Greece ,
gross domestic product (GDP), and public debt-to-GDP ratio. Graph based on "ameco" data from the
European Commission. The Greek economy had fared well for much of the 20th century, with high growth rates and low public debt. By 2007 (i.e., before the
2008 financial crisis), it was still one of the fastest growing in the eurozone, with a public debt-to-GDP that did not exceed 104%, As the world economy was affected by the
2008 financial crisis, Greece was hit especially hard because its main industries—
shipping and
tourism—were especially sensitive to changes in the business cycle. The government spent heavily to keep the economy functioning and the country's debt increased accordingly. The Greek crisis was triggered by the turmoil of the
Great Recession, which led the budget deficits of several Western nations to reach or exceed 10% of GDP.) was coupled with a high public debt to GDP ratio (which, until then, was relatively stable for several years, at just above 100% of GDP, as calculated after all corrections). In contrast, Italy was able (despite the crisis) to keep its 2009 budget deficit at 5.1% of GDP, A few days later,
Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "
junk" status amid fears of
default, in which case investors were liable to lose 30–50% of their money. On 1 May 2010, the Greek government announced a series of
austerity measures (the
third austerity package within months) to secure a three-year loan (
First Economic Adjustment Programme). This was met with great anger by some Greeks, leading to
massive protests, riots, and social unrest throughout Greece. The
Troika, a tripartite committee formed by the
European Commission, the
European Central Bank and the International Monetary Fund (EC, ECB and IMF), offered Greece a second bailout loan worth in October 2011 (
Second Economic Adjustment Programme), but with the activation being conditional on implementation of further austerity measures and a debt restructure agreement. Surprisingly, Greek prime minister
George Papandreou first answered that call by announcing the
2011 Greek proposed economy referendum on the new bailout plan, but had to back down amidst strong pressure from EU partners, who threatened to withhold an overdue loan payment that Greece needed by mid-December. On 10 November 2011, Papandreou resigned following an agreement with the
New Democracy party and the
Popular Orthodox Rally to appoint non-MP technocrat
Lucas Papademos as new prime minister of an interim
national union government, with responsibility for implementing the needed austerity measures to pave the way for the second bailout loan. All the implemented austerity measures have helped Greece bring down its
primary deficit—i.e., fiscal deficit before interest payments—from €24.7bn (10.6% of GDP) in 2009 to just €5.2bn (2.4% of GDP) in 2011, but as a side-effect they also contributed to a worsening of the Greek recession, which began in October 2008 and only became worse in 2010 and 2011. The Greek GDP had its worst decline in 2011 with −6.9%, a year where the seasonal adjusted industrial output ended 28.4% lower than in 2005, and with 111,000 Greek companies going bankrupt (27% higher than in 2010). As a result, Greeks have lost about 40% of their
purchasing power since the start of the crisis, they spend 40% less on goods and services, and the seasonal adjusted unemployment rate grew from 7.5% in September 2008 to a record high of 27.9% in June 2013, while the
youth unemployment rate rose from 22.0% to as high as 62%. Youth
unemployment ratio hit 16.1 per cent in 2012. Overall the share of the population living at "risk of poverty or social exclusion" did not increase notably during the first two years of the crisis. The figure was measured to 27.6% in 2009 and 27.7% in 2010 (only being slightly worse than the EU27-average at 23.4%), but for 2011 the figure was now estimated to have risen sharply above 33%. In February 2012, an IMF official negotiating Greek austerity measures admitted that excessive spending cuts were harming Greece. Some economic experts argue that the best option for Greece, and the rest of the EU, would be to engineer an "orderly
default", allowing Athens to withdraw simultaneously from the eurozone and reintroduce its national currency the drachma at a debased rate. If Greece were to leave the euro, the economic and political consequences would be devastating. According to Japanese financial company
Nomura an exit would lead to a 60%
devaluation of the new drachma. Analysts at French bank
BNP Paribas added that the fallout from a Greek exit would wipe 20% off Greece's GDP, increase Greece's debt-to-GDP ratio to over 200%, and send inflation soaring to 40–50%. Also
UBS warned of
hyperinflation, a
bank run and even "
military coups and possible civil war that could afflict a departing country".
Eurozone National Central Banks (NCBs) may lose up to €100bn in debt claims against the
Greek national bank through the ECB's
TARGET2 system. The
Deutsche Bundesbank alone may have to write off €27bn. To prevent this from happening, the Troika (EC, IMF and ECB) eventually agreed in February 2012 to provide a second bailout package worth , conditional on the implementation of another harsh austerity package that would reduce Greek expenditure by €3.3bn in 2012 and another €10bn in 2013 and 2014. This counted as a "credit event" and holders of credit default swaps were paid accordingly. It was the world's biggest
debt restructuring deal ever done, affecting some of Greek government bonds. The debt write-off had a size of , and caused the Greek debt level to temporarily fall from roughly €350bn to €240bn in March 2012 (it would subsequently rise again, due to the resulting bank recapitalization needs), with improved predictions about the debt burden. In December 2012, the Greek government bought back €21 billion ($27 billion) of their bonds for 33 cents on the euro. Critics such as the director of
LSE's Hellenic Observatory argue that the billions of taxpayer euros are not saving Greece but financial institutions. Of all €252bn in bailouts between 2010 and 2015, just 10% has found its way into financing continued public deficit spending on the Greek government accounts. Much of the rest went straight into refinancing the old stock of Greek government debt (originating mainly from the high general government deficits being run in previous years), which was mainly held by private banks and hedge funds by the end of 2009. According to LSE, "more than 80% of the rescue package" is going to refinance the expensive old maturing Greek government debt towards private creditors (mainly private banks outside Greece), replacing it with new debt to public creditors on more favourable terms, that is to say paying out their private creditors with new debt issued by its new group of public creditors known as the Troika. The shift in liabilities from European banks to European taxpayers has been staggering. One study found that the public debt of Greece to foreign governments, including debt to the EU/IMF loan facility and debt through the Eurosystem, increased from €47.8bn to €180.5bn (+132,7bn) between January 2010 and September 2011, while the combined exposure of foreign banks to (public and private) Greek entities was reduced from well over €200bn in 2009 to around €80bn (−€120bn) by mid-February 2012. , 78% of Greek debt is owed to public sector institutions, primarily the EU. (In June 2010, France's and Germany's foreign claims vis-a-vis Greece were $57bn and $31bn respectively. German banks owned $60bn of Greek, Portuguese, Irish and Spanish government debt and $151bn of banks' debt of these countries). According to a leaked document, dated May 2010, the IMF was fully aware of the fact that the Greek bailout program was aimed at rescuing the private European banks – mainly from France and Germany. A number of IMF Executive Board members from India, Brazil, Argentina, Russia, and Switzerland criticized this in an internal memorandum, pointing out that Greek debt would be unsustainable. However their French, German and Dutch colleagues refused to reduce the Greek debt or to make (their) private banks pay. In mid May 2012, the crisis and impossibility to form a new government after elections and the possible victory by the anti-austerity axis led to new speculations Greece would have to
leave the eurozone shortly. This phenomenon became known as "Grexit" and started to govern international market behaviour. The centre-right's narrow victory in 17 June election gave hope that Greece would honour its obligations and stay in the Euro-zone. Due to a delayed reform schedule and a worsened economic recession, the new government immediately asked the Troika to be granted an extended deadline from 2015 to 2017 before being required to restore the budget into a self-financed situation; which in effect was equal to a request of a third bailout package for 2015–16 worth €32.6bn of extra loans. On 11 November 2012, facing a default by the end of November, the Greek parliament passed a new austerity package worth €18.8bn, including a "labour market reform" and "mid term fiscal plan 2013–16". In return, the Eurogroup agreed on the following day to lower interest rates and prolong debt maturities and to provide Greece with additional funds of around €10bn for a
debt-buy-back programme. The latter allowed Greece to retire about half of the in debt that Athens owes private creditors, thereby shaving roughly off that debt. This should bring Greece's debt-to-GDP ratio down to 124% by 2020 and well below 110% two years later. Without agreement the debt-to-GDP ratio would have risen to 188% in 2013. The
Financial Times special report on the future of the European Union argues that the liberalisation of labour markets has allowed Greece to narrow the cost-competitiveness gap with other southern eurozone countries by approximately 50% over the past two years. This has been achieved primary through wage reductions, though businesses have reacted positively. Both of the latest bailout programme audit reports, released independently by the European Commission and IMF in June 2014, revealed that even after transfer of the scheduled bailout funds and full implementation of the agreed adjustment package in 2012, there was a new forecast financing gap of:
€5.6bn in 2014, €12.3bn in 2015, and €0bn in 2016. The new forecast financing gaps will need either to be covered by the government's additional lending from private capital markets, or to be countered by additional fiscal improvements through expenditure reductions, revenue hikes or increased amount of privatizations. Due to an improved outlook for the Greek economy, with return of a government
structural surplus in 2012, return of real GDP growth in 2014, and a decline of the unemployment rate in 2015, it was possible for the Greek government to
return to the bond market during the course of 2014, for the purpose of fully funding its new extra financing gaps with additional private capital. A total of €6.1bn was received from the sale of three-year and five-year bonds in 2014, and the Greek government now plans to cover its forecast financing gap for 2015 with additional sales of seven-year and ten-year bonds in 2015. The latest recalculation of the seasonally adjusted quarterly GDP figures for the Greek economy revealed that it had been hit by three distinct recessions in the turmoil of the
2008 financial crisis: • Q3-2007 until Q4-2007 (duration = 2 quarters) • Q2-2008 until Q1-2009 (duration = 4 quarters, referred to as being part of the
Great Recession) • Q3-2009 until Q4-2013 (duration = 18 quarters, referred to as being part of the eurozone crisis) Greece experienced positive economic growth in each of the three first quarters of 2014. which will help ensure that Greece will be labelled "debt sustainable" and fully regain complete access to private lending markets in 2015. While the
Greek government-debt crisis hereby is forecast officially to end in 2015, many of its negative repercussions (e.g. a high unemployment rate) are forecast still to be felt during many of the subsequent years. The positive economic outlook for Greece—based on the return of seasonally adjusted real GDP growth across the first three quarters of 2014—was replaced by a new fourth recession starting in Q4-2014. This new fourth recession was widely assessed as being direct related to the premature
snap parliamentary election called by the Greek parliament in December 2014 and the following formation of a
Syriza-led government refusing to accept respecting the terms of its current bailout agreement. The rising political uncertainty of what would follow caused the Troika to suspend all scheduled remaining aid to Greece under its second programme, until such time as the Greek government either accepted the previously negotiated conditional payment terms or alternatively could reach a mutually accepted agreement of some new updated terms with its public creditors. This rift caused a renewed increasingly growing liquidity crisis (both for the Greek government and Greek financial system), resulting in plummeting stock prices at the
Athens Stock Exchange while interest rates for the Greek government at the private lending market spiked to levels once again making it inaccessible as an alternative funding source. Faced by the threat of a sovereign default and potential resulting exit of the eurozone, some final attempts were made by the Greek government in May 2015 to settle an agreement with the Troika about some adjusted terms for Greece to comply with in order to activate the transfer of the frozen bailout funds in its second programme. In the process, the Eurogroup granted a six-month technical extension of its second bailout programme to Greece. On 5 July 2015, the citizens of Greece voted decisively (a 61% to 39% decision with 62.5% voter turnout) to reject a referendum that would have given Greece more bailout help from other EU members in return for increased austerity measures. As a result of this vote, Greece's finance minister
Yanis Varoufakis stepped down on 6 July. Greece was the first developed country not to make a payment to the IMF on time, in 2015 (payment was made with a 20-day delay). Eventually, Greece agreed on a third bailout package in August 2015. Between 2009 and 2017 the Greek government debt rose from €300 bn to €318 bn, i.e. by only about 6% (thanks, in part, to the 2012 debt restructuring); however, during the same period, the critical debt-to-GDP ratio shot up from 127% to 179%
Ireland ,
gross domestic product (GDP), and public debt-to-GDP ratio. Graph based on "ameco" data from the
European Commission. The Irish sovereign debt crisis arose not from government over-spending, but from the state guaranteeing the six main Irish-based banks who had financed a
property bubble. On 29 September 2008, Finance Minister
Brian Lenihan Jnr issued a two-year guarantee to the banks' depositors and bondholders. The guarantees were subsequently renewed for new deposits and bonds in a slightly different manner. In 2009, a
National Asset Management Agency (NAMA) was created to acquire large property-related loans from the six banks at a market-related "long-term economic value". Irish banks had lost an estimated 100 billion euros, much of it related to defaulted loans to property developers and homeowners made in the midst of the property bubble, which burst around 2007. The economy collapsed during 2008. Unemployment rose from 4% in 2006 to 14% by 2010, while the national budget went from a surplus in 2007 to a deficit of 32% GDP in 2010, the highest in the history of the eurozone, despite austerity measures. With Ireland's credit rating falling rapidly in the face of mounting estimates of the banking losses, guaranteed depositors and bondholders cashed in during 2009–10, and especially after August 2010. (The necessary funds were borrowed from the central bank.) With yields on Irish Government debt rising rapidly, it was clear that the Government would have to seek assistance from the EU and IMF, resulting in a "bailout" agreement of 29 November 2010. Together with additional coming from Ireland's own reserves and pensions, the government received , of which up to was to be used to support the country's failing financial sector (only about half of this was used in that way following stress tests conducted in 2011). In return the government agreed to reduce its budget deficit to below three per cent by 2015. In July 2011, European leaders agreed to cut the interest rate that Ireland was paying on its EU/IMF bailout loan from around 6% to between 3.5% and 4% and to double the loan time to 15 years. The move was expected to save the country between 600 and 700 million euros per year. On 14 September 2011, in a move to further ease Ireland's difficult financial situation, the European Commission announced it would cut the interest rate on its loan coming from the European Financial Stability Mechanism, down to 2.59 per cent—which is the interest rate the EU itself pays to borrow from financial markets. The Euro Plus Monitor report from November 2011 attests to Ireland's vast progress in dealing with its financial crisis, expecting the country to stand on its own feet again and finance itself without any external support from the second half of 2012 onwards. According to the
Centre for Economics and Business Research, Ireland's export-led recovery "will gradually pull its economy out of its trough". As a result of the improved economic outlook, the cost of 10-year government bonds has fallen from its record high at 12% in mid July 2011 to below 4% in 2013 (see the graph "Long-term Interest Rates"). On 26 July 2012, for the first time since September 2010, Ireland was able to return to the financial markets, selling over €5 billion in long-term government debt, with an interest rate of 5.9% for the 5-year bonds and 6.1% for the 8-year bonds at sale. In December 2013, after three years on financial life support, Ireland finally left the EU/IMF bailout programme, although it retained a debt of €22.5 billion to the IMF; in August 2014, early repayment of €15 billion was being considered, which would save the country €375 million in surcharges. Despite the end of the bailout the country's unemployment rate remains high and public sector wages are still around 20% lower than at the beginning of the crisis. Government debt reached 123.7% of GDP in 2013. On 13 March 2013, Ireland managed to regain complete lending access on financial markets, when it successfully issued €5bn of 10-year maturity bonds at a yield of 4.3%. Ireland ended its bailout programme as scheduled in December 2013, without any need for additional financial support. and 2008–09) and government-sponsored fiscal austerity in order to reduce the budget deficit to the limits allowed by the European Union's
Stability and Growth Pact. According to a report by the
Diário de Notícias, Portugal had allowed considerable
slippage in state-managed
public works and inflated top management and head officer bonuses and wages in the period between the
Carnation Revolution in 1974 and 2010. Persistent and lasting recruitment policies boosted the number of redundant public servants. Risky
credit,
public debt creation, and European
structural and cohesion funds were mismanaged across almost four decades. When the global crisis disrupted the markets and the world economy, together with the US
subprime mortgage crisis and the eurozone crisis, Portugal was one of the first economies to succumb, and was affected very deeply. In the summer of 2010,
Moody's Investors Service cut Portugal's
sovereign bond rating, which led to an increased pressure on Portuguese government bonds. In the first half of 2011, Portugal requested a €78 billion IMF-EU bailout package in a bid to stabilise its
public finances. Portugal's debt was in September 2012 forecast by the Troika to peak at around 124% of GDP in 2014, followed by a firm downward trajectory after 2014. Previously the Troika had predicted it would peak at 118.5% of GDP in 2013, so the developments proved to be a bit worse than first anticipated, but the situation was described as fully sustainable and progressing well. As a result, from the slightly worse economic circumstances, the country has been given one more year to reduce the budget deficit to a level below 3% of GDP, moving the target year from 2013 to 2014. The budget deficit for 2012 has been forecast to end at 5%. The recession in the economy is now also projected to last until 2013, with GDP declining 3% in 2012 and 1% in 2013; followed by a return to positive real growth in 2014. Unemployment rate increased to over 17% by end of 2012 but it has since decreased gradually to 10,5% as of November 2016. As part of the bailout programme, Portugal was required to regain complete access to financial markets by September 2013. The first step towards this target was successfully taken on 3 October 2012, when the country managed to regain partial market access by selling a bond series with 3-year maturity. Once Portugal regains complete market access, measured as the moment it successfully manages to sell a bond series with a full 10-year maturity, it is expected to benefit from interventions by the ECB, which announced readiness to implement extended support in the form of some yield-lowering bond purchases (
OMTs), As of December 2012, it has been more than halved to only 7%. A successful return to the long-term lending market was made by the issuing of a 5-year maturity bond series in January 2013, and the state regained complete lending access when it successfully issued a 10-year maturity bond series on 7 May 2013. According to the
Financial Times special report on the future of the
European Union, the Portuguese government has "made progress in reforming labour legislation, cutting previously generous redundancy payments by more than half and freeing smaller employers from collective bargaining obligations, all components of Portugal's €78 billion bailout program". Portugal still has many tough years ahead. During the crisis, Portugal's government debt increased from 93 to 139 percent of GDP. Its public debt relative to GDP in 2010 was only 60%, more than 20 points less than Germany, France or the US, and more than 60 points less than Italy or Greece. Debt was largely avoided by the ballooning tax revenue from the housing bubble, which helped accommodate a decade of increased government spending without debt accumulation. When the bubble burst, Spain spent large amounts of money on bank bailouts. In May 2012,
Bankia received a 19 billion euro bailout, on top of the previous 4.5 billion euros to prop up Bankia. Questionable accounting methods disguised bank losses. During September 2012, regulators indicated that Spanish banks required €59 billion (US$77 billion) in additional capital to offset losses from real estate investments. The bank bailouts and the economic downturn increased the country's deficit and debt levels and led to a substantial downgrading of its credit rating. To build up trust in the financial markets, the government began to introduce austerity measures and in 2011 it passed a law in congress to approve an amendment to the
Spanish Constitution to require a
balanced budget at both the national and regional level by 2020. The amendment states that public debt can not exceed 60% of GDP, though exceptions would be made in case of a natural catastrophe, economic recession or other emergencies. As one of the largest eurozone economies (larger than Greece, Portugal and Ireland combined) the condition of Spain's economy is of particular concern to international observers. Under pressure from the United States, the IMF, other European countries and the European Commission the Spanish governments eventually succeeded in trimming the deficit from 11.2% of GDP in 2009 to 7.1% in 2013. Nevertheless, in June 2012,
Spain became a prime concern for the Euro-zone when interest on Spain's 10-year bonds reached the 7% level and it faced difficulty in accessing bond markets. This led the Eurogroup on 9 June 2012 to grant Spain a financial support package of up to €100 billion. The funds will not go directly to Spanish banks, but be transferred to a government-owned Spanish fund responsible to conduct the needed bank recapitalisations (FROB), and thus it will be counted for as additional sovereign debt in Spain's national account. An economic forecast in June 2012 highlighted the need for the arranged bank recapitalisation support package, as the outlook promised a negative growth rate of 1.7%, unemployment rising to 25%, and a continued declining trend for housing prices. Strictly speaking, Spain was not hit by a sovereign debt-crisis in 2012, as the financial support package that they received from the ESM was earmarked for a bank recapitalization fund and did not include financial support for the government itself. According to the latest debt sustainability analysis published by the European Commission in October 2012, the fiscal outlook for Spain, if assuming the country will stick to the fiscal consolidation path and targets outlined by the country's current EDP programme, will result in a
debt-to-GDP ratio reaching its maximum at 110% in 2018—followed by a declining trend in subsequent years. In regards of the
structural deficit the same outlook has promised, that it will gradually decline to comply with the maximum 0.5% level required by the
Fiscal Compact in 2022/2027. Though Spain was suffering with 27% unemployment and the economy was shrinking 1.4% in 2013, Mariano Rajoy's conservative government has pledged to speed up reforms, according to the
Financial Times special report on the future of the European Union. "Madrid is reviewing its labour market and pension reforms and has promised by the end of this year to liberalize its heavily regulated professions". By the end of March 2018, unemployment rate of Spain has fallen to 16.1% and the debt is 98,30% of the GDP.
Cyprus The economy of the small island of Cyprus with 840,000 people was hit by several huge blows in and around 2012 including, amongst other things, the €22 billion exposure of Cypriot banks to the
Greek debt haircut, the downgrading of the Cypriot economy into junk status by international
rating agencies and the inability of the government to refund its state expenses. On 25 June 2012, the Cypriot Government requested a bailout from the
European Financial Stability Facility or the
European Stability Mechanism, citing difficulties in supporting its banking sector from the exposure to the Greek debt haircut. On 30 November the Troika (the European Commission, the International Monetary Fund, and the European Central Bank) and the Cypriot Government had agreed on the bailout terms with only the amount of money required for the bailout remaining to be agreed upon. Bailout terms include strong austerity measures, including cuts in civil service salaries, social benefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges. At the insistence of the Commission negotiators, at first the proposal also included an unprecedented one-off levy of 6.7% for deposits up to €100,000 and 9.9% for higher deposits on all domestic bank accounts. Following public outcry, the eurozone finance ministers were forced to change the levy, excluding deposits of less than €100,000, and introducing a higher 15.6% levy on deposits of above €100,000 ($129,600)—in line with the
EU minimum deposit guarantee. This revised deal was also rejected by the Cypriot parliament on 19 March 2013 with 36 votes against, 19 abstentions and one not present for the vote. The final agreement was settled on 25 March 2013, with the proposal to close the most troubled
Laiki Bank, which helped significantly to reduce the needed loan amount for the overall bailout package, so that €10bn was sufficient without need for imposing a general levy on bank deposits. The final conditions for activation of the bailout package was outlined by the Troika's
MoU agreement, which was endorsed in full by the
Cypriot House of Representatives on 30 April 2013. It includes: • Recapitalisation of the entire financial sector while accepting a closure of the Laiki bank, • Implementation of the
anti–money laundering framework in Cypriot financial institutions, • Fiscal consolidation to help bring down the Cypriot governmental budget deficit, • Structural reforms to restore competitiveness and macroeconomic imbalances, • Privatization programme. The Cypriot debt-to-GDP ratio is on this background now forecasted only to peak at 126% in 2015 and subsequently decline to 105% in 2020, and thus considered to remain within sustainable territory. The Cypriot minister of finance recently confirmed, that the government plan to issue two new European Medium Term Note (EMTN) bonds in 2015, likely shortly ahead of the expiry of another €1.1bn bond on 1 July and a second expiry of a €0.9bn bond on 1 November. As announced in advance, the Cypriot government issued €1bn of seven-year bonds with a 4.0% yield by the end of April 2015. {{Maplink|frame=yes { "type": "ExternalData", "service": "geoshape", "ids": "Q191,Q32,Q219", "properties": { "fill": "#40f040", "title": "rate - - > 90%, > 60% to Maastricht criteria }} ==Policy reactions==