The New Europe
1.
In December
2009 the Eurozone countries
discovered that the Greek government
debt amounts 300 billion Euros, ie almost
113% of the total government budget.
2. In January 2010 it is determined that the Greek deficit is
not 3.7% but 12,7%. In the
Eurozone, Greece is invited to reduce
the deficit. Corrective measures are announced. In
February, an IMF/EU
mission goes to Greece: it predicts more
economic and financial misery, a higher
deficit and a recession of the Greek
economy.
3. In March 2010 the Greek government announced an austerity package:
VAT goes up
2%, the bonus in
the public sector goes 30% down,
taxes on fuel, tobacco
and alcohol go up and pensions are frozen. At the European summit, without going into details, one talks about a possible aid package to
Greece.
4. In April 2010 the Eurozone presents a support package: a 30 billion loan facility from the EU and a 15
billion loan facility from the
IMF. It is based on a 3-year financing with an interest charge
of 5%. The same
month, Greece asks for the promised loans.
5. In April 2010 the rating institute
Standard & Poor's lowers again the creditworthiness of Greece, and then also of Portugal. One begins to worry about infecting
other countries like Spain and Italy.
6. In May the Eurozone, the IMF and
the Greek Government create an emergency plan for
Greece of 110
billion euros. Greece promises to reduce its expenses by 30 billion.
The
EU agrees
on a package that will ensure financial stability.
It agreed to a
"special purpose vehicle", later
called the European Financial
Stability Facility (EFSF) of 440
billion euros. The EFSF should be used
for, among others, recapitalization of the banks. The EFSF should be able
to act on secondary markets to
prevent contamination. It seemed to bring calm, but that is short lived.
The
European Commission also announced measures that should prevent deficits in the national budget, the so-called
six pack. Also sanctions
are laid down in European legislation
that makes it possible to punish the budget sinners.
7. In the same month Spain and Portugal announced budget cuts
with the aim to restore the confidence
of the financial markets. The European
Central Bank (ECB) starts with
interventions and buys bonds from weak countries for a total of 165
billion euros. Maintaining
confidence in the financial sector the European Summit announces a stress test for banks.
Of the 91 banks
tested, 7 banks do not meet the
criteria.
8. In the summer of 2010 it becomes clear
that Ireland also has problems. This is mainly due to the
mortgage loans from banks.
A second Lehman
debacle threatens.
9. In November, Ireland received an
aid package of 67.5 billion Euros. A blueprint
for a European
Stability Mechanism ESM is designed that
will start functioning from 2013 onwards and which is open for
private sector participation.
10. In March 2011, the European Summit
establishes rules for the ESM. Also the six pack prevention
measures are decided to which President Sarkozy and Bundeskanzler Merkel are less strict than the
European Parliament, the European Commission and the Finance
Ministers from the Eurozone.
11. In May a rescue plan is set for Portugal of 78 billion euros.
12. In June the European Parliament approves the package of preventive measures.
13. In June 2011 the Greek Parliament votes in favor of a drastic austerity package.
14. In July 2011 another stress
test for banks is held. Now
eight large banks
failed to meet the requirements. A
new emergency plan for Greece is setteld, worth 109 billion euros.
It is decided that the financial private sector should also contribute in
addition to the 109 billion euro.
15. The ECB buys more and
more Italian and Spanish
debt (34 billion) and thus stretches its role
to prevent the interest
on the Spanish and Italian debt
continue to widen.
16. In October 2011, the Greek problem again is larger than expected. However, the country has cut back a lot. The 1913 budget will be
balanced. But the interests charged for loans are an excessive burden. The economic downturn is
much larger than anticipated. Privatisations
are going to slow and do not
generate enough money. Instead of 109 billion euro, one need 250 billion and when things go even worse
than about 444 billion will be needed on top of the 110 in July 2010. The choice now is a "haircut"
of debts or a bankruptcy
for Greece. But volontary amortization
of financiers (banks) can bring them into trouble too.
17. The debt of Greece will be reduced to 120% of
the national budget,
to get there in 2020.
The EFSF with its 440 billion
Euro in guarantees from which after contributions to Ireland and Portugal remains 290 billion Euros, will be increased to 1000 billion. Private
investors are invited to participate in the Stability Fund. The exact termes have
to be worked out.
The banks have to write off 50% of the money
loaned to Greece. This will require 106 billion Euro. Banks will
initially look for this money
through the market, if it is not possible, they
can borrow money before the EFSF.
As of July 2013 or possibly earlier
the European Emergency
Fund will have an amount of
80 billion euros. The European Commission investigates the
possibility the release of eurobonds.
It has been agreed that each country adheres to the Stability Pact. Italy
is committed to a balanced budget in 2013
and a surplus in 2014 so government debt will be reduced to 113% of the
budget.
President of the European Council
Van Rompuy, President of the European Commission Barroso
and President of the
Eurogroup Juncker prepare treaty changes. These are
aimed to guarantee more financial stability and to
promote more economic cooperation.
Thanks to the European Parliament member
Ria Oomen-Ruijten