Eurozone Sovereign Debt Crisis
The eurozone crisis began in October 2009, when an incoming Greek government disclosed that the budget deficit was not six per cent of output but nearer thirteen, and eventually over fifteen. Greek borrowing costs rose, and by May 2010 the country could not refinance itself. The structural problem was that the euro had created a monetary union without a fiscal one. Member states had given up the ability to devalue or to print, while remaining responsible for their own debts and banks, and had no common budget or joint borrowing to absorb an asymmetric shock. A decade of cheap credit had flowed from northern surpluses into southern property and public spending, and the sudden repricing of that risk after 2008 exposed each country separately. Greece received bailouts in 2010, 2012 and 2015 totalling around €290 billion, conditioned by the troika — Commission, ECB and IMF — on austerity that cut output by about a quarter and drove unemployment above 27 per cent. Ireland, Portugal, Spain and Cyprus followed with programmes of their own. The crisis turned in July 2012 when Mario Draghi said the ECB would do whatever it takes to preserve the euro, and added that it would be enough. The bond programme he announced was never used, and spreads fell anyway. Greece held a referendum rejecting the terms in 2015 and accepted harsher ones weeks later. The banking union, the stability mechanism and eventually joint borrowing in 2020 followed from it. Greek debt remains above 150 per cent of output and the emigration of that decade has not reversed. The crisis is generally read as having been survived rather than solved.
- Year: 2010 CE
- Category: Political
