Eurozone crisis/Addendum

From Citizendium
Jump to navigation Jump to search
This article is developed but not approved.
Main Article
Related Articles  [?]
Bibliography  [?]
External Links  [?]
Citable Version  [?]
Catalogs [?]
Timelines [?]
Tutorials [?]
Addendum [?]
This addendum is a continuation of the article Eurozone crisis.

Comparative data

Fiscal characteristics

Portugal Ireland   Italy    Greece    Spain  
Gross Public debt. end 2011 (per cent GDP)[1] 108 106 120 170 69
Percentage of public debt that is foreign-owned 2007[1] 55 62 42 48
Average time to maturity of public debt, years[2] 6.6 6.9 7.2 7.8 6.4
Fiscal deficit, 2011 (per cent GDP)[2] 4.4 13.4 3.9 4.4 9.4
10-Year bond yield per cent, October 2012[3] 8.54 5.12 5.07 18.18 6.77
S&P credit rating, October 2012 [3] BB BBB+ BBB+ CCC BBB+
Current account balance, 2012 (per cent of GDP)[4] -2,9 1.8 -1,5 -5.8 -2.0

CDS spreads

(a measure of perceived risk[4]) (basis points, 5year)

Portugal Ireland   Italy    Greece    Spain  
December 2009 79 156 98 241 98
May 2010 306 212 169 708 196
December 2010 468 570 218 993 330
April 2011 607 593 144 1206 229
September 2011 1308 978 503 7318 429
January 2012 1200 978 440 5368 368
October 2012 487 316 337 7713 380

Sovereign spread contagion

(excess of 10-year government bond yield over 10-year German Bund, percentage points]

Austria Belgium France   Italy     Spain   (Greece)
17/11/2010 0.43 0.89 0.42 1.57 2.04 (9.12)
17/10/2011 0.89 2.38 0.95 3.72 3.20 (22.59)
17/11/2011 1.69 3.05 1.72 6.24 4.67 (31.78)
09/10/2012 0.56 0.98 0.68 3.59 4.25 (16.59)

(source: Thomson Reuters quoted in Financial Times databank[5])

GDP growth

(with estimates for 2012 and 2013} per cent change on previous year


 2009   2010   2011   2012   2013 
Portugal -2.9 1.4 -1.7 -3.0 -1.0
Ireland -7.0 -0.8 1.4 0.1 0.4
Italy -5.5 1.8 0.4 -2.2 -0.9
Greece -3.3 -4.9 -7.1 -6.1 -4.3
Spain -3.7 -0.3 0.4 -1.3 -1.2
European Union -4.6 1.8 1.4 -0.5 0.2

(Source Eurostat 28/11/2012 [6]


 2009   2010   2011   2012   2013 
Portugal -2.9 1.4 -1.7 -3.0 -1.0
Ireland -7.0 -0.8 1.4 0.4 1.4
Italy -5.5 1.8 0.4 -2.3 -0.7
Greece -3.3 -4.9 -7.1 -6.0 -4.0
Spain -3.7 -0.3 0.4 -1.5 -1.3
Eurozone -4.3 2.0 1.4 -0.4 0.2

(Source IMF 09/10/2012 [7])

Economic sentiment indicator

(a composite indicator made up of five sectoral confidence indicators with different weights [8])

Portugal   Italy    Greece    Spain   Eurozone
March 2009 76.1 72.4 71.6 73.9 69.1
October 2010 90.2 100.1 79.4 92.9 103.9
November 2011 73.9 90.7 74.0 91.7 93.5
October 2012 72.3 79.0 75.8 85.9 84.5

(Source: Eurostat [9])

Crisis development by country

(with statistics and IMF forecasts)


Country profile IMF country report March 2012]

Greece in the Great Recession

2007 2008 2009 2010 2011 2012
Public Debt (% GDP) 105.4 111.7 127.1 142.8 157.7 166.1
Budget deficit (% GDP) 9.8 15.4 10.5 9.5 9.3

The crisis in Greece was the result of the impact of the Great Recession upon the already inflated public debt of an economy that had suffered a loss in international competitiveness as a result of its membership of the eurozone. 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 financed by borrowing, and the country's public debt rose to several times the European average, at around 100 per cent of GDP.

12/09 01/10 12/10 04/11 09/11 06/12
CDS spread (basis points) 241 400 993 1206 7318 11548

The crisis erupted in the winter of 2009/10 with a series of bond rating downgrades by the credit rating agencies and a major increase in bond spreads (see table) as it became apparent that the government might not be able to roll-over maturing debt. Help was sought from other members of the eurozone, and financial rescue negotiations lasted until till May. An austerity package was launched including a 15 per cent cut in public sector pay, severe cuts to pensions and an increase in value-added tax from 21 per cent to 23 per cent. In May 2010,a €110 billion European Union/International Monetary Fund rescue was mounted.

The austerity package was initially effective: the budget deficit was reduced to 10.5 per cent in 2010, but there was little further reduction beyond the first six months, and there were reports of resistance and obstruction by public sector workers. In 2011 an OECD team reported that the basic functions of government such as tax collection and budgeting were not operating properly. It had fund inefficient structures, inadequate access to information and lack of co-ordination, as a result of which reform measures have been poorly communicated and implemented[5]. The bond market responded with another major increase in spreads and in May 2011, further funding problems became evident. Further austerity measures were introduced in June, including income tax and value-added tax increases and a charge of €300 on the self employed.

2011 2012 2013
Unemployment rate (percent) 17.3 23.8

In July 2011, the eurozone leaders and the International Monetary Fund agreed to lend Greece a further 109bn euros ($155bn, £96.3bn)[6]. Also, as part of the deal, private sector investors were asked to accept a restructuring agreement involving a 21% loss on their holdings. The deal failed to reassure investors, and Greece ceased to have access to the bond market. A further austerity package was launched under which 30,000 public sector workers were to be placed on stand-by at 60% of salary, there was to be a further income tax rise, and a property tax of about €700 for typical household. By September 2011, however, the yield on 10-year Greek government bonds had risen to over 20 per cent, and it was openly acknowledged that default had become unavoidable, and that reduction of the Greek government's debt by about 50 per cent had become necessary.

On October 26 2011, at an EU summit, agreement was reached on a package that included a 50 percent write-off of the Greek government's debt, at the price to Greece of further austerity measures, and Prime Minister Papandreou decided to hold a referendum to enable the country to decide whether to accept its terms[7]. The associated austerity package is expected to involve 100,000 job losses over the next three years and big cuts in pensions. At an emergency summit on 2nd November, George 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 his proposed question concerning the rescue package. It was decided that the €8 billion tranche of the EU/IMF loan that was needed to avoid a default in December would be withheld until after the referendum. 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[8]. A coalition government was formed with Lucas Papademos as Prime Minister[9], and the terms of the EU rescue were agreed by the him and by the leader of the main opposition party[10].

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. Concerning (a), the leaders of France and Germany had told Greece that if it fails to implement the agreed economic changes, it will not get the next tranche of the loan. On 20th February an agreement was finally reached under which Greece would get a €130 billion EU/IMF loan together with a €109 billion private sector debt write-off, conditional upon severe reductions in pay, pensions and public sector employment and a €325 million reduction in its budget deficit[11]

A general election in May 2012 resulted in a hung parliament and a second election in June resulted in a narrow majority for the broadly pro-bailout New Democracy Party. The new government under its Prime Minister Antonis Samaras has put together a €13.5 billion austerity package. The draft budget for 2013 already includes almost €5 billion of cuts in pensions and public-sector salaries intended to achieve a primary budget balance of 1.4 percent of GDP.

In the autumn of 2012 the EU/ECB/IMF authorities were demanding more austerity measures before they would release a delayed €30 billion tranche that is the last in a first rescue package of €130 billion, and agree to a pending second bailout of $173 billion. An agreement was reached In November 2012, that 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. The December instalment would comprise €23.8 billion for 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. Consideration would be given to a further debt write-off once the primary deficit has been eliminated[12][13].


Country profile IMF Country Report, September 2012

Ireland in the Great Recession
2007 2008 2009 2010 2011 2012
Public Debt (% GDP) 25.0 44.4 65.6 95.2 112.0 117.7
Budget deficit (% GDP) 7.3 14.3 32.4 10.5 8.8

The impact of the Great Recession, combined with the bursting of an asset price bubble resulted in a major downturn in the Irish economy. The corresponding increase in its public debt was greatly aggravated by a government decision to guarantee its banks' deposits.

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[14][15]. In September 2008, the Irish government undertook to guarantee all deposits in Irish banks: a liability of over twice Ireland's GDP, and in April 2009 it set up a National Asset Management Agency[16] to operate as a bad bank which acquires toxic debt from banks in return for government bonds. 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 resulted a sharp increase in the country's public debt (see table). 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+[17], 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 [18]. 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[19].

12/09 12/10 09/11 11/11 10/12
CDS spread (basis points) 156 570 978 555 286

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. 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). In the second quarter of 2010, Ireland's economy suffered a second downturn and the Government's financial position continued to deteriorate. Early in November, the government announced its intention to make €15bn of budget cuts, including a €6bn cut in 2011[20].

On the 22nd of November 2010 the government applied for financial assistance from the EU and the IMF[21]. The package[22] 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 Facility. The interest rate on the loans was to average about 5.8%.

2011 2012 2013
Unemployment rate (percent) 14.4 14.8

In August 2012, a EU/IMF staff team reported that Ireland's banks had been recapitalized and significantly downsized and that substantial fiscal consolidation had been achieved, enabling a return to the sovereign bond market[23]. The economy had returned to growth in 2011, and GDP growth was expected to be 0.4 percent in 2012 and 1.4 percent in 2013. Household deleveraging was expected to prevent more rapid growth.


Country profile IMF Country Report, July 2012

Italy in the Great Recession

2007 2008 2009 2010 2011 2012
Public Debt (% GDP) 103.6 106.9 116.1 119.0 120.3 119.6
Budget deficit (% GDP) 2.7 5.4 4.6 4.0 3.2

The impact of the Great Recession on the Italian economy was relatively severe, but it had a relatively minor effect upon Italy's public debt, which had fo some years previously been above 100 percent of its GDP. Investor concern about contagion of default risk by Italy did not surface until mid-2011. It was reinforced then by fears that, although its budget deficit is among the lowest in the eurozone, Italy's public debt (then at 120% of GDP) might become unsustainable. There were doubts about its ability to roll-over the debts of €300 billin that are due to mature in 2012. In September 2011 Italian government bonds were downgraded from A+ to A by Standard & Poors because of the high level of its public debt, its weakening growth prospects, and the fragility of its governing coalition, and because policy differences within parliament were expected to limit the government's ability to respond decisively to economic challenges[24]. The emergency budget approved by parliament on September 14th, and substantial purchases by the European Central Bank of Italian government bonds, failed to calm investors nerves.

12/09 05/10 12/10 04/11 08/11 06/12
5y CDS spread (bp) 98 169 218 144 355 544

In late October 2011, Prime Minister Berlusconi responded to demands from other European leaders by providing them with a letter of intent detailing reforms which, it says, would enable the Italian government to eliminate its budget deficit by 2013. The promised reforms are reported to include a reduction in the size of the civil service, a €15 billion privatistion of state assets and the promotion of private sector investment in the

infrastructure[25]. On 10 November 2011, the Italian parliament approved the reform programme and on thev 13th, Silvio Berlusconi was replaced as Prime Minister by Mario Monti. The yield on 10-year bonds during the following days again rose to over 7 percent, but the government sold all of its offer of €3 billion euros of five-year notes. On January 11 2012 Italy sold €8.5bn of one-year bills, at an average yield of 2.74 per cent, less than half the cost incurred when Italy last sold similar bills in mid-December [26].

2011 2012 2013
Unemployment rate (percent) 8.4 10.8

On the following day the Standard and Poor's credit rating agency downgraded the Italian government's bonds to 'BBB+' from 'A', citing "increasing vulnerabilities to external financing risks... exacerbated by deepening political, financial, and monetary problems within the eurozone"[27]


Country profile IMF Country Report, October 2012

Portugal in the Great Recession

2007 2008 2009 2010 2011 2012
Public Debt (% GDP) 68.3 71.6 83.0 93.0 101.7 107.4
Budget deficit (% GDP) 3.5 10.1 9.1 5.9 4.5

Since joining the eurozone, Portuguese labour costs have risen faster than its productivity,[28][29] 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 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 over 10 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.

12/09 12/10 09/11 10/12
CDS spread (basis points) 79 468 1308 434

On 20th May 2011 the EU and the IMF agreed to provide Portugal with a conditional 3-year €78 Billion Extended Fund Facility Arrangement.[30] Under the Swptember 2012 revision of the agreement, Portugal's target budget deficits are 5 percent of GDP by 2013, 4.5 percent in 2013 and 2.5 percent in 2014.

In January 2012 the Standard and Poor's credit rating agency downgraded the Portuguese government's long-term ratings to 'BB/B' from 'BBB-/A-3', citing negative impact of deepening political, financial, and monetary problems within the eurozone on Portugal's already challenging readjustment path and its elevated vulnerabilities to external financing risks [31].

2011 2012 2013
Unemployment rate (percent) 12.7 15.5

On 11 September 2012, an EU/IMF review mission reported that the deficit reduction programme was bradly on track, the recapitalisation of the banking sector and the strengthening of banking supervision and resolution frameworks are well advanced, and reforms to raise competitiveness, employment, and potential growth are also progressing[32]. Ernst & Young's Autumn 2012 forecast puts GDP growth at -3.2 percent for 2012 and -2.0 percent for 2013. The unemployment rate in Portugal was last reported at 15 percent in the second quarter of 2012.


Country profile IMF Country Report July 2012

Spain in the Great Recession
2007 2008 2009 2010 2011 2012
Public Debt (% GDP) 36.1 39.8 53.3 60.1 68.1 71.0
Budget deficit (% GDP) 4.2 11.1 9.2 6.3 5.3

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"[33]. A major contributory factor was the bursting of a vigorous housing bubble (with a 30 percent fall in house prices between 2007 and 2012), as a result of which the construction sector crashed, and the banking sector suffered a catastrophic downturn. Another 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. At the end of the recession Spain's unemployment rate was among the highest in Europe, reaching 20 per cent by mid 2010, a development that has been attributed to an extremely dysfunctional labour market [34].

05/10 12/10 04/11 11/11 06/12
CDS spread (basis points) 196 330 229 467 603

The weakness of its labour market and the cost of bank rescues were among the reasons cited for a succession of downgrades of its credit ratings by the Standard and Poor's credit rating agency, but its January 2012 downgrade was also attributed to the risk that EU policy decisions would becoming self-defeating as a result of reductions in domestic demand and the consequent fall in tax revenues. [35]. Concern that the Spanish government might be unable to repay debts due to mature in 2012 were alleviated by its January sale of almost €10bn of new bonds at much lower rates than at its previous auction[26]. The yield on its long-term bonds nevertheless remained at a possibly unsustainable level of more than 5½ per cent by mid January 2012, rising to 5.8 percent by end-April. On 25 April the report of an IMF assessment team concluded that although the largest banks appear sufficiently capitalised to withstand a further deterioration of economic conditions, other banks remain reliant on state support, and the sector as a whole remains vulnerable[36]. On 26 April Standard and Poor's downgraded Spain's sovereign debt by a further two notches to BBB+[37] over concern about government debt as a share of GDP, in light of the contracting economy, and the probable need for further government support to the banking sector. The Spanish economy officially entered a recession again during the first quarter of 2012, for the second time since 2009. The short period of expansion in between was characterized by extremely anemic growth[38].

2011 2012
Unemployment rate (percent) 21.2 24.9

In June 2012 the Spanish government requested, and was granted, a €100bn loan from the European Union to recapitalise its banks[39]. The bond market reaction was unfavourable, Moody's downgraded Spain's government bond rating to Baa3 from A3 citing its increase in indebtedness as a result of the bailout, its limited access to the bond market, and the continued weakness of its economy; and the government's 10-year bond yields rose to an unsustainable 7 per cent. it has been estimated that between now and mid-2015, Spain’s funding needs stand at €542bn, with its banks needing a cash injection of an additional €100bn. This compares to the EU's combined lending power (the EFSF and the ESM), which will only reach €500bn in mid-2014[40]. Spain had been required by a July 2012 decision under the EU's excessive deficit procedure to reduce its deficit to 6.3 per cent of GDP in 2012 and 4.5 per cent next year but EU projections in November were for an 8 per cent deficit in 2012 and 6 per cent in 2013. Nevertheless it was relieved of its obligation to meet its deficit by a EU decision in November 2012


Country profile IMF country report July 2011 IMF statement October 2012 Economist special report, November 2012

France in the Great Recession

2008 2009 2010 2011 2012
Public Debt (% GDP) 68.2 79.0 82.3 85.4 89.2
Budget deficit (% GDP) 3.3 7.5 7.1 5.8 5.3

A falling trend in France's competitiveness, especially relative to Germany, has recently intensified and, lacking the option of currency devaluation, France has resorted to public spending, which has risen to 57 percent of GDP. The current-account balance has fallen from a small surplus in 1999 to become one of the eurozone’s biggest deficits In the influential Lisbon Council's Overall Health Check Indicator, France ranks 14 out of the 17 eurozone countries, (below Italy and Spain) with below-average scores for fiscal sustainability, growth and competitiveness. Also, it ranks 15 out of 17 in the Council's Adjustment Progress Indicator[41]. In January 2012 the Standard and Poor's credit rating agency downgraded the French government's bonds from AAA to AA+[42], citing "the impact of deepening political, financial, and monetary problems within the eurozone, with which France is closely integrated", and estimating that there was a 1-in-3 chance of a further downgrade.

A rating downgrade by Moody's cited rigidities in labour and services markets, and low levels of innovation, a gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base[43]

2008 2009 2010 2011 2012
Public Debt (% GDP) 89.3 95.9 96.2 97.2 99.2
Budget deficit (% GDP) 1.3 5.8 4.1 3.6 4.6


Country profile On 5th December 2011, a government was sworn in, ending a political deadlock that began with the resignation of the previous government in April 2010[44]. On December 16, the Moody's credit rating agency downgraded Belgium's credit rating by two notches [45], citing the difficulty of reducing its public debt in view of risks to economic growth due to deleveraging and fiscal adjustment elsewhere in the euro area.

Other eurozone members

In January 2012 the Standard and Poor's credit rating agency downgraded its long-term ratings on Cyprus, by two notches, and those on on Austria, Malta, Slovakia, and Slovenia, by one notch (in addition to the actions noted above) on the grounds that "the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone".

The summit decisions of 26 October 2011


In reviewing the situations in the PIIGS countries, the eurozone leaders expressed satisfaction concerning the policies of the governments of Ireland and Portugal. They also commended the fiscal measures taken by the Spanish government, but called upon it to reduce unemployment by increasing labour market flexibility. The decisions that were set out in their "Euro Summit Statement" of 26 October 2011 were, however, concerned with their policies toward Greece and Italy and with the need to increase the funds that could be used to erect a "firewall" against the spread of the crisis by contagion. They were stated in terms that would require clarification before they could be implemented [46].

The Greek package

A package, intended to reduce the Greek government's debt to GDP ratio from its current 160 per cent to 120 per cent by 2020, was announced by the European Council on 27th October [47]
Its principal features were stated in broad terms to be:
- a "nominal discount" of 50% on "notional Greek debt" held by private sector investors;
- a private sector contribution of up to €30 billion, and a new European Union-IMF contribution of up to €100 billion;

The Italian programme

Paragraph 6 of the summit declaration, welcomed the Italian government's commitment to:

- achieve a balanced budget by 2013, and structural budget surplus in 2014 ;
- reduce gross government debt to 113% of GDP in 2014;
- institute a constitutional balanced budget rule by mid-2012;
- reform labour legislation, and review the unemployment benefit system;
- increase the retirement age to 67 years by 2026, and to
- focus spending programmes on education, employment, digital agenda and the rail network

- and " as a matter of urgency" to provide an "ambitious timetable" for the reforms.
The European Commission was asked to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities were asked to provide "in a timely way all the information necessary for such an assessment".

The eurozone firewall

The measures to limit the contagion by European governments and their banks included:
- provision for the European Financial Stability Facility to leverage its financial capacity by an estimated 4 or 5 times to around €1 trillion by the use of bond guarantees and co-investment funds; and,
- the recapitalisation of most eurozone banks and an increase in their the required core capital requirement from 4 to 9 percent.

The summit decisions of 9 December 2011


The agreement that was reached on 9th December was mainly concerned with the imposition and enforcement of prudential restrictions upon member governments' discretion over their fiscal policy. A "fiscal compact" (below) for that purpose was agreed in principal by the representatives of all the governments of the European Union except the United Kingdom, for implementation in March 2012. Implementation would require a treaty change and would thus be subject to the agreement of a majority of eurozone members[48] but for some member states it would also require popular assent by national referendum[49].

Under the heading of "strengthening the stabilisation tools", the announced decisions include the rapid implementation of the "leveraging" of the European Financial Stability Facility (that was agreed by the Eurogroup on 29 November), and the bringing forward of the introduction of the European Stability Mechanism. All except the British prime minister agreed to "consider and confirm within 10 days" to supplement IMF funds by €200 billion "to ensure that the IMF has adequate resources to deal with the crisis" - an agreement that was shortly to unravel[50][51]

The new fiscal compact

The main provisions announced by the heads of state[52]. were:

  • a rule to be adopted that annual structural deficits must not exceed 0.5% of nominal GDP;
  • that rule to be embofied in member governments', legal systems at constitutional or equivalent level, together with a correction mechanism that is to be triggered in the event of deviation;
  • the Court of Justice to verify member governments' compliance;
  • national debt proposals to be reported in advance;
  • the Excessive Deficit Procedure (governing the treatment of a government with a budget deficit greater than 3 per cent of gdp, or a public debt greater than 60 per cent of gdp[53]) to be reinforced by the imposition of penalties (unless opposed by a qualified majority).


  1. ECB
  2. Global Debt and Deleveraging from McKinsey and the Economist, June 26 2010
  3. Guardian Datablog, 19 July 2010 (ratings go AAA, AA, A, BBB, BB, B)
  4. Regional Economic Outlook, Europe, IMF October 2012
  5. Greece: Review of the Central Administration, OECD December 2011
  6. Statement by EZ Heads of State, 21 July 2011
  7. Kerin Hope, Peter Spiegel and Telis Demos: Greece calls referendum on EU bail-out, Financial Times, October 31, 2011
  8. 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
  9. Costas Papachlimintzos: A government of 100 days and 48 members, Athens News, 21 November 2011
  10. Costas Papachlimintzos: Samaras addresses letter to creditors, Athens News, 23 November 2011
  11. Statement by the Eurogroup, 21/02/2012
  12. Eurogroup Statement on Greece,27 November 2012
  13. Buying back Greece, Open Europe press release, 28 Nov 2012
  14. The Tiger Tamed, The Economist, November 2008
  15. The Party is Definitely Over, The Economist March 19 2009
  16. Proposal for a National Asset Management Agency, National Treasury Management Agency, 8 April 2009
  17. Stacy-Marie Ishmael: S&P strips Ireland of its triple-A rating, FT-Alphaville, March 30 2009
  18. Budget Statement, Department of Finance, April 7, 2009
  19. Money Guide Ireland. NAMA - National Asset Management Agency. Retrieved on 2009-05-12.
  20. Irish Republic announces record budget cuts, BBC News 4 November 2010
  21. Full text of the Government statement on its application for financial aid from the EU and IMF, Irish Times, 22 November 2010
  22. Council agrees on joint EU-IMF financial assistance package for Ireland, European Commission, 7 December, 2010
  23. Staff Report for the 2012 Article IV Consultation, August 21, 2012
  24. Republic of Italy,Standard & Poors, September 19, 2011
  25. Guy Dinmore: Berlusconi held to the fire by EU partners, Financial Times, October 26
  26. 26.0 26.1 Robin Wigglesworth Spain and Italy raise €22bn in debt sales Financial Times, 12 Januart 2012
  27. Italy's Unsolicited Ratings Lowered To 'BBB+/A-2'; Outlook Negative, Standard & Poor's, 13 January 2012
  28. The importance of not being Greece, The Economist, April 22, 2010
  29. Country Report on Portugal, International Monetary Fund, January 2010
  30. IMF Executive Board Approves an €26 Billion Extended Arrangement for Portugal, IMF Press Release No. 11/190, May 20, 2011
  31. Portugal's Ratings Lowered To 'BB/B'; Recovery Rating Of 4 Assigned; Outlook Negative, Standard & Poor's, 13 January 2012
  32. Statement by the EC, ECB and IMF on the Fifth Review Mission to Portugal, IMF Press Release No. 12/310, September 11, 2012
  33. Country Report: Spain, International Monetary Fund, July 2010
  34. Samuel Bentolila, Juan Dolado and Juan Francisco Jimeno: The Spanish labour market: A very costly insider-outsider divide, Vox, 20 January 2012
  35. Spain's Ratings Lowered To 'A/A-1'; Outlook Negative, Standard and Poor's, 13th January 2012
  36. Spain: Financial Sector Assessment, Preliminary Conclusions by the Staff of the International Monetary Fund April 25, 2012
  37. Ratings On Spain Lowered To 'BBB+/A-2' On Debt Concerns, S&P 26/04/12
  38. Spain Emerges as Leading Candidate for Next Eurozone “Domino”, Alpha Now. April 12th, 2012
  39. Going to extra time, The Spanish bail-out, The Economist, 14 June 2012
  40. Regional debt, National problem: is Spain heading for a full bailout?, Open Europe Briefing Note, 26 July 2012
  41. The 2012 Euro Plus Monitor, The Lisbon Council, November 2012
  42. France's Unsolicited Long-Term Ratings Lowered To 'AA+'; Outlook Negative, Standard & Poor's, 13 January 2012
  43. Moody's downgrades France's government bond rating to Aa1 from Aaa, maintains negative outlook, 19 November 2012
  44. Belgium swears in new government headed by Elio Di Rupo, BBC News, 6 December 2011
  45. Moody's downgrades Belgium's credit ratings to Aa3, negative outlook, 16 December 2011
  46. Euro Summit Statement, Brussels, 26 October 2011
  47. Main Results of the Euro Summit of October 2011
  48. New treaty gets EU legal clearance, EurActiv, 16 December 2011
  49. New EU deal faces multiple referendum threat, EUobserver, 9 December 2011
  50. Valentina Pop:IMF euro rescue starts to unravel, EUobserver, 13 December 2011
  51. Eurozone-IMF rescue operation in doubt, EurActiv, 16 December 2011
  52. Statement by the euro area heads of state or government General Secretariat of the Council, 9 December 2011
  53. 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