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136-564: The European debt crisis , often also referred to as the eurozone crisis or the European sovereign debt crisis , was a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone member states ( Greece , Portugal , Ireland and Cyprus ) were unable to repay or refinance their government debt or to bail out over-indebted banks under their national supervision without

272-628: A December 2011 referendum on the new bailout plan, but had to back down amidst strong pressure from EU partners, who threatened to withhold an overdue €6 billion 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

408-615: A GDP-weighted average of 104 percent before their implementation to nearly 30 percent during the period from 2006 to 2011. According to World Bank data, the Sub-Saharan African governments' foreign debt tripled between 2009 and 2022. According to IMF (2024), 7 African countries are in debt distress ( Republic of the Congo , Ghana , Malawi , Sudan , São Tomé & Príncipe , Zambia and Zimbabwe ), and 13 more are at risk of becoming debt distressed. Unlike previous debt crises,

544-554: A bailout programme. Its rescue package from the ESM was earmarked for a bank recapitalisation fund and did not include financial support for the government itself. The crisis had significant adverse economic effects and labour market effects, with unemployment rates in Greece and Spain reaching 27%, and was blamed for subdued economic growth, not only for the entire eurozone but for the entire European Union. The austerity policies implemented as

680-529: A combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, set precedents and created a large risk for taxpayer – particularly in its very generous treatment of holdout creditors – that are likely to make future debt restructurings in Europe more difficult. To take considerations that

816-587: A crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on CDS between these countries and other EU member states , most importantly Germany. By the end of 2011, Germany was estimated to have made more than €9 billion out of the crisis as investors flocked to safer but near zero interest rate German federal government bonds ( bunds ). By July 2012 also the Netherlands, Austria, and Finland benefited from zero or negative interest rates. Looking at short-term government bonds with

952-505: A currency crisis a change in the head of government and a change in the finance minister and/or central bank governor are more likely to occur. A currency crisis is normally considered as part of a financial crisis. Kaminsky et al. (1998), for instance, define currency crises as when a weighted average of monthly percentage depreciations in the exchange rate and monthly percentage declines in exchange reserves exceeds its mean by more than three standard deviations. Frankel and Rose (1996) define

1088-470: A currency crisis as a nominal depreciation of a currency of at least 25% but it is also defined at least 10% increase in the rate of depreciation. In general, a currency crisis can be defined as a situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation or appreciation. Recessions attributed to currency crises include

1224-456: A euro-franc exchange rate below the minimum rate of 1.20 francs", effectively weakening the Swiss franc. This is the biggest Swiss intervention since 1978. Despite sovereign debt having risen substantially in only a few eurozone countries, with the three most affected countries Greece, Ireland and Portugal collectively only accounting for 6% of the eurozone's gross domestic product (GDP), it became

1360-420: A fixed exchange rate breaks. The linkage between currency, banking, and default crises increases the chance of twin crises or even triple crises, outcomes in which the economic cost of each individual crisis is enlarged. Currency crises can be especially destructive to small open economies or bigger, but not sufficiently stable ones. Governments often take on the role of fending off such attacks by satisfying

1496-698: A general term for a proliferation of massive public debt relative to tax revenues , especially in reference to Latin American countries during the 1980s, the United States and the European Union since the mid-2000s, and the Chinese debt crises of 2015. Hitting the debt wall is a dire financial situation that can occur when a nation depends on foreign debt and/or investment to subsidize their budget and then commercial deficits stop being

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1632-538: A government guarantee of the banking system may give banks an incentive to take on foreign debt, making both the currency and the banking system vulnerable to attack. Krugman (1999) suggested another two factors, in an attempt to explain the Asian financial crisis : (1) firms' balance sheets affect their ability to spend, and (2) capital flows affect the real exchange rate. (He proposed his model as "yet another candidate for third generation crisis modeling" (p32)). However,

1768-445: A government is running an excessive deficit, causing it to run short of liquid assets or "harder" foreign currency which it can sell to support its currency at the fixed rate. Investors are willing to continue holding the currency as long as they expect the exchange rate to remain fixed, but they flee the currency en masse when they anticipate that the peg is about to end. The 'second generation' of models of currency crises starts with

1904-399: A high percentage of debt was in the hands of foreign creditors, as in the case of Greece and Portugal. The states that were adversely affected by the crisis faced a strong rise in interest rate spreads for government bonds as a result of investor concerns about their future debt sustainability. Four eurozone states had to be rescued by sovereign bailout programs, which were provided jointly by

2040-410: 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). Thus, the country appeared to lose control of its public debt to GDP ratio, which already reached 127% of GDP in 2009. In contrast, Italy was able (despite the crisis) to keep its 2009 budget deficit at 5.1% of GDP, which was crucial, given that it had

2176-537: A history of chronic economic, monetary and political problems. Economic reforms of the 1990s. In 1989, Carlos Menem became president. After some fumbling, he adopted a free-market approach that reduced the burden of government by privatizing, deregulating, cutting some tax rates, and reforming the state. The centerpiece of Menem's policies was the Convertibility Law, which took effect on 1 April 1991. Argentina's reforms were faster and deeper than any country of

2312-401: A lack of credible commitments to provide bailouts to banks, incentivized risky financial transactions by banks. The detailed causes of the crisis varied from country to country. In several countries, private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts and government responses to slowing economies post-bubble. European banks own

2448-464: A level associated with substantial risk of default. In November 2011, Greece faced with a storm of criticism over his referendum plan, Mr Papandreou withdraws it and then announces his resignation. 2012 February - December - The second bailout programme was ratified in February 2012. A total of €240 billion was to be transferred in regular tranches through December 2014. The recession worsened and

2584-697: A long history of external debt, beginning in the 1980s when the public finances of many countries sharply declined following several external shocks. This led to a “lost decade” of low economic growth, increased poverty, food insecurity and socio-political instability. However, the implementation of debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and the supplementary Multilateral Debt Relief Initiative (MDRI) wiped out most of Sub-Saharan Africa’s external debts. These debt relief initiatives substantially reduced nominal public debt to sustainable levels, bringing it from

2720-539: A maturity of less than one year the list of beneficiaries also includes Belgium and France. While Switzerland (and Denmark) equally benefited from lower interest rates, the crisis also harmed its export sector due to a substantial influx of foreign capital and the resulting rise of the Swiss franc . In September 2011 the Swiss National Bank surprised currency traders by pledging that "it will no longer tolerate

2856-521: A mechanism, the TARGET2 system, that ensures that Eurozone member countries can always fund their current account deficits. These authors do not claim that the current account imbalances in the Eurozone are irrelevant but simply that a currency union cannot have a balance of payments crisis proper. Some authors tackling the crisis from an MMT perspective have claimed that those authors who are denoting

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2992-463: A perceived problem for the area as a whole, leading to concerns about further contagion of other European countries and a possible break-up of the eurozone. In total, the debt crisis forced five out of 17 eurozone countries to seek help from other nations by the end of 2012. In mid-2012, due to successful fiscal consolidation and implementation of structural reforms in the countries being most at risk and various policy measures taken by EU leaders and

3128-485: A possible effect of media reports . Consequently, Greece was "punished" by the markets which increased borrowing rates, making it impossible for the country to finance its debt since early 2010. Despite the drastic upwards revision of the forecast for the 2009 budget deficit in October 2009, Greek borrowing rates initially rose rather slowly. By April 2010 it was apparent that the country was becoming unable to borrow from

3264-526: A public debt to GDP ratio comparable to Greece's. In addition, being a member of the Eurozone, Greece had essentially no autonomous monetary policy flexibility . Finally, there was an effect of controversies about Greek statistics (due the aforementioned drastic budget deficit revisions which led to an increase in the calculated value of the Greek public debt by about 10% , a public debt-to-GDP ratio of about 100% until 2007), while there have been arguments about

3400-401: A result of the crisis also produced a sharp rise in poverty levels and a significant increase in income inequality across Southern Europe. It had a major political impact on the ruling governments in 10 out of 19 eurozone countries, contributing to power shifts in Greece, Ireland, France, Italy, Portugal, Spain, Slovenia, Slovakia, Belgium, and the Netherlands as well as outside of the eurozone in

3536-400: 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

3672-584: A rule of the Maastricht Treaty ) to 12.7%, almost immediately after PASOK won the October 2009 Greek national elections . Large upwards revision of budget deficit forecasts were not limited to Greece: for example, in the United States forecast for the 2009 budget deficit was raised from $ 407 billion projected in the 2009 fiscal year budget, to $ 1.4 trillion , while in the United Kingdom there

3808-713: A series of financial support measures such as the European Financial Stability Facility (EFSF) in early 2010 and the European Stability Mechanism (ESM) in late 2010. The ECB also contributed to solve the crisis by lowering interest rates and providing cheap loans of more than one trillion euro in order to maintain money flows between European banks. On 6 September 2012, the ECB calmed financial markets by announcing free unlimited support for all eurozone countries involved in

3944-457: A significant amount of sovereign debt, such that concerns regarding the solvency of banking systems or sovereigns are negatively reinforcing. The onset of crisis was in late 2009 when the Greek government disclosed that its budget deficits were far higher than previously thought. Greece called for external help in early 2010, receiving an EU–IMF bailout package in May 2010. European nations implemented

4080-489: 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

4216-668: A sovereign state bailout/precautionary programme from EFSF/ESM, through some yield lowering Outright Monetary Transactions (OMT). Ireland and Portugal received EU-IMF bailouts In November 2010 and May 2011, respectively. In March 2012, Greece received its second bailout. Both Cyprus received rescue packages in June 2012. Return to economic growth and improved structural deficits enabled Ireland and Portugal to exit their bailout programmes in July 2014. Greece and Cyprus both managed to partly regain market access in 2014. Spain never officially received

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4352-416: A third bailout programme, substantially the same as their June proposal. Many financial analysts, including the largest private holder of Greek debt, private equity firm manager, Paul Kazarian , found issue with its findings, citing it as a distortion of net debt position. 2017 - The Greek finance ministry reported that the government's debt load is now €226.36 billion after increasing by €2.65 billion in

4488-703: 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 €130 billion 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, the Greek prime minister George Papandreou first answered that call by announcing

4624-481: 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

4760-429: Is a type of financial crisis , and is often associated with a real economic crisis . A currency crisis raises the probability of a banking crisis or a default crisis . During a currency crisis the value of foreign denominated debt will rise drastically relative to the declining value of the home currency. Generally doubt exists as to whether a country's central bank has sufficient foreign exchange reserves to maintain

4896-618: 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

5032-506: The 1974–1990 Great Depression after a brief period of rapid economic growth . Several thousand homeless and jobless Argentines found work as cartoneros , cardboard collectors. An estimate in 2003 had 30,000 to 40,000 people scavenging the streets for cardboard to sell to recycling plants. Such desperate measures were common because of the unemployment rate, nearly 25%. Argentine agricultural products were rejected in some international markets for fear that they might have been damaged by

5168-452: The 2007–2008 financial crisis ), it was still one of the fastest growing in the eurozone, with a public debt-to-GDP that did not exceed 104%, but it was associated with a large structural deficit . As the world economy was affected by the 2007–2008 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

5304-463: 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. During the second half of 2014, the Greek government again negotiated with the Troika. The negotiations were this time about how to comply with the programme requirements, to ensure activation of

5440-496: The Hellenic Financial Stability Fund (HFSF), along with establishment of a new precautionary Enhanced Conditions Credit Line (ECCL) issued by the European Stability Mechanism . The ECCL instrument is often used as a follow-up precautionary measure, when a state has exited its sovereign bailout programme, with transfers only taking place if adverse financial/economic circumstances materialize, but with

5576-726: The International Monetary Fund and the European Commission , with additional support at the technical level from the European Central Bank . Together these three international organisations representing the bailout creditors became nicknamed "the Troika ". To fight the crisis some governments have focused on raising taxes and lowering expenditures, which contributed to social unrest and significant debate among economists, many of whom advocate greater deficits when economies are struggling. Especially in countries where budget deficits and sovereign debts have increased sharply,

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5712-597: The excess demand for a given currency using the country's own currency reserves or its foreign reserves (usually in the United States dollar , Euro or Pound sterling ). Currency crises have large, measurable costs on an economy, but the ability to predict the timing and magnitude of crises is limited by theoretical understanding of the complex interactions between macroeconomic fundamentals, investor expectations, and government policy. A currency crisis may also have political implications for those in power. Following

5848-606: The hyperinflation in the Weimar Republic , 1994 economic crisis in Mexico , 1997 Asian financial crisis , 1998 Russian financial crisis , the 1998–2002 Argentine great depression , and the 2016 Venezuela and Turkey currency crises and their corresponding socioeconomic collapse. The currency crises and sovereign debt crises that have occurred with increasing frequency since the Latin American debt crisis of

5984-464: 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

6120-446: The €62 billion in debt that Athens owes private creditors, thereby shaving roughly €20 billion 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

6256-552: The 1980s have inspired a huge amount of research. There have been several 'generations' of models of currency crises. The 'first generation' of models of currency crises began with Paul Krugman 's adaptation of Stephen Salant and Dale Henderson's model of speculative attacks in the gold market. In his article, Krugman argues that a sudden speculative attack on a fixed exchange rate, even though it appears to be an irrational change in expectations, can result from rational behavior by investors. This happens if investors foresee that

6392-459: The 1992 Maastricht Treaty , governments pledged to limit their deficit spending and debt levels. However, some of the signatories, including Germany and France, failed to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards. This allowed

6528-528: The 2002–2008 period that encouraged high-risk lending and borrowing practices, the financial crisis of 2007–08 , international trade imbalances, real estate bubbles that have since burst; the Great Recession of 2008–2012, fiscal policy choices related to government revenues and expenses, and approaches used by states to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. In 1992, members of

6664-589: 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

6800-403: The ECB (see below), financial stability in the eurozone improved significantly and interest rates fell steadily. This also greatly diminished contagion risk for other eurozone countries. As of October 2012 only 3 out of 17 eurozone countries, namely Greece, Portugal, and Cyprus still battled with long-term interest rates above 6%. By early January 2013, successful sovereign debt auctions across

6936-478: 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 €130 billion , 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. Then, in March 2012,

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7072-563: 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

7208-467: 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

7344-421: The European Union signed the Maastricht Treaty , under which they pledged to limit their deficit spending and debt levels. However, in the early 2000s, some EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards. This allowed

7480-439: 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,

7616-445: 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

7752-404: The Greek fiscal budget, while most of the money went to French and German banks (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

7888-554: 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

8024-416: The Greek government did finally default on parts of its debt - as there was a new law passed by the government so that private holders of Greek government bonds (banks, insurers and investment funds) would "voluntarily" accept a bond swap with a 53.5% nominal write-off, partly in short-term EFSF notes, partly in new Greek bonds with lower interest rates and the maturity prolonged to 11–30 years (independently of

8160-405: 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 2007–2008 financial crisis : Greece experienced positive economic growth in each of

8296-521: The IMF official who heads the bailout mission in Greece, stated that "in structural terms, Greece is more than halfway there". In June 2013, Equity index provider MSCI reclassified Greece as an emerging market, citing failure to qualify on several criteria for market accessibility. 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

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8432-458: The South was incentivized to borrow because interest rates were very low. Over time, this led to the accumulation of deficits in the South, primarily by private economic actors. A lack of fiscal policy coordination among eurozone member states contributed to imbalanced capital flows in the eurozone, while a lack of financial regulatory centralization or harmonization among eurozone states, coupled with

8568-429: The Troika calculations were less optimistic and returned a not covered financing gap at €2.5bn (being required to be covered by additional austerity measures). As the Greek government insisted their calculations were more accurate than those presented by the Troika, they submitted an unchanged fiscal budget bill on 21 November, to be voted for by the parliament on 7 December. The Eurogroup was scheduled to meet and discuss

8704-537: The UK politicians were not willing to maintain the peg. As a result, investors attacked the currency and the UK left the peg. 'Third generation' models of currency crises have explored how problems in the banking and financial system interact with currency crises, and how crises can have real effects on the rest of the economy. McKinnon & Pill (1996), Krugman (1998), Corsetti , Pesenti, & Roubini (1998) suggested that "over borrowing" by banks to fund moral hazard lending

8840-425: The United Kingdom. The eurozone crisis resulted from the structural problem of the eurozone and a combination of complex factors. There is a consensus that the root of the eurozone crisis lay in a balance-of-payments crisis (a sudden stop of foreign capital into countries that were dependent on foreign lending), and that this crisis was worsened by the fact that states could not resort to devaluation (reductions in

8976-590: The accumulation of deficits in the South, primarily by private economic actors. Comparative political economy explains the fundamental roots of the European crisis in varieties of national institutional structures of member countries (north vs. south), which conditioned their asymmetric development trends over time and made the union susceptible to external shocks. Imperfections in the Eurozone's governance construction to react effectively exacerbated macroeconomic divergence. Eurozone member states could have alleviated

9112-410: The assistance of other eurozone countries, the European Central Bank (ECB), or the International Monetary Fund (IMF). The eurozone crisis was caused by a sudden stop of the flow of foreign capital into countries that had substantial current account deficits and were dependent on foreign lending. The crisis was worsened by the inability of states to resort to devaluation (reductions in the value of

9248-590: The banking system plays no role in his model. According to some economists the Eurozone crisis was in fact a balance-of-payments crisis or at least can be thought of as at least as much as a fiscal crisis. According to this view, a capital flow bonanza of private funds took place during the boom years preceding this crisis into countries of Southern Europe or of the periphery of the Eurozone , including Spain , Ireland and Greece ; this massive flow financed huge excesses of spending over income, i.e. bubbles , in

9384-476: 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. Debt crisis A debt crisis can also refer to

9520-486: The bonds; the Venezuelan government did not profit. Bondholders who had accepted the 2005 swap (three out of four did so) saw the value of their bonds rise 90% by 2012, and these continued to rise strongly during 2013. 2010 On 15 April 2010, the debt exchange was re-opened to bondholders who rejected the 2005 swap; 67% of these latter accepted the swap, leaving 7% as holdouts. Holdouts continued to put pressure on

9656-672: The chaos. The US Department of Agriculture put restrictions on Argentine food and drug exports. 2005 Venezuela was one of the largest single investors in Argentine bonds following these developments, which bought a total of more than $ 5 billion in restructured Argentine bonds from 2005 to 2007. Between 2001 and 2006, Venezuela was the largest single buyer of Argentina's debt. In 2005 and 2006, Banco Occidental de Descuento and Fondo Común , owned by Venezuelan bankers Victor Vargas Irausquin and Victor Gill Ramirez respectively, bought most of Argentina's outstanding bonds and resold them on to

9792-434: The collapse of the investment bank Lehman Brothers on 15 September 2008. The crisis was nonetheless followed by a global economic downturn , the Great Recession . The European debt crisis , a crisis in the banking system of the European countries using the euro , followed later. In sovereign debt markets of PIIGS ( Portugal , Ireland , Italy , Greece , Spain ) created unprecedented funding pressure that spread to

9928-463: 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. As of 2015, 78% of Greek debt is owed to public sector institutions, primarily the EU. According to a study by the European School of Management and Technology only €9.7bn or less than 5% of the first two bailout programs went to

10064-463: 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. The opening of product and service markets is proving tough because interest groups are slowing reforms. The biggest challenge for Greece is to overhaul the tax administration with a significant part of annually assessed taxes not paid. Poul Thomsen,

10200-469: The country's fixed exchange rate , if it has any. The crisis is often accompanied by a speculative attack in the foreign exchange market. A currency crisis results from chronic balance of payments deficits, and thus is also called a balance of payments crisis . Often such a crisis culminates in a devaluation of the currency. Financial institutions and the government will struggle to meet debt obligations and economic crisis may ensue. Causation also runs

10336-408: 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

10472-488: The crisis included high-risk lending and borrowing practices, burst real estate bubbles , and hefty deficit spending . As a result, investors have reduced their exposure to European investment products, and the value of the Euro has decreased. In 2007 the global financial crisis began with a crisis in the subprime mortgage market in the United States , and developed into a full-blown international banking crisis with

10608-519: The current one is characterised by a shift from multilateral to commercial and bilateral creditors, notably China , and the proliferation of Eurobonds , aggravating debt conditions. Pressured by heavy debt burdens, there is a risk that African governments divert funds from essential sectors such as education, health care and agriculture, causing a vicious cycle of stalled development, food insecurity and an elevated risk of socio-political instability. Balance-of-payments crisis A currency crisis

10744-411: 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. In the case of Greece, the high budget deficit (which, after several corrections, had been allowed to reach 10.2% and 15.1% of GDP in 2008 and 2009, respectively) was coupled with

10880-463: 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

11016-402: The euro currency declined in response to the downgrade. On 1 May 2010, the Greek government announced a series of austerity measures (the third austerity package within months) to secure a three-year €110 billion 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 ,

11152-486: The eurozone but most importantly in Ireland, Spain, and Portugal, showed investors' confidence in the ECB backstop. In November 2013 ECB lowered its bank rate to only 0.25% to aid recovery in the eurozone. As of May 2014 only two countries (Greece and Cyprus) still needed help from third parties. 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

11288-399: The extent that its entire financing gap for 2014 was covered via private bond sales . 2015 June – July - The Greek parliament approved the referendum with no interim bailout agreement. Many Greeks continued to withdraw cash from their accounts fearing that capital controls would soon be invoked. On 13 July, after 17 hours of negotiations, Eurozone leaders reached a provisional agreement on

11424-413: 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

11560-414: 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. The IMF predicted the Greek economy to contract by 5.5% by 2014. Harsh austerity measures led to an actual contraction after six years of recession of 17%. Some economic experts argue that the best option for Greece, and

11696-459: The financial stability of the economy. As of January 2009, a group of 10 central and eastern European banks had already asked for a bailout . At the time, the European Commission released a forecast of a 1.8% decline in EU economic output for 2009, making the outlook for the banks even worse. The many public funded bank recapitalizations were one reason behind the sharply deteriorated debt-to-GDP ratios experienced by several European governments in

11832-420: The government and businesses. The European debt crisis is a crisis affecting several eurozone countries since the end of 2009. Member states affected by this crisis were unable to repay their government debt or to bail out indebted financial institutions without the assistance of third-parties (namely the International Monetary Fund , European Commission , and the European Central Bank ). The causes of

11968-418: The government by attempting to seize Argentine assets abroad, and by suing to attach future Argentine payments on restructured debt to receive better treatment than cooperating creditors. The government reached an agreement in 2005 by which 76% of the defaulted bonds were exchanged for other bonds at a nominal value of 25 to 35% of the original and at longer terms. A second debt restructuring in 2010 brought

12104-412: The government continued to dither over bailout program implementation. In December 2012 the Troika provided Greece with more debt relief, while the IMF extended an extra €8.2bn of loans to be transferred from January 2015 to March 2016. 2014 - In 2014 the outlook for the Greek economy was optimistic. The government predicted a structural surplus in 2014, opening access to the private lending market to

12240-461: The imbalances in capital flows and debt accumulation in the South by coordinating national fiscal policies. Germany could have adopted more expansionary fiscal policies (to boost domestic demand and reduce the outflow of capital) and Southern eurozone member states could have adopted more restrictive fiscal policies (to curtail domestic demand and reduce borrowing from the North). Per the requirements of

12376-495: 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 €22.5 billion loan coming from the European Financial Stability Mechanism, down to 2.59 per cent—which is the interest rate

12512-410: The market. The banks bought $ 100 million worth of Argentine bonds and resold the bonds for a profit of approximately $ 17 million. People who criticize Vargas have said that he made a $ 1 billion "backroom deal" with swaps of Argentine bonds as a sign of his friendship with Chavez. The Financial Times interviewed financial analysts in the United States who said that the banks profited from the resale of

12648-435: The markets; on 23 April 2010, the Greek government requested an initial loan of €45 billion from the EU and International Monetary Fund (IMF) to cover its financial needs for the remaining part of 2010. 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. Stock markets worldwide and

12784-615: The member states. Despite different macroeconomic conditions, the European Central Bank could only adopt one interest rate, choosing one that meant that real interest rates in Germany were high (relative to inflation) and low in Southern eurozone member states. This incentivized investors in Germany to lend to the South, whereas the South was incentivized to borrow (because interest rates were very low). Over time, this led to

12920-500: The most characteristic feature of the Greek social landscape in the current crisis is the steep rise in joblessness. The unemployment rate had fluctuated around the 10 per cent mark in the first half of the previous decade. It then began to fall until May 2008, when unemployment figures reached their lowest level for over a decade (325,000 workers or 6.6 per cent of the labour force). While job losses involved an unusually high number of workers, loss of earnings for those still in employment

13056-422: The national banks of the euro-zone countries and the European Central Bank (ECB) in 2010. The PIIGS announced strong fiscal reforms and austerity measures , but toward the end of the year, the euro once again suffered from stress. The eurozone crisis resulted from the structural problem of the eurozone and a combination of complex factors, including the globalisation of finance , easy credit conditions during

13192-469: 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

13328-517: The national currency) due to having the Euro as a shared currency. Debt accumulation in some eurozone members was in part due to macroeconomic differences among eurozone member states prior to the adoption of the euro. It also involved a process of debt market contagion. The European Central Bank adopted an interest rate that incentivized investors in Northern eurozone members to lend to the South, whereas

13464-493: 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%,

13600-410: The other way. The probability of a currency crisis rises when a country is experiencing a banking or default crisis, while this probability is lower when an economy registers strong GDP growth and high levels of foreign exchange reserves. To offset the damage resulting from a banking or default crisis, a central bank will often increase currency issuance , which can decrease reserves to a point where

13736-449: The paper of Obstfeld (1986). In these models, doubts about whether the government is willing to maintain its exchange rate peg lead to multiple equilibria , suggesting that self-fulfilling prophecies may be possible. Specifically, investors expect a contingent commitment by the government and if things get bad enough, the peg is not maintained. For example, in the 1992 ERM crisis, the UK was experiencing an economic downturn just as Germany

13872-408: The payment of its last scheduled eurozone bailout tranche in December 2014, and about a potential update of its remaining bailout programme for 2015–16. When calculating the impact of the 2015 fiscal budget presented by the Greek government, there was a disagreement, with the calculations of the Greek government showing it fully complied with the goals of its agreed "Midterm fiscal plan 2013–16" , while

14008-523: The percentage of bonds out of default to 93%, but some creditors have still not been paid. Foreign currency denominated debt thus fell as a percentage of GDP from 150% in 2003 to 8.3% in 2013. The U.S. foreign policy known as the Roosevelt Corollary asserted that the United States would intervene on behalf of European countries to avoid those countries intervening militarily to press their interests, including repayment of debts. This policy

14144-490: The positive effect that it help calm down financial markets as the presence of this extra backup guarantee mechanism makes the environment safer for investors. 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

14280-427: 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

14416-423: The previous maturity). 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 €206 billion of Greek government bonds. The debt write-off had a size of €107 billion , and caused the Greek debt level to temporarily fall from roughly €350bn to €240bn in March 2012 (it would subsequently rise again, due to

14552-428: The previous quarter. In June 2017, news reports indicated that the "crushing debt burden" had not been alleviated and that Greece was at the risk of defaulting on some payments. 2018 - Greek successfully exited (as declared) the bailouts on 20 August 2018. It stands out in the history of sovereign defaults. Greek debt restructuring of 2012 achieved very large debt relief – with minimal financial disruption, using

14688-477: 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

14824-449: 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

14960-492: The private sector, the public sector, or both. Then following the global financial crisis of 2007–08 , came a sudden stop to these capital inflows that in some cases even led to a total reversal, i.e. a capital flight . Others, like some of the followers of the Modern Monetary Theory (MMT) school, have argued that a region with its own currency cannot have a balance-of-payments crisis because there exists

15096-426: The problem of risky loans. Another factor that incentivized risky financial transaction was that national governments could not credibly commit not to bailout financial institutions who had undertaken risky loans, thus causing a moral hazard problem. The Eurozone can incentivize overborrowing through a tragedy of the commons . The European debt crisis erupted in the wake of the Great Recession around late 2009, and

15232-454: 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

15368-666: The public, and the government debt of several states was downgraded. The crisis subsequently spread to Ireland and Portugal, while raising concerns about Italy, Spain, and the European banking system, and more fundamental imbalances within the eurozone. 2009 December - One of the world's three leading rating agencies downgrades Greece's credit rating amid fears the government could default on its ballooning debt. PM Papandrou announces programme of tough public spending cuts. 2010 January–March - Two more rounds of tough austerity measures are announced by government, and government faces mass protests and strikes. 2010 April–May - The deficit

15504-401: The public, and the government debt of several states was downgraded. The crisis subsequently spread to Ireland and Portugal, while raising concerns about Italy, Spain, and the European banking system, and more fundamental imbalances within the eurozone. The under-reporting was exposed through a revision of the forecast for the 2009 budget deficit from "6–8%" of GDP (no greater than 3% of GDP was

15640-473: The recipient of foreign capital flows. The lack of foreign capital flows reduces the demand for the local currency . The increased supply of currency coupled with an decreased demand then causes a significant devaluation of the currency. This hurts the industrial base of the country since it can no longer afford to buy those imported supplies needed for production. Further, any obligations in foreign currency are now significantly more expensive to service both for

15776-450: 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

15912-493: 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

16048-490: 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

16184-564: The severe GDP drop during the handling of the crisis . Greece's bailouts successfully ended (as declared) on 20 August 2018. 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

16320-424: The sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions, and the use of complex currency and credit derivatives structures. From late 2009 on, after Greece's newly elected, PASOK government stopped masking its true indebtedness and budget deficit, fears of sovereign defaults in certain European states developed in

16456-421: The sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions, and the use of complex currency and credit derivatives structures. From late 2009 on, after Greece's newly elected, PASOK government stopped masking its true indebtedness and budget deficit, fears of sovereign defaults in certain European states developed in

16592-402: The three first quarters of 2014. The return of economic growth, along with the now existing underlying structural budget surplus of the general government, build the basis for the debt-to-GDP ratio to start a significant decline in the coming years ahead, which will help ensure that Greece will be labelled "debt sustainable" and fully regain complete access to private lending markets in 2015. While

16728-455: The time outside the former communist bloc. Real GDP grew more than 10 percent a year in 1991 and 1992, before slowing to a more normal rate of slightly below 6 percent in 1993 and 1994. The 1998–2002 Argentine great depression was an economic depression in Argentina , which began in the third quarter of 1998 and lasted until the second quarter of 2002. It almost immediately followed

16864-434: The updated review of the Greek bailout programme on 8 December (to be published on the same day), and the potential adjustments to the remaining programme for 2015–16. There were rumours in the press that the Greek government has proposed immediately to end the previously agreed and continuing IMF bailout programme for 2015–16, replacing it with the transfer of €11bn unused bank recapitalization funds currently held as reserve by

17000-720: The value of the national currency to make exports more competitive in foreign markets). Other important factors include the globalisation of finance ; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the 2007–2008 financial crisis ; international trade imbalances; real estate bubbles that have since burst; the Great Recession of 2008–2012; fiscal policy choices related to government revenues and expenses; and approaches used by states to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses. Macroeconomic divergence among eurozone member states led to imbalanced capital flows between

17136-872: The wake of the Great Recession. The main root causes for the four sovereign debt crises erupting in Europe were reportedly a mix of: weak actual and potential growth ; competitive weakness ; liquidation of banks and sovereigns; large pre-existing debt-to-GDP ratios; and considerable liability stocks (government, private, and non-private sector). In the first few weeks of 2010, there was renewed anxiety about excessive national debt, with lenders demanding ever-higher interest rates from several countries with higher debt levels, deficits, and current account deficits . This in turn made it difficult for four out of eighteen eurozone governments to finance further budget deficits and repay or refinance existing government debt , particularly when economic growth rates were low, and when

17272-615: Was a final forecast more than 4 times higher than the original. In Greece, the low ("6–8%") forecast was reported until very late in the year (September 2009), clearly not corresponding to the actual situation. Fragmented financial regulation contributed to irresponsible lending in the years prior to the crisis. In the eurozone, each country had its own financial regulations, which allowed financial institutions to exploit gaps in monitoring and regulatory responsibility to resort to loans that were high-yield but very risky. Harmonization or centralization in financial regulations could have alleviated

17408-481: Was a form of hidden government debts (to the extent that governments would bail out failing banks). Radelet & Sachs (1998) suggested that self-fulfilling panics that hit the financial intermediaries, force liquidation of long run assets, which then "confirms" the panics. Chang and Velasco (2000) argue that a currency crisis may cause a banking crisis if local banks have debts denominated in foreign currency, Burnside, Eichenbaum, and Rebelo (2001 and 2004) argue that

17544-406: Was also significant. Average real gross earnings for employees have lost more ground since the onset of the crisis than they gained in the nine years before that. In February 2012, it was reported that 20,000 Greeks had been made homeless during the preceding year, and that 20 per cent of shops in the historic city centre of Athens were empty. Argentina's turbulent economic history: Argentina has

17680-533: Was booming due to the reunification. As a result, the German Bundesbank increased interest rates to slow the expansion. To maintain the peg to Germany, it would have been necessary for the Bank of England to slow the UK economy further by increasing its interest rates as well. As the UK was already in a downturn, increasing interest rates would have increased unemployment further and investors anticipated that

17816-420: Was characterized by an environment of overly high government structural deficits and accelerating debt levels. When, as a negative repercussion of the Great Recession, the relatively fragile banking sector had suffered large capital losses, most states in Europe had to bail out several of their most affected banks with some supporting recapitalization loans, because of the strong linkage between their survival and

17952-459: Was clear that the Government would have to seek assistance from the EU and IMF, resulting in a €67.5 billion "bailout" agreement of 29 November 2010. Together with additional €17.5 billion coming from Ireland's own reserves and pensions, the government received €85 billion , of which up to €34 billion was to be used to support the country's failing financial sector (only about half of this

18088-478: Was estimated that up to 70% of Greek government bonds were held by foreign investors, primarily banks. After publication of GDP data which showed an intermittent period of recession starting in 2007, credit rating agencies then downgraded Greek bonds to junk status in late April 2010. On 1 May 2010, the Greek government announced a series of austerity measures. 2011 July – November - The debt crisis deepens. All three main credit ratings agencies cut Greece's to

18224-450: 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% basically due to

18360-427: 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 April 2011, despite all the measures taken, Moody's downgraded the banks' debt to junk status . 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

18496-547: Was used to justify interventions in the early 1900s in Venezuela, Cuba, Nicaragua, Haiti, and the Dominican Republic (1916–1924). On 19 January 2023, the United States again reached the debt ceiling . In February 2024, the total federal government debt grew to $ 34.4 trillion after having grown by approximately $ 1 trillion in both of two separate 100-day periods since the previous June. Sub-Saharan Africa has

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