''Map of euro area 1999 – 2009'', European Central Bank, 2010]</ref> comprises Belgium, Germany¸ Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia,  Slovakia,  and Finland. Bulgaria, Czech Republic, Denmark, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Sweden and the United Kingdom are EU Member States but are not members of the eurozone.
In April 2010, the Greek government faced the prospect of being unable to fund its maturing debts.  Its problems arose from large increases in its [[sovereign spread]]s reflecting the bond market's fears that it might [[default (finance)|default]] - fears that were based upon  both  its large [[budget deficit]]s, and  its limited economic prospects<ref name="AK">[http://ec.europa.eu/economy_finance/publications/economic_paper/2011/pdf/ecp436_en.pdf Michael G. Arghyrou  and Alexandros Kontonikas: ''The EMU sovereign-debt crisis: Fundamentals, expectations and contagion'', European Commission, February 2011]</ref>.
In May 2010, the Greek government was granted  a  €110 billion rescue package, financed jointly by the eurozone governments and the [[International Monetary Fund|IMF]]. Further increases in spreads showed that those rescue packages had failed to reassure the markets.
===[[/Addendum#Ireland|The Irish problem]]===
Between 2009 and 2010 Ireland's budget deficit increased from 14.2 per cent to 32.4 per cent of GDP, as a result mainly of one-off measures in support of the banking sector. November 2010 the government applied for financial assistance from the EU and the IMF<ref>[http://www.irishtimes.com/newspaper/breaking/2010/1121/breaking45.html ''Full text of the Government statement on its application for financial aid from the EU and IMF'', Irish Times, 22 November 2010]</ref>. By the Autumn of 2011 the government's programmes of tax increases had brought about a major improvement in [[fiscal sustainability]], bringing down its [[budget deficit]] from 32.4 percent to an expected 10.6 percent of GDP<ref>[http://www.imf.org/external/np/sec/pr/2011/pr11374.htm ''Statement by the EC, ECB, and IMF on the Review Mission to Ireland'', Press Release No. 11/374, October 20, 2011]</ref> and enabling the government to return to the bond market.
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|''We are experiencing an episode in the history of the world which is very very special. It is the gravest financial crisis, economic crisis, since World War II, so it is something which is big. It is big in Europe, it is big in the US, big in Japan, big in the rest of the world. ''
::European Central Bank President Jean-Claude Trichet 30th August 2011[http://www.euronews.net/2011/08/30/eu-debt-crisis-gravest-since-world-war-ii-warns-trichet/]
|}
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:50%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
|"''We are now facing the greatest challenge our Union has ever seen... This is a financial,  economic and social crisis, but also a crisis of confidence with respect to our leaders in general, to Europe itself, and to our ability to find solutions.''"<br>
::José Manuel Durão Barroso President of the European Commission    State of the Union Address, 28 September 2011
|}


====The Stability and Growth Pact====
===Contagion among the PIIGS===
Signs began to appear of the [[contagion (finance)|contagion]] of the bond market fears from Greece to other PIIGS  countries, particularly Portugal and Spain<ref name="AK"/>. Portugal received an EU/IMF rescue package in May 2011, and  Greece was assigned a second package in July, neither of which restored the bond market's confidence in eurozone sovereign debt. 
There was a dramatic increase in measures of the [[/Addendum#CDS spreads  (a measure of perceived risk)|market assessment of default risk]], implying a 98 per cent probability of a Greek government [[default (finance)|default]]<ref>[http://www.bloomberg.com/news/2011-09-12/greece-s-risk-of-default-increases-to-98-as-european-debt-crisis-deepens.html Abigail Moses:''Greece Has 98% Chance of Default on Euro-Region Sovereign Woes'', Bloomberg, Sep 13, 2011]</ref>.


The Stability and Growth Pact
Also in 2011, there was a major decline in confidence in eurozone banks, following rumours that losses on Greek bonds had left them undercapitalised. What had started as a Greek crisis was developing into a eurozone crisis because the  rescue packages that could be needed for the much bigger economies of Spain or Italy were expected to be larger than the eurozone could afford. Bond market concern about the [[fiscal sustainability|sustainability]] of Italy's [[public debt]] was reflected in a progressive rise in the [[yield (finance)|yield]] on its 10-year government bonds  during 2011, and by October  it had risen to over 5 percent.
<ref>[http://europa.eu/legislation_summaries/economic_and_monetary_affairs/stability_and_growth_pact/index_en.htm ''Stability and growth pact and economic policy coordination'', Europa 2010]</ref>
<ref>[http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/index_en.htm?cs_mid=570 ''Stability and Growth Pact'', European Commission 2009]</ref> that was introduced as part of the Maastricht Treaty in 1992, set arbitrary limits upon member countries' budget deficits and levels of national debt at 3 per cent and 60 per cent of gdp respectively.  


Following multiple breaches of those limits by France and Germany<ref>[http://www.euractiv.com/en/euro/stability-growth-pact/article-133199 ''Stability and Growth Pact'', Euroactiv, 19 February 2007]</ref>, the pact has since been renegotiated to introduce the flexibility necessary to take account of changing economic conditions. Revisions introduced in 2005 relaxed the pact's enforcement procedures by introducing "medium-term budgetary objectives" that are differentiated across countries and  can be revised when a major structural reform is implemented;  and by providing for abrogation of the procedures during periods of low or negative economic growth <ref>[http://ec.europa.eu/economy_finance/emu10/emu10report_en.pdf "Fiscal Governance". para 10.2 of ''EMU@10 Successes and Challenges After 10 Years of Economic and Monetary Union'', European Commission, 2008]</ref>. A clarification of the concepts and methods of calculation involved was issued by the European Union's The Economic and Financial Affairs Council in November 2009
==Policy responses==
<ref>[http://ec.europa.eu/economy_finance/sgp/pdf/coc/2009-11-19_code_of_conduct_(consolidated)_en.pdf ''Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format and content of Stability and Convergence Programmes'', as endorsed by the The Economic and Financial Affairs Council  on 10 November 2009]</ref> which includes an explanation of its excessive deficit procedure.
===Overview===
On the 26th of October, a meeting of eurozone leaders was held, the declared purpose of which was to restore confidence by adopting a "comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties". One set of measures that was adopted for that purpose, acknowledged the Greek government's inability to repay its debt in full, and provided for the [[restructuring of debt|restructuring]] of that debt, and for the financial support necessary for the government's  survival. A second set  was intended to provide an insurance against the [[contagion (finance)|contagion]] by other eurozone countries of the Greek government's difficulties and to assure the markets that sufficient eurozone funds would be available to cope with contagion should it occur. Thirdly, and in view of the market's awareness that a rescue of the Italian government would impose a major drain on those funds, the leaders sought to strengthen that government's defences against default. The measures that were agreed are recorded in a communiqué
<ref>[http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/125644.pdf ''Euro Summit Statement'', Brussels, 26 October 2011]</ref> and in a list of "main results"<ref>[http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/125645.pdf Main Results of the Euro Summit of October 2011]</ref>.
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:50%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
|"''We want Greece to remain in the Euro. At the same time, Greece must decide whether it is ready to take the commitments that come with Euro membership''"<br>
::José Manuel Durão Barroso President of the European Commission. Remarks following the G20 Summit Joint EU Press Conference Cannes, 4 November 2011
|}


====The bail-out clauses====  
===[[/Tutorials#Debt restructuring|Restructuring]] the  Greek debt===
[[Eurozone/Addendum#Article 104b|Article 104 of the Maastricht treaty]] appears to forbid any financial bail-out of member governments, but [[Eurozone/Addendum#Article 103a|article 103 of the treaty]] appears to envisage circumstances under which a bail-out is permitted,
The [[/Addendum#The Greek rescue package|rescue package]] for Greece included a 50 percent write-off of the Greek government's debt (as had been agreed with the Institute of International Finance representing the world's banks), and a  €130 billion conditional loan.  The Greek government responded to the conditions for the loan by calling a referendum to enable the Greek people to decide whether to accept the  package<ref>[http://www.ft.com/cms/s/0/68748490-03f5-11e1-98bc-00144feabdc0.html#axzz1cRgocIPR. Kerin Hope, Peter Spiegel and Telis Demos: ''Greece calls referendum on EU bail-out'', Financial Times, October 31, 2011]</ref>. At an emergency summit on 2nd November, however, Greek Prime Minister [[/Catalogs#George Papandreou|Papandreou]] was persuaded by French President [[/Catalogs#Nicolas Sarkozy|Sarkozy]] and German Chancellor [[/Catalogs#Angela Merkel|Merkel]] that the subject of the referendum should be whether Greece should remain within the eurozone, rather than the acceptability of the  rescue package. He was also told that the €8 billion tranche of the EU/IMF loan that (needed to avoid a default in December) would be withheld until after the referendum. Acknowledging the prospect that the referendum could result in the departure of Greece from the eurozone,[[/Catalogs#Jean-Claude Juncker|Jean-Claude Juncker]], the Chairman of the [[Eurogroup]] of eurozone Finance Ministers announced that preparations for that outcome were in hand<ref>[http://www.reuters.com/article/2011/11/03/us-eurozone-greece-juncker-idUSTRE7A216B20111103 ''Working on Greek exit from euro zone: Juncker'', Reuters, 3 November 2011]</ref>. The next day Prime Minister Papandreou announced his willingness to cancel the referendum, and that he had  obtained agreement  of opposition leaders to do so. On the 6th of November party leaders agreed to form a coalition government under a new Prime Minister<ref>[http://www1.mfa.gr/en/current-affairs/top-story/announcement-of-the-presidency-of-the-republic-following-the-presidents-meeting-with-the-prime-minister-and-the-head-of-the-main-opposition-party.html ''Announcement of the Presidency of the Republic following the President’s meeting with the Prime Minister and the head of the main opposition party'', Hellenic Republic Ministry of Foreign Affairs, November 7, 2011]</ref>. A new government was formed with [[Eurozone crisis/Catalogs#Lucas Papademos|Lucas Papademos]] as Prime Minister of Greece, and the terms of the EU rescue were agreed.


====Bond purchase programme====
===Strengthening Italy's policies===
In  July 2009  the European Central Bank launched  a "covered bond purchase programme", under which national [[central bank]]s and the European Central Bank would buy eligible [[covered bond]]s <ref>[http://www.ecb.europa.eu/ecb/legal/pdf/l_17520090704en00180019.pdf  Decision of the Governors of the European Central Bank of 2 July 2009 on the implementation of the covered bond purchase programme, (ECB/2009/16) European Central Bank]</ref>. The aim of the programme was  to support those financial market institutions that supply funds to  banks  that had been particularly affected by the financial crisis. The purchases under the programme were  for a nominal value of EUR 60 billion. Its  completion was announced on 30th June 2010, but there were reports of continued small-scale  purchases in subsequent months.
A [[/Addendum#The Italian programme|programme of reform]] proposed by the Italian Government was itemised in the summit communiqué, and Prime Minister [[Eurozone crisis/Catalogs#Silvio Berlusconi| Berlusconi]]  was called upon to submit "an ambitious timetable" for its implementation. The reforms that were promised in response in his "letter of intent" are reported to include also a reduction in the size of the civil service, a €15 billion privatisation of state assets and the promotion of private sector investment in the infrastructure<ref>[http://www.ft.com/cms/s/0/5945e250-ffba-11e0-89ce-00144feabdc0.html#axzz1cRgocIPR  Guy Dinmore: ''Berlusconi held to the fire by EU partners'', Financial Times, October 26]</ref>. <ref>[http://uk.reuters.com/article/2011/11/09/uk-eurozone-idUKTRE7A72R120111109?feedType=nl&feedName=ukmorningdigest ''Europe debt crisis brings down Italy's Berlusconi'', Reuters, 9 November 2011]</ref>. It was approved on the 12th of November by the Italian parliament as the ''Financial Stability Law''<ref>[http://www.bbc.co.uk/news/ ''Italy MPs endorse austerity law'', BBC News, 12 November 2011]</ref>, and Berlusconi was replaced as Prime Minister by the eminent economist, [[Eurozone crisis/Catalogs#Mario Monti|Mario Monti]].
On 10th May  2010 the European Central Bank  renewed purchases with  its Securities Markets Programme <ref>[http://www.ecb.int/press/pr/date/2010/html/pr100510.en.html ''ECB decides on measures to address severe tensions in financial markets'' European Central Bank, 10 May 2010]</ref>. All purchases are [[Sterilisation, monetary|sterilised]] in order not to affect the [[money supply]]


====The Financial Stability Facility====
===Strengthening the firewall===
In May 2010, the European Council adopted a regulation establishing a European financial stabilisation mechanism. A volume of up to EUR 60 billion is foreseen and activation is subject to strong
The [[/Addendum#Strengthening the firewall| "firewall measures"]] that were proposed in order to limit  [[contagion (finance)|contagion]] by European governments and their banks included a 4- to 5-fold increase in the size of the [[Eurozone crisis#The European Financial Stability Facility|European Financial Stability Facility]] and the [[recapitalisation (banking)|recapitalisation]] of  selected eurozone banks.
conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar
to the IMF. The mechanism will operate without prejudice to the existing facility providing medium
term financial assistance for non-euro area Member States' balance of payments.
In addition, the representatives of the governments of the euro area member states adopted a
decision to commit to provide assistance through a Special Purpose Vehicle that is guaranteed on a
pro rata basis by participating member states in a coordinated manner and that will expire after three
years, up to EUR 440 billion, in accordance with their share in the paid-up capital of the European
Central Bank and pursuant to their national constitutional requirements <ref>[http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114324.pdf ''Extraordinary Council meeting: Economic and Financial Affairs'', Council of the European Union, Brussels, 9/10 May 2010]</ref>


===The growth of debt===
===Strengthening the banks===
[[Debt]]  is  a means of transferring  resources from those who own them. but do not wish to use them,  to those who wish to use them, but do not own them.  It is also a means of "consumption smoothing", that enables  a household  to forego consumption when its income is  relatively high, in order to enjoy an acceptable standard of living when the wage earner retires or if he is unemployed.  However, debt may also contribute to economic instability. According to  Hyman Minsky's  [[Financial economics#The financial instability hypothesis|financial instability hypothesis]]<ref> Hyman Minsky: ''Stabilizing an Unstable Economy'', McGraw Hill 1986</ref>,  borrowers  accumulate debt  in prosperous times, and allow it  rise to a point at which it  cannot be repaid out of current income. Debt reduction (or "[[deleveraging]]" nearly always follows a financial crisis<ref name=land>Susan Land and Charles Roxburgh:''Debt and Deleveraging'', World Economics, April-June 2010 [http://www.world-economics-journal.com]</ref>, and inevitably creates  reductions of consumption  and thus of economic activity <ref> Will Devlin and Huw McKay: ''The macroeconomic implications of financial deleveraging'', Economic Roundup No 4, Government of Australia Treasury, 2008[http://www.treasury.gov.au/documents/1451/PDF/05_Financial_deleveraging.pdf]</ref>
On 8 December the European Banking Authority published a bank recapitalisation plan as part of co-ordinated measures to restore confidence in the banking sector<ref>[http://www.eba.europa.eu/News--Communications/Year/2011/The-EBA-publishes-Recommendation-and-final-results.aspx ''The EBA publishes Recommendation and final results of bank recapitalisation plan as part of co-ordinated measures to restore confidence in the banking sector'', 8 December 2011]</ref>. Also on 8 December 2011, the European Central Bank offered to lend unlimited amounts to eurozone banks for a period of three years at an interest rate of 1 per cent
<ref>[http://www.roubini.com/us-monitor/256796/frbsf_us_household_deleveraging_and_future_consumption_growth Mark Thoma ''U.S. Household Deleveraging and Future Consumption Growth'', Roubini Global Economics, May 19, 2009]</ref>.
<ref>[http://www.ecb.int/press/pr/date/2011/html/pr111208_1.en.html '' ECB announces measures to support bank lending and money market activity'', ECB press release, 8 December 2011]</ref>. A second round of cheap three-year loans was issued on 29 February 2012, raising the total to  almost €1 trillion<ref>[http://euobserver.com/19/115410 ''ECB boosts loans to €1 trillion to stop credit crunch'', EU Observer 29 February 2012 ''Technical features of Outright Monetary Transactions", European Central Bank, 6 September 2012]</ref>.  On 12 September 2012 the European Commission submitted a "roadmap toward a [[/Tutorials#banking union|banking union]]" to the European Parliament and the Council of Ministers, and floated the idea of a European Union [[Deposit insurance|deposit guarantee]] which would enable depositors to claim compensation from a central fund instead of drawing upon national resources.


The PIIGS countries differed from most of the other eurozone countries by deficits on their [[balance of payments]] current accounts and, (some of them) by above-average levels of household and business sector debt.
===ECB bond purchases===
The effects on them  of the [[Great Recession]]  were amplified by [[deleveraging]] of the corporate and household debt, especially in countries with  larger-than-average financial sectors, and those that had experienced debt-financed housing booms. Its effects upon their governments' fiscal stance were to create [[cyclical  deficit]]s because of the action of their [[automatic stabilisers]] and of discretionary  [[fiscal stimulus|fiscal stimuli]],  and to increase the previous [[structural deficit]]s as a result of the loss of revenue-generating productive capacity. In some of the PIIGS countries, [[budget deficit]]s were further increased by subventions and guarantees to distressed banks.
On 7 August 2011 it was announced that the European Central Bank intended to use its Securities Markets Programme<ref>[http://www.ecb.int/ecb/legal/pdf/l_12420100520en00080009.pdf ''Decision establishing a securities markets programme'', European Central Bank, 14 May 2010]</ref> to purchase bonds issued by the Spanish and Italian Governments <ref>[http://www.ecb.int/press/pr/date/2011/html/pr110807.en.html '' Statement by the President of the ECB'', 7 August 2011]</ref>.
On 3 November 2011 a new covered bond purchase programme was announced<ref>[http://www.ecb.int/press/pr/date/2011/html/pr111103_1.en.html ''ECB announces details of its new covered bond purchase programme'', 3 November 2011]</ref>. In July 2012, the bank's President announced that "the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough"<ref>[http://www.ecb.int/press/key/date/2012/html/sp120726.en.html ''Speech by Mario Draghi, President of the European Central Bank at the Global Investment Conference in London'', 26 July 2012]</ref>. On 6th September 2012, the European Central Bank announced a programme of "Outright Monetary Transactions" <ref>[http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html]</ref> involving unlimited (but [[sterilisation, monetary|sterilised]]) purchases on the secondary market of the bonds of those governments that seek "bail-out" assistance from the EU's European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programmes,


===Fiscal policies===
==The eurozone crisis (November 2011 to present)==
The [[Fiscal policy/Tutorials#The debt trap identity|dept trap identity]] establishes the condition for [[fiscal sustainability]] as the requirement that interest rate on the public debt does not exceed the growth rate of nominal GDP. To avoid an increase in public debt in the course of any year, the budget balance during that year must not be greater than the opening level of debt multiplied by the difference between the interest rate on the debt and the nominal GDP growth rate in that year (and that means a budget surplus if the interest rate is greater than the growth rate). If, for example, the interest rate were 5% and the growth rate were 2% then a debt of 50% of gdp would require a surplus of 1.5% of GDP, a debt of 100% of GDP would require a surplus of 3% of gdp, and so forth.
===Overview===
Bond market investors were not immediately reassured by the decisions of October 2011 and there was a loss of confidence that extended briefly beyond the PIIGS group<ref>[see the [[Eurozone crisis/Addendum#Sovereign spread contagion|Sovereign spread contagion chart]]</ref>. Despite the  new Italian government's acceptance of the measures had been agreed, the yields on its bonds rose to over 7 per cent. However, the December offer by the European Central Bank's to lend unlimited amounts to eurozone banks at an interest rate of 1 per cent, was followed by a marked reduction in the yields on Italian and Spanish government bonds and, following  the Bank's subsequent bond purchases, there was a general recovery of investor confidence(''see [[/Addendum#CDS spreads|CDS spreads table]]''). In other respects the crisis deepened, with falling growth (''see the [[/Addendum#GDP growth|GDP growth table]]'') and deteriorating economic sentiment (''see the [[/Addendum#Economic sentiment indicator|Economic sentiment indicator table]]'') in Portugal, Italy, Greece and Spain, and in the eurozone as a whole. Also, there is continuing uncertainty concerning  the fiscal sustainability of Greece and Spain.


===The bond market===
===Greece===
Government [[bond (financial|bonds]] are traded in  the world's stock markets and their prices are quoted daily in the financial press. The stock market price of a bond determines its [[yield]],  and competition normally ensures that government bonds of similar maturity  have similar yields. If, however, traders perceive there to be a finite probability of
In early 2012 there were growing doubts about the ability of the Greek government to repay the holders of the €14.4bn of debt that was due to mature in late March. It had been expected that it would be getting a further €130bn tranche of EU/IMF funds before that date, but negotiations concerning the terms of the loan had run into difficulties.<br>
[[default (finance)|default]] by the issuer of a bond, that probability is reflected by the addition of a [[risk premium]] to the yield of that bond. The term [[spread]] is applied to the difference between the market yield of such a bond and the market yield of  those deemed to be completely safe. The spread on a government's bonds is often determined by trading in the market for [[credit default swap]]s (CDS)<ref>[http://www.dbresearch.com/PROD/DBR_INTERNET_DE-PROD/PROD0000000000183612.PDF Roland Beck: ''The CDS market: A primer'',  Deutsche Bank Research, 2009]</ref> - which are undertakings to provide their purchasers with full compensation if there is a default. The market price of a CDS for a bond is another measure of its spread.
The conditions attached to the loan by the EU/IMF team included:  (a) a further austerity drive, and (b) the conclusion of the private sector [[/Addendum#The Greek package|debt swap deal]] ( involving a 50% nominal reduction of Greece’s sovereign bonds in private investors’ hands and up to €100 billion of debt forgiveness) that had been part of the decisions of 12th October 2011. An agreement, conditional upon an intensified austerity programme was finally reached on 20th February. A general election in May resulted in the defeat of the parties that had formed the government, without generating a coalition to replace it, and a second election was called for June,as a result of which. [[Eurozone crisis/Catalogs#Antonis Samaras|Antonis Samaras]] became prime minister, heading a coalition of the conservative New Democracy and socialist PASOK parties. Negotiations with the IMF/EU/ECB team  concerning the release of the next €31bn bailout tranche were concluded in November 2012. It was agreed that the December tranche would comprise €23.8 billion for the  banks and €10.6 billion in budget assistance, after which Greece is to receive up to €43.7 billion in stages as it fulfils the required deficit-reducing conditions. The agreed package also included a cut the interest rate on official loans, an extension of their maturity by 15 years to 30 years, and a 10-year interest repayment deferral, and the possibility of an eventual debt write-off was recognised.


It is reasonable to suppose that, in assigning speads to goverment bonds, the markets would be influenced by the factors determining fiscal sustainability, including a government's debt, its budget deficit, the country's expected growth rate, and the existing spread on its bonds. Among other factors that would seem relevant are the proportion of debt held by foreigners - who might be expected to have less influence than domestic bond-holders on the issuing government's conduct - and the proportion of debt that is due for redemption. Some researchers have used the term [[debt intolerance]] to encompass the other, more judgemental, factors that appear relevant<ref>[http://mpra.ub.uni-muenchen.de/13932/1/MPRA_paper_13932.pdf Carmen Reinhart, Kenneth Rogo  and Miguel Savastano: ''Debt Intolerance'', MPRA Paper No. 13932, March 2009]</ref>. Their findings about the influence of past defaults among developing countries have no bearing on the eurozone crisis because there has been no post-war default of a goverment of a country with a fully-developed market economy. It is evident, nevertheless, that judgements on matters other than fiscal sustainability play a part - for example, there has been no adverse bond market reaction to Japan's public debt, which has been proportionately larger  than those of the PIIGS.
===The larger PIIGS===
There was concern about the short-term fiscal stability of Italy and Spain in view of the large sums that would be required to [[roll-over]] debts that are due to mature in 2012 - amounts that are much larger than those needed to rescue Greece (approximately €300 billion for Italy and €150 billion for Spain). Market concern arose from doubts about the willingness of the eurozone leaders to commit themselves to the continuing  support of Italy and Spain, and about their ability to raise the necessary funds. In December 2011, with sovereign bond yields at around 7 per cent for Italy and 6 per cent for Spain, it appeared questionable whether those countries would be able  to raise the funds required by further bond issues. On 12th January, however, Spain and Italy sold about €22bn of government debt at sharply lower costs than at previous auctions<ref>[http://www.ft.com/cms/s/0/e22c4e28-3d05-11e1-ae07-00144feabdc0.html#axzz1iwztu95W ''Spain and Italy raise €22bn in debt sales'', Financial Times, 13 January 2012]</ref>. In June 2012 the Spanish government requested, and was granted, a €100bn loan from the European Union to recapitalise its banks<ref>[http://www.economist.com/node/21556953 ''Going to extra time'', The Spanish bail-out, The Economist, 14 June 2012]</ref>.


Grades awarded by the [[credit rating agency|credit rating agencies]] are associated with market spreads, but it is not clear whether they contribute information to the market or merely reflect the information that it already uses. Some researchers have suggested that they have a destabilising influence by understating risks in good times and overstating them in bad times<ref name="Sy"> Amadou N R Sy: ''The Systemic Regulation of Credit Rating Agencies and Rated Markets'', World Economics, October-December 2009</ref>.
===Contagion beyond the PIIGS===
The decisions of October 2011 were followed in November by sharply [[/Addendum#Sovereign spread contagion|rising sovereign spreads]], on the bond issues of Austria and France, and on 23 November, the German government failed  to  sell more than two-thirds of its 10-year bonds at auction, after which its bond yields rose above the yields on US treasuries and UK gilts<ref>[http://www.reuters.com/article/2011/11/23/markets-bonds-euro-idUSL5E7MN46N20111123 ''Bunds fall sharply after poor German debt auction'', Reuters 23 November 2011]</ref>. On 5th December the Standard & Poor's [[credit rating agency]]  placed its long-term sovereign ratings on 15 members of the eurozone on "CreditWatch  review with negative implications"<ref>[http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325249443 ''Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications'', 5 December 2011]</ref>,  and  in January the Standard and Poor's [[credit rating agency]], downgraded  the bonds of 16 eurozone governments, including those of France and Austria<ref>[http://www.standardandpoors.com/ratings/sovereign-actions/en/us ''European Sovereign Ratings and Related Material'', Standard and Poor's, 13 January 2012]</ref>.


==History of the crisis==
===General slowdown===
===Greece===
The crisis in Greece was the result of the impact of the recession upon the already inflated [[public debt]] of a heavily indebted economy that had already suffered a loss in international competitiveness.


Greece joined the eurozone in 2001, and membership enabled it to use  borrowing  from abroad  to finance an  economic boom.  Labour costs rose more rapidly than productivity over the next seven years, as a result of which there was a fall in export  competitiveness,  and the deficit on its [[balance of payments]] rose to over 14 per cent of [[GDP]]. Much of  the government's [[public expenditure]] during those years  was also financed  by borrowing, and the country's  [[public debt]] rose to several times the European average, at around 100 per cent of GDP. By  2010 it had  further increased to 130  per cent of GDP as a result of the increases in borrowing brought about by the [[Great Recession]]. Concern about the [[Fiscal policy/Tutorials#Fiscal sustainability|sustainability]] of the goverment's [[fiscal policy]]  led the a succession of  [[credit rating agency|credit rating]] downgrades in the first quarter of 2010. By  May the yields on 10-year government bonds had reached 10 per cent, the [[CDS spread]] on 5-year bonds  was over 9 per cent, and there was doubt about the government's ability to finance that year's [[budget deficit]]. A  loan was sought from other eurozone governments and a €110 billion European Union/International Monetary Fund rescue was mounted.  In addition, a "European Financial Stability Facility",  was created to provide support, if required, to other applicants, including a loan facility of up to €500 billion  from member governments and the European Commission<ref>[http://www.consilium.europa.eu//uedocs/cms_data/docs/pressdata/en/misc/114130.pdf ''Statement by the Eurogroup'', May 2 2010]</ref>. The loan failed to reassure investors, and the CDS spread on Greek bonds rose from 4.8 per cent in April to 10 pre cent in November.
==The policy debate==
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:50%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
|"''Where should we see action? Certainly, in Europe and more specifically in the Eurozone, which is still at this point the epicenter of the crisis and where most urgent action is needed. Action has already occurred …. but more needs to happen and faster.''"
IMF Director Christine Lagarde press conference 10 October 2012[http://www.imf.org/external/np/tr/2012/tr101112.htm]
|}
===Overview===
France's Finance Minister,[[/Catalogs#Pierre Moscovici|Pierre Moscovici]] has argued that the eurozone will only succeed if austerity is not the only perspective that ministers can offer and he advocated stronger measures to support economic growth, an effective banking union, real political and budgetary coordination among Member States, enhanced fiscal coordination in the eurozone, and an ambitious social union to encourage workers’ mobility.
<ref>[http://www.bruegel.org/nc/blog/detail/article/883-pierre-moscovicis-speech-at-bruegel-annual-meeting/ Pierre Moscovici: Speech at Bruegel Annual Meeting, Bruegel, September 2012]</ref>  


===Ireland===
A July 2012 statement by the 17 economists of the INET Council on the eurozone crisis 
Ireland's financial crisis resulted from a recession-induced bursting of an [[asset price bubble]], not from an above-average level of its pre-recession [[public debt]]. It was greatly aggravated, however, by a government decision to guarantee its banks' deposits.
<ref name=INET>[http://ineteconomics.org/sites/inet.civicactions.net/files/ICEC_Statement_23-7-12.pdf ''Breaking!the!Deadlock:!A!Path!Out!of!the!Crisis'', INET Council on the euro zone crisis, Institute for New Economic Thinking, 23 July 2012]</ref> expressed their view that the eurozone leadership had not presented a convincing plan to stop the downward economic spiral in the deficit countries.


Having joined the eurozone, the Irish government offered tax incentives  to  promote [[inward investment]] by  financial companies and there was a large inflow of capital. Between 2001 and 2008  the country's total debt (pubic and private) doubled to reach over 700 per cent of GDP - of which 421 per cent went to the financial sector and much of the rest was used to finance a housing boom. In 2008, however, a downturn in the output of the construction industry  that had started in 2007,  developed into a full-blown economic recession, and construction and property companies began to default on loans from the banks. Bank losses amounted to as much as 20 per cent of GDP by 2009, and foreign banks and investors, that had been the banks' principal source of short-term finance, became reluctant to risk further commitments. A banking crisis developed, consumer confidence fell and there was a very sharp increase in unemployment<ref>[http://www.economist.com/displayStory.cfm?story_id=12664671 ''The Tiger Tamed'', The Economist, November 2008]</ref><ref>[http://www.economist.com/displayStory.cfm?story_id=13331143. ''The Party is Definitely Over'', The Economist March 19 2009]</ref>. In an attempt to restore confidence, the Irish government undertook to guarantee loans to the banks. The government also introduced [[fiscal stimulus]] measures amounting to 4.4 per cent of GDP spread over the three years 2008-10 which, combined with the effects of its [[automatic stabilisers]] was expected to raise the [[national debt]]  to over 80 per cent of GDP from its 2007 level of 28 per cent. Foreign investors became wary of the possibility a [[sovereign default]], and the government's ability to finance the deficit was threatened by a general loss of confidence.  In March 2009 the ''Standard and Poor'' [[credit rating agency]] downgraded its rating for Ireland from AAA to AA+<ref>[http://ftalphaville.ft.com/blog/2009/03/30/54198/sp-strips-ireland-of-its-triple-a-rating/ Stacy-Marie Ishmael: ''S&P strips Ireland of its triple-A rating'', FT-Alphaville, March 30 2009]</ref>, and April, the government decided that the only way to restore confidence was to take steps to reduce its deficit - and took the extraordinary step of increasing taxation in the midst of a recession <ref> [http://www.oireachtas.ie/viewdoc.asp?fn=/documents/ThisWeek/Budget/document1.htm  Budget Statement, Department of Finance, April 7, 2009]</ref>. Additional steps taken included direct purchase of stock in some banks and the establishment of the "National Asset Management Agency" - essentially a government-owned bank that will buy [[toxic debt]] from six financial institutions - both steps aimed at improving their balance sheets and freeing up capital<ref>{{cite web |url=http://www.moneyguideireland.com/nama-national-asset-management-agency.html |title=NAMA - National Asset Management Agency |accessdate=2009-05-12 |author=Money Guide Ireland |authorlink= |coauthors= |date= |year= |month= |format= |work= |publisher= |pages= |language= |archiveurl= |archivedate= |quote= }}</ref>.  
===Austerity programmes===
On August 24, 2010 the Standard and Poor's [[credit rating agency]] downgraded Ireland's debt for the 3rd time to AA- (following 3 downgrades by the Fitch agency and 2 by Moody's).
The [[eurogroup]]'s provision of loans that were conditional upon the adoption of debt-reducing "austerity" programmes met with opposition from two sides. There were those who advocated either the imposition of stricter debt-reduction conditions or the outright refusal to grant loans; and there were those who advocated the relaxation of debt-reduction conditions and the introduction of growth-promoting measures. In the former group was the influential German economist [[/Catalogs#Hans-Werner Sinn|Hams-Werner Sinn]] who in 2010 put forward "a few rules for euro sustainability"<ref>[http://www.economist.com/economics/by-invitation/guest-contributions/few_rules_euro_sustainability  Hans-Werner Sinn: ''A few rules for euro sustainability'', The Economist, June 18 2010]</ref>and who has subsequently  argued that Greece should leave the Eurozone on the grounds that continuation of the current bailout measures  would  risk an  internal balance of payment crisis leading to the  collapse of  the eurozone<ref>[http://www.economist.com/node/21006933/contributors/Hans-Werner%20Sinn Interview with Hams-Werner Sinn, The Economist, 1 October 2012]</ref>. What Greece requires, he argues, is a "policy focused on hard budget constraints and simultaneous improvements in competitiveness" involving a 30 per cent reduction in domestic  costs<ref>[http://www.cesifo-group.de/ifoHome/policy/Viewpoints/Standpunkte-Archiv/stp-2012/Ifo-Viewpoint-No-137--An-Open-Currency-Union.html  Hams-Werner Sinn: ''Ifo Viewpoint No. 137: An Open Currency Union'', 2012]</ref>. In the latter group was Nobel laureate [[Joseph Stiglitz]], who argued that the current austerity policy is a result of a misdiagnosis of the problem and is making matters worse. He pointed out that if each US state were totally responsible for its own budget, America, too, would be in fiscal crisis. and argued that if the European Central Bank were to borrow, and re-lend the proceeds, the costs of servicing Europe’s debt would fall, creating room for the kinds of expenditure that would promote growth and employment<ref>[http://www.project-syndicate.org/commentary/after-austerity Joseph Stiglitz: ''After Austerity'', Project Syndicate, June 2012]</ref>.  Laura Tyson, a former chair of the US President's Council of Economic Advisors, agreed that the current austerity policy is self-defeating and argued that a shift toward policies to promote growth, supported by the easing of deficit targets and the issuance of [[Eurozone_crisis/Tutorials#Eurobonds|Eurobonds]], is essential to bring Europe back from the brink of sustained recession
<ref>[http://www.project-syndicate.org/commentary/the-wrong-austerity-cure Laura Tyson: ''The Wrong Austerity Cure'', Project Syndicate, June 2012]</ref>. Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University argued that the adjustment costs of a cessation in debt finance have been grossly underestimated, and that such costs are the reason for financial markets loss confidence in the government of Greece <ref>[http://www.project-syndicate.org/commentary/austerity-and-debt-realism Kenneth Rogoff: ''Austerity and Debt Realism '', Project Syndicate, June 2012]</ref>. The INET economists consider it necessary to stabilize  output and employment in the deficit  countries, and argue that it is impossible to do so without delaying some of the ongoing fiscal adjustment and channeling more support to the deficit countries<ref name=INET/>.


Ireland's economy suffered a second [[downturn (economic)|downturn]] in the second quarter of 2010 and the Government's financial position continued to deteriorate. In September 2010, its [[CDS spread]] reached a record 5 per cent. On the 22nd of November 2010 the government applied for financial assistance from the EU and the IMF<ref>[http://www.irishtimes.com/newspaper/breaking/2010/1121/breaking45.html ''Full text of the Government statement on its application for financial aid from the EU and IMF'', Irish Times, 22 November 2010]</ref>.
===Mutualisation of debt===
The package<ref>[http://ec.europa.eu/economy_finance/articles/eu_economic_situation/2010-12-01-financial-assistance-ireland_en.htm ''Council agrees on joint EU-IMF financial assistance package for Ireland'', European Commission, 7 December, 2010]</ref>  that was agreed included €35 billion  to restructure the banking sector, €50 billion to assist the state budget. Of that sum, Ireland agreed to  provide €17.5 billion  from its own reserves and  €67.5 billion, was to be divided equally among the International Monetary Fund, the European Commission and the European Financial Stability Fund ((a special-purpose fund created by eurozone countries in May, augmented by extra contributions from Britain, Sweden and Denmark). The interest rate on the loans was to  average  about 5.8%.
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:45%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
|"''Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive''"
:Angela Merkel: speech to the Reichstag 27 June 2012


===Portugal===
|}
Portugal is expected to be the next applicant for financial assistance<ref>[http://www.project-syndicate.org/commentary/rogoff75/English Kenneth Rogoff ''The Euro at Mid-Crisis'', Project Syndicate, 2nd December 2010]</ref>.
In December 2010,  finance ministers [[/Catalogs#|Jean-Claude Juncker]] and [[/Catalogs#Giulio Tremonti|Giulio Tremonti]] put forward a proposal  under which bonds issued by individual governments  would be collectively guaranteed by the other eurozone governments, <ref>[http://www.ft.com/cms/s/0/540d41c2-009f-11e0-aa29-00144feab49a.html#axzz17KUKPXII  Jean-Claude Juncker and Giulio Tremonti: ''E-bonds would end the crisis'', Financial Times, December 5 2010]</ref>. In August 2011, the financier George Soros argued that [[eurobond]]s would have to be an essential feature of any effective Greek rescue package<ref>[http://www.spiegel.de/international/europe/0,1518,780189,00.html ''"You Need This Dirty Word, Euro Bonds"'', Interview with George Soros, Spiegel Online, 15 August 2011]</ref>, an assessment that was endorsed by the eminent economist, [[Joseph Stiglitz]]
Although its fiscal position is stronger than Ireland's (see [[/Addendum#The financial status of the PIIGS countries|table]]), and its government  has already succeeded in reducing its budget deficit, the country's growth prospects are so poor that its debt levels may begin to rise again.  
<ref>[http://www.reuters.com/article/2011/08/16/stiglitz-eurobonds-idUSL5E7JG00G20110816 ''Difficult for euro to survive without eurobonds:Stiglitz'', Reuters,16 August 2011]</ref>.
In November 2011, the [[European Commission]] published an analysis<ref>[http://ec.europa.eu/commission_2010-2014/president/news/documents/pdf/green_en.pdf ]</ref> of the feasibility of introducing what they termed Stability Bonds''.
Arguments for and against the mutualisation of Europe's debt were set out in detail in the ''Economist'' debate of July 2012<ref name=Ec>[http://www.economist.com/debate/days/view/860 Dsbate ''Should the eurozone's debt be mutualised?'', The Economist, July 2012]</ref>.  Paul De Grauwe (John Paulson Chair in European Political Economy, London School of Economics) argued that debt mutualisation is an essential component of a [[/Tutorials#Fiscal union|fiscal union]] and that fiscal union is necessary for the success of a monetary union. Ansgar Belke {Professor of Macroeconomics, University of Duisburg-Essen) argued that the introduction of a banking union would make debt mutualisation unnecessary. Other contributors included Jean Pisani-Ferry who saw eurobonds as a gift that Germany could make to its partners in exchange for them locking in budgetary discipline and Daniel Gros who argued that eurobonds would be unlikely to lower financing costs for everybody in the euro zone because what debtor countries would gain in terms of lower financing costs would be offset by the losses for creditor countries, which would face higher borrowing costs.


Since joining the eurozone, Portuguese labour costs have risen faster than its productivity<ref>[http://www.economist.com/node/15959527  ''The importance of not being Greece'', The Economist, April 22, 2010]</ref><ref>[http://www.imf.org/external/pubs/ft/scr/2010/cr1018.pdf ''Country Report on Portugal'', International Monetary Fund, January 2010]</ref>, leading to a fall in international competitiveness, and  to a growing [[balance of payments]] deficit - financed by borrowing from abroad. Its  principal sources of income were agricultural exports, tourism, and income from its nationals working abroad . All three  were hit by the recession, and its economy suffered a [[downturn (economics)|downturn]] earlier than other eurozone economies. In response to the downturn (and to  [[fiscal stimulus]] of about 1¼ per cent of GDP) the 2009 [[budget deficit]] rose to 9.3 per cent of GDP. There was a return to GDP growth early in 2010, but output fell again in the 4th quarter of the year, and despite reductions in public expenditure  the deficit for the year remained above  9 per cent of GDP,  and expectations of a further  fallin output in 2011<ref name=EC>[http://ec.europa.eu/economy_finance/eu/forecasts/2010_autumn/pt.html European Commission economic forecast for Portugal, Autumn 2010,29th November 2010]</ref> cast doubt upon the prospect of further deficit  reductions and the level of public debt is expected to rise from its 2010 level of 83 per cent of GDP to 93 per cent by 2012<ref name=EC/>.
===Banking union===
On 5th May 2011 the EU and the IMF  ageed to provide Portugal with a conditinal €26 Billion Extended Fund Facility Arrangement<ref>[http://www.imf.org/external/np/sec/pr/2011/pr11160.htm ''IMF Reaches Staff-Level Agreement With Portugal On a €26 Billion Extended Fund Facility Arrangement'', Press Release No. 11/, IMF, May 5, 2011]</ref>. Under the agreement, Portugal is required to reduce its budget deficit to 3 percent of GDP by 2013.
In July 2012, a group of 172 German economists led by Hans-Werner Sinn signed a letter of protest against proposals for a banking union.arguing that "Banks must be allowed to fail. If the debtor can not pay back, there is only one group that should bear the burden : the creditors themselves"
<ref>[http://www.faz.net/aktuell/wirtschaft/protestaufruf-der-offene-brief-der-oekonomen-im-wortlaut-11810652.html ''Protest calling the open letter of the economists''. Frankfurter Allgemeiner, 5 July 2012]</ref>. A group of over 100 German, Austrian, and Swiss economists led by Michael Burda posted a reply to Hans-Werner Sinn's petition, arguing that "deeper financial integration and a de-coupling of government and banking finance are essential elements for a more stable financial architecture in Europe"
<ref>[http://economistsview.typepad.com/economistsview/2012/07/in-support-of-a-european-banking-union-done-properly-a-manifesto-by-economists-in-germany-austria-an.html ''In support of a European Banking Union, Done Properly''', A Manifesto by Economists in Germany, Austria, and Switzerland, Economist's View, July 9 2012]</ref>. Ansgar Belke argues that with a solid banking system in place, banking-sector losses would no longer threaten the solvency of solid sovereigns (such as Ireland and Spain), and the bail-out of less reliable sovereigns would no longer be necessary. There would be a lower chance that fundamentally sound sovereigns would suffer from a confidence crisis and rocketing risk premiums.<ref name=Ec/>.


===Spain===
==Prospects==
The recession in Spain was shallower but more protracted than the European average, and the recovery, which started in the first quarter of 2010, has been described as "weak and fragile"<ref>[http://www.imf.org/external/pubs/ft/scr/2010/cr10254.pdf ''Country Report: Spain'', International Monetary Fund, July 2010]</ref>. Spain's unemployment rate was among the highest in Europe, reaching 20 per cent by mid 2010<ref>[http://www.cepr.org/PUBS/Bulletin/meets/496.htm. ''Spanish Unemployment. Is There a Solution?'', Centre for Economic Policy Research, September 2010]</ref>. A major contributory factor was the bursting of a vigorous housing [[bubble (finance)|bubble]], as a result of  which  the construction sector crashed, and the banking sector suffered a downturn despite the fact that it  had avoided the acquisition of [[toxic debt]]. Another major factor was [[deleveraging]] of a deeply indebted household sector. The Government responded with a major [[fiscal stimulus]] that, together with the effects of the country's [[automatic stabilisers]] resulted in the largest [[budget deficit]] in the European Union - although its [[public debt]] as a percentage of GDP was among the smallest. In 2010, the bond market developed a [[debt aversion]] against Spain following the [[Great Recession/Addendum#Greece|Greek crisis]], the Standard and Poor [[credit rating agency]] downgraded its  credit rating from AA+ to AA on 28 April 2010<ref>[http://ftalphaville.ft.com/blog/2010/04/28/214791/sp-downgrades-spain-to-aa/ ''S&P downgrades Spain to AA'', Financial Times Alphaville 28 April 2010]</ref>, and the [[sovereign spread]] over Germany's 10-year bonds rose to  164 [[basis point]]s in early May 2010.


==Policy implications==
==International repercussions==
The Eurozone's main policy options regarding Greece are
The eurozone crisis is thought to have the potential to trigger a second international financial crisis because the default of a European government might be expected to create a [[shock (economics)|shock]] comparable to the failure of the ''Lehman Brothers'' bank that had triggered the [[crash of 2008]]. The falls in world  stock market prices that occurred in August and September of 2011 were widely attributed to fears of a eurozone-generated financial crisis.
:(a) inaction;
<!-- Hits 18/12/11 5328 09/10/12 11,986  -->
:(b) further conditional loans, at or below the market rate;
:(c) [[fiscal transfer]]s from other Eurozone countries to Greece;:(d) sponsorship of a [[restructure (debt)|restructuring]] of the government's debt;
in addition to which the Greek government has the option of  
:(d) departure from the Eurozone
Option (a) would result in the Greek government's [[default (finance)|default]] because, without external support, it would not then be able to repay its maturing debt. (Further borrowing would only be possible at interest rates that would be so high that it would make matters worse). There would in principle be a degree of [[contagion (finance)|contagion]] of the problem by any country with large holdings of Greek government bonds (but it appears that no other country is in that position
<ref>See the exposure data from ''Barclays Capital'', reported in ''The Economist'' [http://www.economist.com/node/18867023?story_id=18867023]</ref>).  There would also be contagion by some of the other ''PIIGS'' countries because the realisation that they could no longer count on financial support from the Eurozone would prompt investors to demand increased [[risk premium]]s. Some contagion by Portugal and Spain has happened in anticipation of a default.


==Notes and references==
==Notes and references==
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https://en.citizendium.org/wiki/index.php?title=Eurozone_crisis&printable=yes
This editable, developed Main Article is subject to a disclaimer.
In addition to the following text, this article comprises:
     - a country-by-country summary of the development of the crisis;
     - links to contemporary reports of the main events of the crisis;
     - brief profiles of the principal actors;
     - notes on the debt trap, the eurozone's departures from optimum currency area criteria, on the eurozone's policy options; ,
     - tabulations of the fiscal characteristics of the PIIGS countries and their GDP growth rates; and,
    - tabulations concerning the major member countries' attitudes to the crisis.

It was last updated on 27 November 2012.

The eurozone crisis was triggered in 2010 by doubts about the Greek government's ability to service its debt. Investor reluctance to buy its bonds spread to affect the bond issues of several other eurozone members, including Ireland and Portugal; and by late 2011, it was having some effect upon the bonds of many of its members, even including Germany. Eurozone loans to Greece, Ireland, and Portugal had failed to restore investor confidence, and the austerity conditions attached to those loans were hampering their recovery from the Great Recession. Some other member governments were finding it difficult to roll-over maturing debt, and it came to be realised that the resources that would be needed to rescue larger members such as Spain or Italy could be greater than their eurozone partners could raise. What had been uncertainty about the fiscal sustainability of a few peripheral members had grown into uncertainty about the sustainability of the eurozone system itself. To make matters worse, the eurozone fell back into recession in the third quarter of 2012 as the crisis started to bite more deeply into the core northern economies. Confidence was partially restored in the course of 2012, despite the partial default of the Greek government, by the European Central Bank's willingness to buy bonds that had been issued by distressed member governments, but there was awareness of the need for further measures. As a long-term measure, 25 European Union governments agreed to a set of balanced-budget undertakings termed the "Fiscal Compact", and there was agreement in principle to a "Compact for Growth and Jobs" but the only early action under consideration was the creation of a banking union to relieve the pressure on member governments to recapitalise their banks. Proposals for debt mutualisation, for example by the creation of "eurobonds", were firmly rejected.

Background to the crisis

The eurozone

(A more comprehensive account of the rationale and constitution of the eurozone is available in the eurozone article.)

Overview

The eurozone was launched in 1991 as an economic and monetary union that was intended to increase economic efficiency while preserving financial stability. Financial vulnerability to asymmetric shocks as a result of disparities among member economies was intended to be countered in the medium term by limits on public debt and budget deficits, and in the long term, by progressive economic convergence. By the early years of the 21st century, however, it had became apparent that the fiscal limits could not be enforced, and that membership had enabled the governments of some countries - notably Greece - to borrow on more favourable terms than had previously been available. It had also become evident that membership had reduced the international competitiveness of low-productivity countries - such as Greece -, and that it had raised the competitiveness of high-productivity countries - such as Germany. For those and other reasons, it now appears that there had been divergence rather than convergence among the economies of the eurozone, and that their vulnerability to external shocks had been increased rather diminished.

Membership

In 1991, leaders of the 15 countries that then made up the European Union, set up a monetary union with a single currency. There were strict criteria for joining (including targets for inflation, interest rates and budget deficits), and other rules that were intended to preserve its members' fiscal sustainability were added later. No provision was made for the expulsion of countries that did not comply with its rules, nor for the voluntary departure of those who no longer wished to remain, but it was intended to impose financial penalties for breaches.

Greece joined, what by then was known as the eurozone, in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009. The current membership[1] comprises Belgium, Germany¸ Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia, and Finland. Bulgaria, Czech Republic.

The non-members of the eurozone among members of the European Union are Denmark, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Sweden and the United Kingdom.

The European Central Bank

The European Central Bank[2] is the core of the "Eurosystem" that consists also of all the national central banks of the member countries of the Union (whether or not they are members of the eurozone). Its governing body[3] consists of the six members of its Executive Board, and the governors of the national central banks of the 17 eurozone countries. It is responsible for the execution of the Union's monetary policy. Its statutory remit requires that, "without prejudice to the objective of price stability", it is to "support the general economic policies in the Community" including a "high level of employment" and "sustainable and non-inflationary growth"[4]. The bank's governing board sets the eurozone's discount rates and has been responsible for the introduction and management of refinancing operations [5]. Article 101 of the European Treaty expressly forbids the ECB from lending to governments and Article 103 prohibits the euro zone from becoming liable for the debts of member states.

The Bank is an independent decision-making body, being protected from political control by article 107 of the Maastricht Treaty: " ”…, neither the ECB, nor a national central bank, nor any member of their decision making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body". It takes decisions by majority voting, which therefore cannot be vetoed by individual member-states.

The Stability and Growth Pact

The Stability and Growth Pact[6] [7] that was introduced as part of the Maastricht Treaty in 1992, set arbitrary limits upon member countries' budget deficits and levels of public debt at 3 per cent and 60 per cent of gdp respectively. Following multiple breaches of those limits by France and Germany[8], the pact has since been renegotiated to introduce the flexibility announced as necessary to take account of changing economic conditions. Revisions introduced in 2005 relaxed the pact's enforcement procedures by introducing "medium-term budgetary objectives" that are differentiated across countries and can be revised when a major structural reform is implemented; and by providing for abrogation of the procedures during periods of low or negative economic growth [9]. A clarification of the concepts and methods of calculation involved was issued by the European Union's The Economic and Financial Affairs Council in November 2009 [10] which includes an explanation of its excessive deficit procedure. According to the Commission services 2011 Spring forecasts, the government deficit exceeded 3% of GDP in 22 of the 27 European Union countries in 2010.

The European Financial Stability Facility

In May 2010, the Council of Ministers established a Financial Stability Facility (EFSF)[11] to assist eurozone governments in difficulties "caused by exceptional circumstances beyond their control". It was empowered to raise up €440 billion by issuing bonds guaranteed by member states [12]. It was to supplement an existing provision for loans of up to €60 billion by the European Financial Stability Mechanism (EFSM), and loans by the International Monetary Fund. Proposals to leverage the €440 billion by loans from the European Central Bank were not authorised until October 2011. Loans are subject to conditions negotiated with European Commission and the IMF, and accepted by the eurozone Finance Ministers.

The EFSF and the EFSM are to be replaced in 2013 by a permanent crisis resolution regime, to be called the European Stability Mechanism (ESM)[13], which is to be a supranational institution, established by international treaty, with an independent decision-making power. (A comprehensive explanation of the EFSF and the ESM is available in question-and-answer form[14].)

Pre-crisis performance

Neither a 1999-2008 growth rate comparison, nor a 2008-2011 growth rate comparison shows a significant difference between the performance of the eurozone as a whole and of the European Union as a whole, However, there is clear evidence that the Great Recession had imposed an asymmetric shock on the eurozone, causing downturns of above average severity in the economies of the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain), that are attributable to departures from currency area criteria, including large differences in member country trade balances, limited labour mobility and price flexibility.

The PIIGS

The economies of the PIIGS countries differed in several respects from those of the others. Unlike most of the others, they had developed deficits on their balance of payments current accounts (largely attributable to the effect of the euro's exchange rate upon the competitiveness of their exports). Deleveraging of corporate and household debt had amplified the effects of the recession to a greater extent - especially in those with larger-than-average financial sectors, and those that had experienced debt-financed housing booms. In common with the others, they had developed cyclical deficits under the action of their economies' automatic stabilisers and of their governments' discretionary fiscal stimuli, and increases in existing structural deficits as a result of losses of revenue-generating productive capacity. In some cases, their budget deficits had been further increased by subventions and guarantees to distressed banks.

Overview of the crisis

It became evident early in 2010 that, without external assistance, the Greek government would be forced to default on its debt. Eurozone governments, in conjunction with the International Monetary Fund, responded with conditional loans to enable the Greek government to continue to roll-over its maturing debts. Investors' fears of sovereign default by other eurozone governments developed in the course of 2010 and conditional loans had to be provided to the governments of Ireland and Portugal. The crisis deepened when, in the latter half of 2011, it became evident that a default by the Greek government could no longer be avoided. On October 26 2011 there was provisional agreement for a further EU/IMF loan and a partial write-off of private sector holdings of Greek government debt, but it was not until the following February that the conditions required of the Greek government were deemed to have been met. In the meantime there was substantial sovereign spread contagion by Spain, Italy and modest contagion by other eurozone countries including France. By early 2012, however, there had been substantial falls in sovereign spreads as a result of bond purchases by eurozone banks using loans from the European Central Bank, and by late February, confidence had been further restored by reduced expectations of a Greek default.

The PIIGS crisis (March 2010 to October 2011)

The blue country links in this section are to country reports on the addendum subpage.

Overview

The Great Recession brought about large increases in the indebtedness of the eurozone governments and by 2009, twelve member states had public debt/GDP ratios of over 60% of GDP[15]. Concern developed in early 2010 concerning the fiscal sustainability of the economies of the "PIIGS" countries (Portugal, Ireland, Italy, Greece and Spain) and a eurozone fund was set up to assist members in difficulty. Bond markets were eventually reassured by the conditional loans provided to Ireland, but despite a eurozone loan to Greece, they demanded increasing risk premiums for lending to its government. In late 2010 there were signs of contagion of market fears by the governments of other eurozone countries, and it appeared that the integrity of the eurozone was being put in question.

The Greek problem

In April 2010, the Greek government faced the prospect of being unable to fund its maturing debts. Its problems arose from large increases in its sovereign spreads reflecting the bond market's fears that it might default - fears that were based upon both its large budget deficits, and its limited economic prospects[16]. In May 2010, the Greek government was granted a €110 billion rescue package, financed jointly by the eurozone governments and the IMF. Further increases in spreads showed that those rescue packages had failed to reassure the markets.

The Irish problem

Between 2009 and 2010 Ireland's budget deficit increased from 14.2 per cent to 32.4 per cent of GDP, as a result mainly of one-off measures in support of the banking sector. November 2010 the government applied for financial assistance from the EU and the IMF[17]. By the Autumn of 2011 the government's programmes of tax increases had brought about a major improvement in fiscal sustainability, bringing down its budget deficit from 32.4 percent to an expected 10.6 percent of GDP[18] and enabling the government to return to the bond market.

We are experiencing an episode in the history of the world which is very very special. It is the gravest financial crisis, economic crisis, since World War II, so it is something which is big. It is big in Europe, it is big in the US, big in Japan, big in the rest of the world.
European Central Bank President Jean-Claude Trichet 30th August 2011[3]
"We are now facing the greatest challenge our Union has ever seen... This is a financial, economic and social crisis, but also a crisis of confidence with respect to our leaders in general, to Europe itself, and to our ability to find solutions."
José Manuel Durão Barroso President of the European Commission State of the Union Address, 28 September 2011

Contagion among the PIIGS

Signs began to appear of the contagion of the bond market fears from Greece to other PIIGS countries, particularly Portugal and Spain[16]. Portugal received an EU/IMF rescue package in May 2011, and Greece was assigned a second package in July, neither of which restored the bond market's confidence in eurozone sovereign debt. There was a dramatic increase in measures of the market assessment of default risk, implying a 98 per cent probability of a Greek government default[19].

Also in 2011, there was a major decline in confidence in eurozone banks, following rumours that losses on Greek bonds had left them undercapitalised. What had started as a Greek crisis was developing into a eurozone crisis because the rescue packages that could be needed for the much bigger economies of Spain or Italy were expected to be larger than the eurozone could afford. Bond market concern about the sustainability of Italy's public debt was reflected in a progressive rise in the yield on its 10-year government bonds during 2011, and by October it had risen to over 5 percent.

Policy responses

Overview

On the 26th of October, a meeting of eurozone leaders was held, the declared purpose of which was to restore confidence by adopting a "comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties". One set of measures that was adopted for that purpose, acknowledged the Greek government's inability to repay its debt in full, and provided for the restructuring of that debt, and for the financial support necessary for the government's survival. A second set was intended to provide an insurance against the contagion by other eurozone countries of the Greek government's difficulties and to assure the markets that sufficient eurozone funds would be available to cope with contagion should it occur. Thirdly, and in view of the market's awareness that a rescue of the Italian government would impose a major drain on those funds, the leaders sought to strengthen that government's defences against default. The measures that were agreed are recorded in a communiqué [20] and in a list of "main results"[21].

"We want Greece to remain in the Euro. At the same time, Greece must decide whether it is ready to take the commitments that come with Euro membership"
José Manuel Durão Barroso President of the European Commission. Remarks following the G20 Summit Joint EU Press Conference Cannes, 4 November 2011

Restructuring the Greek debt

The rescue package for Greece included a 50 percent write-off of the Greek government's debt (as had been agreed with the Institute of International Finance representing the world's banks), and a €130 billion conditional loan. The Greek government responded to the conditions for the loan by calling a referendum to enable the Greek people to decide whether to accept the package[22]. At an emergency summit on 2nd November, however, Greek Prime Minister Papandreou was persuaded by French President Sarkozy and German Chancellor Merkel that the subject of the referendum should be whether Greece should remain within the eurozone, rather than the acceptability of the rescue package. He was also told that the €8 billion tranche of the EU/IMF loan that (needed to avoid a default in December) would be withheld until after the referendum. Acknowledging the prospect that the referendum could result in the departure of Greece from the eurozone,Jean-Claude Juncker, the Chairman of the Eurogroup of eurozone Finance Ministers announced that preparations for that outcome were in hand[23]. The next day Prime Minister Papandreou announced his willingness to cancel the referendum, and that he had obtained agreement of opposition leaders to do so. On the 6th of November party leaders agreed to form a coalition government under a new Prime Minister[24]. A new government was formed with Lucas Papademos as Prime Minister of Greece, and the terms of the EU rescue were agreed.

Strengthening Italy's policies

A programme of reform proposed by the Italian Government was itemised in the summit communiqué, and Prime Minister Berlusconi was called upon to submit "an ambitious timetable" for its implementation. The reforms that were promised in response in his "letter of intent" are reported to include also a reduction in the size of the civil service, a €15 billion privatisation of state assets and the promotion of private sector investment in the infrastructure[25]. [26]. It was approved on the 12th of November by the Italian parliament as the Financial Stability Law[27], and Berlusconi was replaced as Prime Minister by the eminent economist, Mario Monti.

Strengthening the firewall

The "firewall measures" that were proposed in order to limit contagion by European governments and their banks included a 4- to 5-fold increase in the size of the European Financial Stability Facility and the recapitalisation of selected eurozone banks.

Strengthening the banks

On 8 December the European Banking Authority published a bank recapitalisation plan as part of co-ordinated measures to restore confidence in the banking sector[28]. Also on 8 December 2011, the European Central Bank offered to lend unlimited amounts to eurozone banks for a period of three years at an interest rate of 1 per cent [29]. A second round of cheap three-year loans was issued on 29 February 2012, raising the total to almost €1 trillion[30]. On 12 September 2012 the European Commission submitted a "roadmap toward a banking union" to the European Parliament and the Council of Ministers, and floated the idea of a European Union deposit guarantee which would enable depositors to claim compensation from a central fund instead of drawing upon national resources.

ECB bond purchases

On 7 August 2011 it was announced that the European Central Bank intended to use its Securities Markets Programme[31] to purchase bonds issued by the Spanish and Italian Governments [32]. On 3 November 2011 a new covered bond purchase programme was announced[33]. In July 2012, the bank's President announced that "the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough"[34]. On 6th September 2012, the European Central Bank announced a programme of "Outright Monetary Transactions" [35] involving unlimited (but sterilised) purchases on the secondary market of the bonds of those governments that seek "bail-out" assistance from the EU's European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programmes,

The eurozone crisis (November 2011 to present)

Overview

Bond market investors were not immediately reassured by the decisions of October 2011 and there was a loss of confidence that extended briefly beyond the PIIGS group[36]. Despite the new Italian government's acceptance of the measures had been agreed, the yields on its bonds rose to over 7 per cent. However, the December offer by the European Central Bank's to lend unlimited amounts to eurozone banks at an interest rate of 1 per cent, was followed by a marked reduction in the yields on Italian and Spanish government bonds and, following the Bank's subsequent bond purchases, there was a general recovery of investor confidence(see CDS spreads table). In other respects the crisis deepened, with falling growth (see the GDP growth table) and deteriorating economic sentiment (see the Economic sentiment indicator table) in Portugal, Italy, Greece and Spain, and in the eurozone as a whole. Also, there is continuing uncertainty concerning the fiscal sustainability of Greece and Spain.

Greece

In early 2012 there were growing doubts about the ability of the Greek government to repay the holders of the €14.4bn of debt that was due to mature in late March. It had been expected that it would be getting a further €130bn tranche of EU/IMF funds before that date, but negotiations concerning the terms of the loan had run into difficulties.
The conditions attached to the loan by the EU/IMF team included: (a) a further austerity drive, and (b) the conclusion of the private sector debt swap deal ( involving a 50% nominal reduction of Greece’s sovereign bonds in private investors’ hands and up to €100 billion of debt forgiveness) that had been part of the decisions of 12th October 2011. An agreement, conditional upon an intensified austerity programme was finally reached on 20th February. A general election in May resulted in the defeat of the parties that had formed the government, without generating a coalition to replace it, and a second election was called for June,as a result of which. Antonis Samaras became prime minister, heading a coalition of the conservative New Democracy and socialist PASOK parties. Negotiations with the IMF/EU/ECB team concerning the release of the next €31bn bailout tranche were concluded in November 2012. It was agreed that the December tranche would comprise €23.8 billion for the banks and €10.6 billion in budget assistance, after which Greece is to receive up to €43.7 billion in stages as it fulfils the required deficit-reducing conditions. The agreed package also included a cut the interest rate on official loans, an extension of their maturity by 15 years to 30 years, and a 10-year interest repayment deferral, and the possibility of an eventual debt write-off was recognised.

The larger PIIGS

There was concern about the short-term fiscal stability of Italy and Spain in view of the large sums that would be required to roll-over debts that are due to mature in 2012 - amounts that are much larger than those needed to rescue Greece (approximately €300 billion for Italy and €150 billion for Spain). Market concern arose from doubts about the willingness of the eurozone leaders to commit themselves to the continuing support of Italy and Spain, and about their ability to raise the necessary funds. In December 2011, with sovereign bond yields at around 7 per cent for Italy and 6 per cent for Spain, it appeared questionable whether those countries would be able to raise the funds required by further bond issues. On 12th January, however, Spain and Italy sold about €22bn of government debt at sharply lower costs than at previous auctions[37]. In June 2012 the Spanish government requested, and was granted, a €100bn loan from the European Union to recapitalise its banks[38].

Contagion beyond the PIIGS

The decisions of October 2011 were followed in November by sharply rising sovereign spreads, on the bond issues of Austria and France, and on 23 November, the German government failed to sell more than two-thirds of its 10-year bonds at auction, after which its bond yields rose above the yields on US treasuries and UK gilts[39]. On 5th December the Standard & Poor's credit rating agency placed its long-term sovereign ratings on 15 members of the eurozone on "CreditWatch review with negative implications"[40], and in January the Standard and Poor's credit rating agency, downgraded the bonds of 16 eurozone governments, including those of France and Austria[41].

General slowdown

The policy debate

"Where should we see action? Certainly, in Europe and more specifically in the Eurozone, which is still at this point the epicenter of the crisis and where most urgent action is needed. Action has already occurred …. but more needs to happen and faster."

IMF Director Christine Lagarde press conference 10 October 2012[4]

Overview

France's Finance Minister,Pierre Moscovici has argued that the eurozone will only succeed if austerity is not the only perspective that ministers can offer and he advocated stronger measures to support economic growth, an effective banking union, real political and budgetary coordination among Member States, enhanced fiscal coordination in the eurozone, and an ambitious social union to encourage workers’ mobility. [42]

A July 2012 statement by the 17 economists of the INET Council on the eurozone crisis [43] expressed their view that the eurozone leadership had not presented a convincing plan to stop the downward economic spiral in the deficit countries.

Austerity programmes

The eurogroup's provision of loans that were conditional upon the adoption of debt-reducing "austerity" programmes met with opposition from two sides. There were those who advocated either the imposition of stricter debt-reduction conditions or the outright refusal to grant loans; and there were those who advocated the relaxation of debt-reduction conditions and the introduction of growth-promoting measures. In the former group was the influential German economist Hams-Werner Sinn who in 2010 put forward "a few rules for euro sustainability"[44]and who has subsequently argued that Greece should leave the Eurozone on the grounds that continuation of the current bailout measures would risk an internal balance of payment crisis leading to the collapse of the eurozone[45]. What Greece requires, he argues, is a "policy focused on hard budget constraints and simultaneous improvements in competitiveness" involving a 30 per cent reduction in domestic costs[46]. In the latter group was Nobel laureate Joseph Stiglitz, who argued that the current austerity policy is a result of a misdiagnosis of the problem and is making matters worse. He pointed out that if each US state were totally responsible for its own budget, America, too, would be in fiscal crisis. and argued that if the European Central Bank were to borrow, and re-lend the proceeds, the costs of servicing Europe’s debt would fall, creating room for the kinds of expenditure that would promote growth and employment[47]. Laura Tyson, a former chair of the US President's Council of Economic Advisors, agreed that the current austerity policy is self-defeating and argued that a shift toward policies to promote growth, supported by the easing of deficit targets and the issuance of Eurobonds, is essential to bring Europe back from the brink of sustained recession [48]. Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University argued that the adjustment costs of a cessation in debt finance have been grossly underestimated, and that such costs are the reason for financial markets loss confidence in the government of Greece [49]. The INET economists consider it necessary to stabilize output and employment in the deficit countries, and argue that it is impossible to do so without delaying some of the ongoing fiscal adjustment and channeling more support to the deficit countries[43].

Mutualisation of debt

"Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive"
Angela Merkel: speech to the Reichstag 27 June 2012

In December 2010, finance ministers Jean-Claude Juncker and Giulio Tremonti put forward a proposal under which bonds issued by individual governments would be collectively guaranteed by the other eurozone governments, [50]. In August 2011, the financier George Soros argued that eurobonds would have to be an essential feature of any effective Greek rescue package[51], an assessment that was endorsed by the eminent economist, Joseph Stiglitz [52]. In November 2011, the European Commission published an analysis[53] of the feasibility of introducing what they termed Stability Bonds. Arguments for and against the mutualisation of Europe's debt were set out in detail in the Economist debate of July 2012[54]. Paul De Grauwe (John Paulson Chair in European Political Economy, London School of Economics) argued that debt mutualisation is an essential component of a fiscal union and that fiscal union is necessary for the success of a monetary union. Ansgar Belke {Professor of Macroeconomics, University of Duisburg-Essen) argued that the introduction of a banking union would make debt mutualisation unnecessary. Other contributors included Jean Pisani-Ferry who saw eurobonds as a gift that Germany could make to its partners in exchange for them locking in budgetary discipline and Daniel Gros who argued that eurobonds would be unlikely to lower financing costs for everybody in the euro zone because what debtor countries would gain in terms of lower financing costs would be offset by the losses for creditor countries, which would face higher borrowing costs.

Banking union

In July 2012, a group of 172 German economists led by Hans-Werner Sinn signed a letter of protest against proposals for a banking union.arguing that "Banks must be allowed to fail. If the debtor can not pay back, there is only one group that should bear the burden : the creditors themselves" [55]. A group of over 100 German, Austrian, and Swiss economists led by Michael Burda posted a reply to Hans-Werner Sinn's petition, arguing that "deeper financial integration and a de-coupling of government and banking finance are essential elements for a more stable financial architecture in Europe" [56]. Ansgar Belke argues that with a solid banking system in place, banking-sector losses would no longer threaten the solvency of solid sovereigns (such as Ireland and Spain), and the bail-out of less reliable sovereigns would no longer be necessary. There would be a lower chance that fundamentally sound sovereigns would suffer from a confidence crisis and rocketing risk premiums.[54].

Prospects

International repercussions

The eurozone crisis is thought to have the potential to trigger a second international financial crisis because the default of a European government might be expected to create a shock comparable to the failure of the Lehman Brothers bank that had triggered the crash of 2008. The falls in world stock market prices that occurred in August and September of 2011 were widely attributed to fears of a eurozone-generated financial crisis.

Notes and references

  1. ↑ Map of euro area 1999 – 2009, European Central Bank, 2010
  2. ↑ The website of the European Central Bank
  3. ↑ The Governing Council, European Central Bank, 2010
  4. ↑ Objective of Monetary Policy, European Central Bank, 2009
  5. ↑ Governing Council Decisions on Non-Standard Measures, European Central Bank, 2010
  6. ↑ Stability and growth pact and economic policy coordination, Europa 2010
  7. ↑ Stability and Growth Pact, European Commission 2009
  8. ↑ Stability and Growth Pact, Euroactiv, 19 February 2007
  9. ↑ "Fiscal Governance". para 10.2 of EMU@10 Successes and Challenges After 10 Years of Economic and Monetary Union, European Commission, 2008
  10. ↑ Specifications on the implementation of the Stability and Growth Pact and Guidelines on the format and content of Stability and Convergence Programmes, as endorsed by the Economic and Financial Affairs Council on 10 November 2009
  11. ↑ European Financial Stability Facility website
  12. ↑ Extraordinary Council meeting: Economic and Financial Affairs, Council of the European Union, Brussels, 9/10 May 2010
  13. ↑ in 2013. European Stability Mechanism - Q&A, Europa Press Release, 1 December 2010
  14. ↑ FAQs on the European Financial Stability Facility, 2 December 2011
  15. ↑ Provision of deficit and debt data for 2009 - first notification, Eurostat April 2010
  16. ↑ 16.0 16.1 Michael G. Arghyrou and Alexandros Kontonikas: The EMU sovereign-debt crisis: Fundamentals, expectations and contagion, European Commission, February 2011
  17. ↑ Full text of the Government statement on its application for financial aid from the EU and IMF, Irish Times, 22 November 2010
  18. ↑ Statement by the EC, ECB, and IMF on the Review Mission to Ireland, Press Release No. 11/374, October 20, 2011
  19. ↑ Abigail Moses:Greece Has 98% Chance of Default on Euro-Region Sovereign Woes, Bloomberg, Sep 13, 2011
  20. ↑ Euro Summit Statement, Brussels, 26 October 2011
  21. ↑ Main Results of the Euro Summit of October 2011
  22. ↑ Kerin Hope, Peter Spiegel and Telis Demos: Greece calls referendum on EU bail-out, Financial Times, October 31, 2011
  23. ↑ Working on Greek exit from euro zone: Juncker, Reuters, 3 November 2011
  24. ↑ Announcement of the Presidency of the Republic following the President’s meeting with the Prime Minister and the head of the main opposition party, Hellenic Republic Ministry of Foreign Affairs, November 7, 2011
  25. ↑ Guy Dinmore: Berlusconi held to the fire by EU partners, Financial Times, October 26
  26. ↑ Europe debt crisis brings down Italy's Berlusconi, Reuters, 9 November 2011
  27. ↑ Italy MPs endorse austerity law, BBC News, 12 November 2011
  28. ↑ The EBA publishes Recommendation and final results of bank recapitalisation plan as part of co-ordinated measures to restore confidence in the banking sector, 8 December 2011
  29. ↑ ECB announces measures to support bank lending and money market activity, ECB press release, 8 December 2011
  30. ↑ ECB boosts loans to €1 trillion to stop credit crunch, EU Observer 29 February 2012 Technical features of Outright Monetary Transactions", European Central Bank, 6 September 2012
  31. ↑ Decision establishing a securities markets programme, European Central Bank, 14 May 2010
  32. ↑ Statement by the President of the ECB, 7 August 2011
  33. ↑ ECB announces details of its new covered bond purchase programme, 3 November 2011
  34. ↑ Speech by Mario Draghi, President of the European Central Bank at the Global Investment Conference in London, 26 July 2012
  35. ↑ [1]
  36. ↑ [see the Sovereign spread contagion chart
  37. ↑ Spain and Italy raise €22bn in debt sales, Financial Times, 13 January 2012
  38. ↑ Going to extra time, The Spanish bail-out, The Economist, 14 June 2012
  39. ↑ Bunds fall sharply after poor German debt auction, Reuters 23 November 2011
  40. ↑ Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications, 5 December 2011
  41. ↑ European Sovereign Ratings and Related Material, Standard and Poor's, 13 January 2012
  42. ↑ Pierre Moscovici: Speech at Bruegel Annual Meeting, Bruegel, September 2012
  43. ↑ 43.0 43.1 Breaking!the!Deadlock:!A!Path!Out!of!the!Crisis, INET Council on the euro zone crisis, Institute for New Economic Thinking, 23 July 2012
  44. ↑ Hans-Werner Sinn: A few rules for euro sustainability, The Economist, June 18 2010
  45. ↑ Interview with Hams-Werner Sinn, The Economist, 1 October 2012
  46. ↑ Hams-Werner Sinn: Ifo Viewpoint No. 137: An Open Currency Union, 2012
  47. ↑ Joseph Stiglitz: After Austerity, Project Syndicate, June 2012
  48. ↑ Laura Tyson: The Wrong Austerity Cure, Project Syndicate, June 2012
  49. ↑ Kenneth Rogoff: Austerity and Debt Realism , Project Syndicate, June 2012
  50. ↑ Jean-Claude Juncker and Giulio Tremonti: E-bonds would end the crisis, Financial Times, December 5 2010
  51. ↑ "You Need This Dirty Word, Euro Bonds", Interview with George Soros, Spiegel Online, 15 August 2011
  52. ↑ Difficult for euro to survive without eurobonds:Stiglitz, Reuters,16 August 2011
  53. ↑ [2]
  54. ↑ 54.0 54.1 Dsbate Should the eurozone's debt be mutualised?, The Economist, July 2012
  55. ↑ Protest calling the open letter of the economists. Frankfurter Allgemeiner, 5 July 2012
  56. ↑ In support of a European Banking Union, Done Properly', A Manifesto by Economists in Germany, Austria, and Switzerland, Economist's View, July 9 2012
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