Europe's debt crisis that began 18 months ago in Greece has already spread to Portugal and Ireland, and is in the verge of engulfing the two big Euro economies: Italy and Spain. The rescue fund, European Financial Stability Facility, was designed to help afloat Greece with an initial bailout of $148 billion from a potential bankruptcy. However, the depth of the debt crisis was underestimated at the beginning and came to dawn upon the policymakers only in recent months. In July 2011, Eurozone countries decided to bolster the EFSF and make it more flexible. The expanded fund will be able to lend up to $595 billion. As per Eurozone rule, to make the July changes effective, each of the 17 Eurozone nations has to approve them. Finland approved them on September 28, 2011. German parliament is slated to take the measures on September 29. Greek lawmakers on September 27 approved a controversial package of property tax revenue boost by 154-143 votes. Greek Finance Minister Evangelos Venizelos said, after the parliamentary vote, that the so-called troika--European Central Bank, European Commission and IMF--would return to Athens to consider next batch of aid. Meanwhile, Greek PM George Papandreou on September 27 met with German Chancellor Angela Merkel in a private dinner at Berlin's Chancellery to discuss on the next batch of rescue aid. Meanwhile, European Commission President Jose Manuel Barroso, during a September 28, 2011, address to Strasbourg-based European Parliament asked 17-member Eurozone to work in unison to tackle the debt crisis. The European Parliament on September 28 voted to fine the Eurozone nations if they failed to comply with the rules of keeping budget defecits below 3% of GDP and total debt below 60% of the GDP. Under the new rules adopted on September 28 by the European Parliament to fine the non-complying nations, countries have to deposit 0.2% of GDP as cash deposit in an interest-free account and lose that money if no substantial gain is achieved.
******** HISTORY OF EUROPEAN UNION *******************
* 1951---Six countries formed the European Coal and Steel Community.
* 1957---ECSC established the European Economic Community, or the Common Market.
* 1985---Schengen Agreement was signed for a broader Europe.
* 2002---The switch to Euro went without hitch. As of today, 17 nations share euro.
* 2011---The EU has grown to 27 nations.
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Lower house of German parliament on September 29, 2011 approved the expansion of EFSF agreed to by the Eurozone nations in July, 2011, thus handing a much desired political victory to Chancellor Angela Merkel. Also, on September 29, Cyprus and Estonia approved the July agreement. As of September 29, 2011, 13 of the 17 Eurozone nations have aprroved the July agreement. Autria's parliament is widely expected to pass the measure on September 30, 2011, so does upper house of German parliament. The Netherlands' lawmakers are expected to pass it in the first week of October. The biggest hurdle comes from Slovakian parliament that may torpedo the July deal in a crucial vote later in October. Greece was saved from default by an initial $148 billion rescue package in May 2010 before EFSF was established.
******** HISTORY of EFSF *********
* European Financial Stability Facility was created by the Euro Area Member States (EAMS) in June 2010 as part of a rescue package during recession.
* EFSF is based in Luxemberg, and headed by noted German economist Klaus Regling.
* EFSF can issue bonds guaranteed by the EAMS to another member state in difficulty.
* Raising the guarantees requires the approval by all 17 members of EAMS.
* As of September 29, 2011, EFSF has following guaranteed commitments (in billions of dollars)
(1) Austria.................$13.7
(2) Belgium.................$20.9
(3) Cyprus..................$1.2
(4) Estonia................. -
(5) Finland.................$10.8
(6) France..................$122.3
(7) Germany.................$162.8
(8) Greece..................$16.9
(9) Ireland.................$9.5
(10) Italy..................$107.4
(11) Luxembourg.............$1.5
(12) Malta..................$0.5
(13) Netherlands............$34.3
(14) Portugal...............$15.0
(15) Slovakia...............$6.0
(16) Slovenia...............$2.8
(17) Spain..................$72.7
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Total $600
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******** HISTORY of EFSF *********
*** Greece's Odyssy of Debt Problem ***
Although Greece was provided with an initial $148 billion in rescue package to be disbursed in phases by officials from the so-called troika--European Central Bank, European Commission and International Monetary Fund--a second rescue package for Greece was discussed in July 2011 that called for Greece's private bond holders to voluntarily participate in lopping off 21% of the face value of the Greek bonds. However, many experts feel that even 21% discount--mostly taking cuts on interest and deferred payments--is not enough. It should be 50%. Meanwhile, troika officials are in Athens this week to discuss on the concessions attached to the sixth installment of the $148 billion bailout package, or about $10.8 billion, to avert defaulting on Greece's debt. Greece's $148 billion initial rescue package was formulated in May 2010 before EFSF was established.
Troika auditors on October 11, 2011, after days of painstaking meetings with Greek government officials, said that the sixth installment of the aid package worth $10.8 billion would be disbursed in early November after getting okay from eurozone finance ministers and the IMF Board. Eurozone finance ministers will meet before October 23, 2011, the day EU summit will begin. IMF Board will meet in early November of 2011. The back-and-forth between troika auditors and Greek officials centered around Athen's recent upward revision of budget deficit as a percent of GDP (now forecast 8.5% of GDP from earlier prediction of 7.6% of GDP.
On October 13, 2011, unions and protestors shut down Acropolis, halted public transportation and occupied government buildings in protest against Greek government's aggressive push in recent days with more painful austerity measures such as property tax hike and cuts in government payout.
The Greek trade unions, labor organizers and workers spontaneously participated in a two-day (October 19-20, 2011) national strike that had crippled Athens and rest of the nations.
On October 31, 2011, Greek PM George Papandreou and Finance Minister Evangelos Venizelos took the country to the brink as they declared the new Greece debt deal, agreed on the early morning of October 27, 2011 during an EU summit at Brussels, to be put on referendum in order to get the citizens involved in the belt-tightening decision making process. The referendum, the first in 37 years, will be held on a future date to be announced later. Last time, Greek voters abolished monarchy in a historic referendum shortly after a junta rule collapsed. The new debt deal calls for taking a cut of 50% on the face value of Greek bonds and provide the troubled eurozone member, if needed, with up to an additional $140 billion of rescue loans. In early hours of November 2, 2011, an emergency cabinet meeting approved Papandreou's decision to put the new debt deal to referendum. Meanwhile, the opposition leader Antonis Samaras of New Democracy Party said on November 1, 2011 that if he were in power, he would re-negotiate the terms of the loans. For the most parts, New Democracy Party opposed the Socialists' auterity measures. Meanwhile Socialist party, known as Pasok, has been already bitterly divided between two factions: one pro-auterity and another against the belt-tightening measures.
Under tremendous international pressure, Greek PM George Papandreou on November 3, 2011, called off the plan to put the new Greek debt deal reached at Brussels on October 27, 2011 to referendum. Addressing the party's central committee on November 3, Papandreou said that he would call off the referendum as the main opposition New Democracy Party had decided to back the 177 billion new Greek debt deal.
Papandreou survived a confidence vote in parliament on November 4, 2011.
Greek President Karolos Papoulias on November 6, 2011 got involved in the mediation effort, and PM Papandreou and opposition leader Antonis Samaras met at the presidential palace on November 6 and agreed to form a unity government that would push the New Greek Debt Deal reached on October 27, 2011. However, the unity government will be led by someone other than Papandreou. Samaras agreed to back the debt deal and a seven-point plan of priorities proposed by Papandreou that would commit the government to the new debt deal. The October 27, 2011, New Greek Debt Deal requires, among other things, Greece to:
(I) Pass a new round of auterity measures by its parliament
(II) Accept permanent foreign monitoring to oversee the structural changes in its fiscal system
Meanwhile, the pressure to form a unity government has been increasing by hours as the EU Commissioner for economic affairs, Olli Rehn, said on November 6, 2011 that the finance ministers from the 17-nation euro bloc was expecting a unity government before they would meet the next day (Nov 7, 2011) at Brussels.
On November 7, 2011, the head of the eurozone finance ministers, Jean-Claude Juncker, took a hard stance, demanding two main political parties in Greece to sign a joint pledge to the terms and conditions of the New Greek Debt Deal agreed on October 27, 2011 in order to secure next round of rescue loan ($11 billion). Meanwhile, the lack of progress in Athens to form a new unity government has so frustrated the European Commissioner for Economic and Monetary Affairs, Olli Rehn, that he could hardly hide his displeasure and demanded that the new unity government "express a clear commitment on paper, in writing".
On November 10, 2011, a respected economist, Lucas Papademos, became the PM of Greece and was scheduled to have his unity government cabinet to be sworn in on November 11. The news, along with the inevitable departure of Italy's Silvio Berlusconi, soothed the nerve of world markets, and was hailed by European leaders. In a joint statement issued on November 10, 2011, the European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy described the ascension of Papademos, a former Vice President of European Central Bank, to premiership as "a new chapter for Greece", and asked the interim government to pass the $177 billion New Greek Debt Deal through the parliament. The $177 billion New Greek Debt Deal, agreed on October 27, 2011, includes 50 percent discount on the face value of Greek bonds. The parliamentary passage of $177 billion New Greek Debt Deal is a requirement for getting the next installment of $11 billion in aide loan.
On January 13, 2012, the negotiation on taking a discount on Greek bonds almost collapsed. The deal, known as the Private Sector Involvement, aims to reduce the Greek debt by more than $126 billion by a bond swap as part of a $165 billion international bailout. The negotiation on PSI resumed on January 18, 2012, with a top official, Charles Dallara, with the Institute of International Finance meeting with PM Lucas Papademos and Finance Minister Evangelos Venizelos. The so-called Private Sector Involvement, PSI, deal is meant for waiving off the face value of Greek debt owed to private bond holders by half, and replacing the existing bonds by new ones with extended repayment period.
Talks between Greece and its private bond holders hit a snag during weekend (January 20-22, 2012) over the interest rates of the new bonds. Greek's private bondholders, who have about 206 billion euros ($265 billion) in their portfolio, have resisted move to cut interest rates on the new bonds that had already chopped off 50 percent of the face value. The top official of the Institute of International Finance, an umbrella group of private banks holding Greek debt, Charles Dallara, broke off talks to protest against a concerted move to bring down the interest rates below 4 percent. The so-called PSI talks centered around three main themes: (I) Discounting the facevalue of Greek bonds by 50 percent, (II) Lengthening the maturity of the discounted bonds from 20 years to 30 years, and (III) Lowering the interest rates on the discounted, longer-term bonds.
On January 27, 2012, Greek PM Lucas Papademos and Finance Minister Evangelos Venizelos held an intense three-hour meeting with IIF officials on the issue of lowering the interest rates on discounted, longer-term Greek bonds. A successful conclusion of the talks, also known as PSI talks, will form the basis of a second bailout for Greece, which have been managing a messy economic affairs with a $145 billion in international rescue loan since May 2010. Negotiators from European Central Bank, International Monetary Fund and European Commission, also known as Troika, have been currently working with the Greek officials on a $171 billion second bailout.
On January 28, 2012, Greek government and IIF officials reached a tentative agreement under which investors holding 206 billion euro, or $272 billion, worth of Greek bonds would be able to swap for new bonds with half of its face value, lower interest rate and longer maturity. The deal will bring down the annual interest expense for Greece from $13.2 billion to $5.3 billion.
On February 10, 2012, Greek PM Lucas Papademos was able to persuade his beleaguered cabinet on the merit of an austerity measure, crafted at the insistence of international bodies as part of a second $170 billion bailout plan, but not before at least six resignations from the cabinet, and the draft was submitted to the parliament. The austerity measure submitted to parliament on February 10 called for 22 percent reduction in the minimum wage, layoffs of 15,000 civil servants and an end to dozens of job guarantee provisions. Meanwhile, unions called for a 48-hour national strike Feb 10-11, 2012.
Hours after violence spilled over Athens' streets and many buildings were aflame on February 12 (Sunday) night, Greek parliament in early hours of February 13 passed the austerity measure. The parliamentary passage of the austerity measure was a prior requirement for Greece to obtain a second $171 billion bailout on the top of $145 billion it had received in July 2010.
In early hours of February 21, 2012, Greece clinched an agreement with eurozone finance ministers a second, $172 billion bailout, under which private holders of Greek debts would take a steep loss off their holdings to stave off Greece's imminent default. In May 2010, European governments and International Monetary Fund put together the first bailout for Greece, a three-year, $146 billion package, which has yet not been exhausted. Under the second bailout conditions, the Greek debt has to come down to 120-percent of GDP by 2020 from the current level of 160-percent GDP. However, the pragmatic estimates have all pegged the figure to 129-percent, instead of 120-percent, by 2020. However, emotions and uncertainty ran very high last week as German Finance Minister Wolfgang Schaeuble was actively floating the idea of a possible Greek default, leading to Greek Finance Minister Evangelos Venizelos' angry response that some people were trying to drive his country out of euro zone and dragging the Greek President Karolos Papoulias into controversy with the president accusing Schaeuble of insulting Greece.
On February 28, 2012, German parliament, at the strong prodding of Chancellor Angela Merekel, approved a $173 billion second bailout for Greece, which is currently surviving on a $148 billion May 2010 initial bailout package. The vote was 496-90 with five abstentions. Meanwhile, on February 28, Standard & Poor's downgraded Greek debt to "selective default".
On March 5, 2012, the Institute of International Finance released a statement saying that a dozen major banks had decided to participate in the new Greek bond swap plan, under which the bond holders would get a cut in face value by as large as 50 percent, longer repayment period and lower interest rates, that might end up costing banks to incur an ultimate loss of around 70 percent.
Twenty-four hours before the deadline, Greek government said on March 7, 2012 that investors owning about Greece's privately held debt had committed to the bond swap. As part of a second, $171 billion (130 billion euro) bailout, Greece needs 90 percent of investors to sign up. Investors holding a total of $271 billion in Greek bonds until March 8, 2012 evening to respond to the bond swap deal under which they will have new bonds with face value reduced by 53.5 percent, longer repayment deadline and lower interest rates. Overall they would lose out 75 percent of their bond holdings. On March 9, 2012, Greek government announced that as of the deadline (March 8), it had secured participation of 85.8 percent of private investors holding its Greek law-bonds, and would use legislation to force the participation of remaining holdouts. For the investors of its foreign law-bonds, which had seen a meager participation rate of 69 percent, Greece has extended the deadline until March 23, 2012. As part of a second, 130 billion euro aid package, country's national debt would have to be slashed by 107 billion euro, or $140 billion, with private bond holders taking a hair-cut of 53.5 percent.
Since May 6, 2012 parliamentary polls didn't yield any definitive mandate to the pro-reform political parties, another round was held on June 17, 2012. This time Greeks closely averted a debacle that could lead to the country's exit from euro. Out of 300 seats, the conservative New Democracy Party won129 seats, the radical Left Syriza led by Alexis Tsipras, 37, who had opposed the Greek bailout terms, won 71 seats, while the ruling Socialists under the banner of PASOK led by the Finance Minister Evangelos Venizelos received 33 seats, small Democratic Left Party led by Fotis Kouvelis got 17 seats. On June 20, 2012, New Democracy leader Antonis Samaras was inaugerated as the new PM with the backing from PASOK and the Democratic Left.
On November 7, 2012, the second day of the nationwide general strike, Greek government of Antonis Samaras passed the latest austerity measure to secure the next instalment of international aide. The bill aims to cut spending and raise taxes by $17 billion over the two years, and has been approved in parliament by 153-to-128 votes. Although Samaras-led governing coalition has a strength of 176 in 300-member parliament, its smallest coalition member, Fotis Kouvelis-led Democratic Left Party refrained from voting.
In the early hours of November 12, 2012, Samaras regime passed the 2013 budget through parliament, the second condition prior to an important 17-nation EU Finance Ministers' meet in Brussels to disburse the next instalment of the international aid. The first condition was an austerity measure approved on November 7, 2012. The finance ministers met later in the day on November 12, 2012, but held off the decision of next installment of aid to November 20, 2012, meeting. However, Jean-Claude Juncker, head of the eurogroup, said that the finance ministers had decided to give Greece another two years--until 2022--to meet its debt reduction target. Troika--ECB, European Commission and IMF--has so far pledged $305 billion in bailout to Greece, out of which Greece has so far taken $191 billion.
Greece's New Anti-Austerity Administration in Collision Course with Creditors
New Greek government's taciturn stand on renegotiating the bailout package posed serious challenge to euro zone governance practices and protocols as German Finance Minister Wolfgang Schaeuble emphasized on January 30, 2015, during his talks with journalists at Berlin, on honoring the rules and covenants. Meanwhile, chief of euro zone finance ministers, Jeroen Dijsselbloem, on January 30, 2015 met with the new Greek Finance Minister Yanis Varoufakis and other new administration officials at Athens, and drove home the point that too rash measures too quickly might boomerang on the Greek economy in the long run.
Greece A Step Closer to Bankruptcy
After Greek's creditors rebuffed Greek Prime Minister Alexis Tsipras' proposal to extend the debt timeline and loosening of other restrictions, Greek government on early June 27, 2015 went to address on the National TV and explained the rationale behind his government's hours-earlier decision to call for a referendum on reforms demanded by the country's international creditors. Tsipras also urged his countrymen to vote for a resounding NO in the July 5, 2015, national referendum, baffling and bewildering the Eurozone leaders. Now, it's unavoidable for Greek to become the first developed country to miss out an IMF installment that's due on June 30, 2015.
Greek Shuts Down Banks to Prevent Run on Money Withdrawal
Greek government on June 28, 2015 shut down the country's banks indefinitely and imposed severe restrictions--maximum of 60 euros, or $67--on the withdrawals from ATMs. Prime Minister Alexis Tsipras said that the move was in response to a request made by the Bank of Greece, country's central bank, after Greeks in drove were withdrawing money from the banks over the past two days. Also, motorists rushed to pumps to fill gas in their vehicles as rumors were swirling in much of Greece during the day about a severe shortage of fuel. Greece's largest refiner Hellenic Petroleum issued a statement to dismiss the rumor. Meanwhile, in response to Greek government's June 27, 2015, move to hold a referendum on July 5, 2015, European Central Bank on June 28, 2015 decided not to increase the level of liquidity for country's lenders, a move Tsipras called a pure "blackmail". The referendum decision by the government was approved by country's parliament on June 28, 2015 after 13 hours of debate. The unilateral referendum announcement angered and annoyed European Union and Eurozone leaders. Greece's current bailout expires on June 30, 2015, and still there is an additional $8 billion left in the bailout fund. However, Greece can't access this remaining balance in the bailout fund until it pays back $1.79 billion due IMF by June 30, 2015, which Greece had been saying repeatedly that it didn't have wherewithal to pay, but balked at concessions demanded by its creditors and, instead, scheduled a national referendum for July 5, 2015.
Greek Tailspins into Fiscal Crisis
Greek became the first advanced nation on June 30, 2015 to default on its loan. The failure to pay $1.79 billion due IMF by June 30, 2015, an event called "arrear", under which Greece is prohibited from drawing any additional funds and will lose its voting rights. Earlier on the day, Greek premier Alexis Tsipras made a last ditch attempt by asking for a new loan of $32 billion from European Stability Mechanism to pay existing debt through 2017. Tsipras also asked a short-term extension of the current loan program. EU finance ministers rejected both requests and took a hardline stance against Greece.
Greeks Reject Harsh Austerity Measure
In a hastily arranged referendum in which Prime Minister Alexis Tsipras urged Greek voters to vote NO to harsh austerity measures demanded by its international creditors, Greeks heeded to the call from premier and voted against the measure by an impressive margin on July 5, 2015. The vote created a hard scramble among European leaders on what to do to de-escalate a situation that could bring the continent to another bout of recession or worse. German Chancellor Angela Merkel is heading to Paris on July 6, 2015 and discuss on possible options with French President Francois Hollande. Two leaders also called for an European Summit on July 7, 2015.
Premier Changes Finance Minister
Under pressure from premier Alexis Tsipras, Greek Finance Minister Yanis Varoufakis, who made a living out of taking a bellicose stand with the country's international creditors and other European leaders during his brief stint, resigned on July 6, 2015, a day after Greek voters rejected the concessions demanded by Greek's international creditors in exchange for the third bailout package. Tsipras appointed Euclid Tsakalotos, a less divisive figure, as Finance Minister.
Greek Given Timeline to Come up with a Plan
An emergency European Summit on July 7, 2015 issued Athens an ultimatum to come up with a plan by July 12, 2015 to avert its exit from Eurozone, a phenomenon known as "Grexit" becoming more likelihood by the day. The European Council President Donald Tusk said during the day that the European leaders would be drawing any potential emergency plan for the bloc taking "Grexit" into account. There exists so much of bad blood between Greece and its international creditors since Syriza's rise to power in January 2015 that it has become almost a difficult proposition to have even good-faith talks, let alone an agreement. The feud reached almost personal level under the former Greek Finance Minister Yanis Varoufakis, who used to lob nasty attacks against the European officials, especially the European Commission President Jean-Claude Juncker. European officials often accuse Greece of squandering 240 billion euros in bailout fund since 2010. Greeks, frustrated by heavy-handed austerity and alarmingly high jobless rate, blame the country's international creditors for pushing the nation to the brink, already teetering under the heavy debt load of 313 billion euros, by demanding deeper pension cuts and higher taxes.
Greek Parliament Okays Premier's Plan
After hours of debate, 300-member Greek parliament in the early morning hours of July 11, 2015 voted to approve a 3-year, 53.5 billion euros, or $59 billion plan developed by premier Alexis Tsipras administration under pressure from European nations. The plan calls for tax hike and pension cuts, painful concessions which were voted down just a week ago by Greek voters at the urging of the premier himself. The 3-year, 53.5 billion euros, or $59 billion loan will be the third installment of loan for Greece if Greek's international creditors approve it. Greece already received $270 billion, or 240 billion euros, in two installments in aid since 2010. On July 10, 2015, as Greek parliament was in the midst of session, violent protest erupted outside. Many of the anti-austerity demonstrators had now turned on the same premier, who had emerged as a populist icon just few months ago in the last parliamentary elections by slamming European Union- and IMF-dictated austerity measures. The tax hike and pension cuts package that was passed by Greek parliament on July 11, 2015 were to the tune of 13 billion euros.
Fissure Arises in Eurozone over Greece's Bid to Receive Third Bailout
As the finance ministers from 19-nation Eurozone met on July 11, 2015 hours after Greek parliament passed a 13 billion euro austerity measures of tax hike and pension cuts in exchange for a third bailout of 3-year, 53.5 billion euros, but only to experience internal division over how hard to push Athens on complying with the terms of austerity package. Many of the finance ministers attending the July 11, 2015, eurogroup session were emphatic on Greece to pass a solid package of reforms by July 15, 2015 that would set in stone specific cuts and goals for it to receive the third bailout package in 5 years.
Greek Need is Significant, Says Eurogroup
Eurozone's finance ministers issued an assessment during the weekend (July 10-12, 2015) that estimated the country's need for the third bailout package to be around 82 to 86 billion euros over the next 3 years, significantly higher than 53.5 billion euros Greek government requested on July 9, 2015 and the group's previous estimate of 74 billion euros. Meanwhile, the fissure in Eurogroup got wider on how best to handle Greek fiscal crisis, with German Chancellor Angela Merkel making her most caustic remark to date on July 12, 2015 to express her frustration with Greek government that the "most important currency has been lost: that is trust and reliability". The Eurogroup summit scheduled to be held on July 12, 2015 was postponed at the last minute.
Deal for Greece's Third Bailout Package Sealed
After hours of intense negotiation and debate, Greek Prime Minister Alexis Tsipras on July 13, 2015 reached with Greece's creditors on a $96 billion bailout package, third in five years, that also included a short-term economic stimulus plan and loosening of some terms on $329 billion in Greek debt. However, Greece's third bailout package agreed on July 13, 2015 between the country and its international creditors included some bitter pills to swallow for Greeks as it prescribed
* Deeper pension cuts
* Higher income and other taxes
* Placing Greek economy under closer supervision of international creditors
Greek premier Alexis Tsipras was given a timeline of July 15, 2015 to get the agreement approved by Greek parliament.
Greek Parliament Approves the New Bailout Package Amid Massive Protest Outside
After a day-long protest outside that veered toward ugly violence after night fell and hours of passionate debate, Greek parliament passed the third bailout package in five years past midnight July 15, 2015 in the early hours of July 16, 2015. but not before splitting the ruling Syriza Party over almost identical austerity measures that the premier Alexis Tsipras had urged voters to thumb down and Greeks had done just that in a referendum just over a week ago. The vote in Greek parliament also marked a stark capitulation of the country's ruling Left before a determined European establishment not to concede. 40 of 149 of Syriza lawmakers broke ranks, and the final vote of approval for the $96 billion bailout package was secured by taking help from opposition parties. 229 of 300 members of parliament supported the bailout laws. Meanwhile, as the night fell on Athens on July 15, 2015, violent protesters took control of the streets outside the neoclassical parliament building, lobbing Molotov cocktails and other projectiles at the security forces.
German Parliament Approves Greece's Third Bailout, Greek Premier Does Housecleaning
German parliament on July 17, 2015 approved the 86 billion euro, or $96 billion, bailout package, but not before Chancellor Angela Merkel facing an internal party revolt. German parliament voted 439-119 for the Greek bailout package, with 40 abstentions. However, 65 lawmakers from Merkel's center-right political party didn't support the bailout package. Meanwhile, Greek banks are poised to re-open on July 20, 2015 after being shuttered for three weeks and European Central Bank deciding to extend the emergency lending facility to country's starved banks. However, many of the restrictions placed before the banks have been shuttered will be in place even after they re-open on July 20, 2015. They included the withdrawal of cash at ATM only, but the cap has been raised to 420 euros from the current maximum of 60 euros. Before Greece embarks on negotiating with its creditors on technical details of its third, 86 billion euro bailout package, premier Alexis Tsipras has purged the cabinet of dissenters such as the firing of Energy Minister Panagiotis Lafazanis, who revolted and voted against the bailout package, on July 17, 2015.
Greek Stock Market to Re-Open after More than a Month
Greek Finance Minister Euclid Tsakalotos on July 31, 2015 signed off an order to re-open Greek stock market, remained closed since June 29, 2015, on August 3, 2015.
Greek Stock Market Tumbles on the Day of Re-opening
Greek stock market suffered a whopping 16 percent, reflecting the lack of investor confidence in Greek economy, on August 3, 2015, the first of stock trading after a gap of five tumultuous weeks during which Greece held a historic referendum to reject the very concessions it subsequently accepted as part of a 86 billion euro aid package. The banking stocks suffered the most, with a collective loss of 30 percent.
Greek Parliament, Eurozone Ministers Okay Loan Package
After an all-night session that began at 2 A.M. on August 14, 2015 and ended at 9:30 A.M. on August 14, 2015, the Greek Parliament voted for a measure as part of 86 billion euro aid package. The vote was the continuation of a series of votes parliament had been holding since the 86 billion euro bailout package was agreed on July 13, 2015. However, like the previous ones, the vote on August 14, 2015 exposed a deep, and most likely irreconcilable rift, within the ruling Syriza Party. The measure that includes deep austerity measures was approved by 222 Greek lawmakers, while 75 opposed or abstained from voting, and 3 lawmakers were absent. The rift in the Syriza Party was all the more disturbing as it poses for biggest challenge to the stability of the country as 42 of the party's 149 lawmakers broke ranks with the party. Former Energy Minister Panagiotis Lafazanis, who heads the Syriza Party's radical Left Platform, vowed on the parliament floor to start a new movement to fight the MOU that Alexis Tsipras had signed with the international creditors. On August 14, 2015, Tsipras faced the degree of belligerence rarely seen before, and he will hold a vote of confidence after August 20, 2015, the deadline by which Greece would have to pay a $3.6 billion debt payment to European Central Bank. Even the Speaker of the 300-member parliament, Zoe Konstantopoulou, pushed back against premier Tsipras' effort to finish the debate and voting process in parliament before the start of Eurozone Finance Ministers meeting at Brussels.
Later in the day on August 14, 2015, the finance ministers from the Eurozone concluded a long session of talks at Brussels to reconcile some of the sore points over issues such as IMF's role and the process of re-capitalization of Greek banks.
Greek Premier Resigns, Calls Elections in September
Facing an internal rift, Greek Prime Minister Alexis Tsipras resigned on late August 20, 2015 and called an early elections on September 20, 2015. The election will be fifth national election in the last six years.
*** Greece's Odyssy of Debt Problem ***
On October 5, 2011, International Monetary Fund called for re-capitalizing the European banks by as much as $266 billion. The fear is that most of the European banks are exposed to Greek bonds, thus leading to fear that any default of Greece may create a cascading economic meltdown in Europe and beyond. On October 6, 2011, German Chancellor Angela Merkel, standing alongside the Netherlands PM Mark Rutte at a Berlin news conference, opined a three-option rescue effort for European banks. Although IMF exclusively asked Eurozone governments to re-capitalize the Eurozone banks by as much as $266 billion, Chancellor Merkel called for private investors to come forward and re-capitalize the European banks. If the first option is not enough, Eurozone governments should step in and re-capitalize the European banks. The third option is to depend on European Financial Stability Facility to re-cap the European banks.
Also, on October 6, 2011, the European Central Bank, contrary to pre-valent expectation, failed to lower the benchmark reference rate from from the existing 1.5%. Instead the ECB promised to lend the European banks unlimited amount of one-year loans through 2013, a key measure to stimulate inter-banking loans process to take hold as soon as possible by the outgoing ECB President Jean-Claude Trichet. Any potential rate reduction will be left to Trichet's successor, Mario Draghi.
On October 9, 2011, French-Belgian bank Dexia became the first big financial casualty of over-exposure to Greek bonds as France and Belgium poured money to partially nationalize the bank. The objective is to isolate the Belgian retail branch of the bank from the contagion of the larger French-Belgian conglomerate Dexia SA. On October 10, Belgium government announced that it would pump $5.4 billion to buy the national subsidiary of Dexia. On the top of nationalization, the governments of Belgium, France and Luxembourg would provide an additional $121 billion over 10 years as a funding guarantee to Dexia.
************ SLOVAKIA *******
Slovakia's parliament on October 11, 2011 rejected the July 2011 proposal to augment the EFSF, leading to the fall of ruling coalition. Slovakia was the only nation left in 17-nation eurozone to ratify the July 2011 decision to bolster the EFSF. 55 lawmakers voted for the measure, 9 against and 60 abstained. The leader of the opposition SMER Party, Robert Fico, said that he would try to form a government and ratify the deal. Even the pro-free market Freedom and Solidarity Party, one of the four coalition partners, failed to back the measure, leading to the resignation of PM Iveta Radicova, who had staked the survival of the government on passing the measure. A day earlier, Malta approved the EFSF expansion plan.
Two days later, October 13, 2011, Slovak parliament passed the expansion of EFSF as decided in July 2011. In October 13, 2011, vote, opposition SMER party, which had abstained from voting on October 11, 2011, voted to approve the EFSF expansion measure in exchange for early parliamentary polls. Premier Radicova will act as a caretaker PM until the elections are held in March 2012. With the Slovak's approval, all 17 nations of the Eurozone have done with approving the July 2011 Eurozone decision to expand the EFSF to $600 billion fund and give it more authority.
************ SLOVAKIA *******
Meanwhile, European Commission, executive arm of 27-nation European Union, on October 12, 2011 proposed an acceleration of the so-called Basel III rules that would call for re-capitalization of contitent's banks to the recommended levels earlier than 2019, year initially thought to be the timeline for satisfactory level of re-capitalization. Under the so-called Basel III, continent's biggest banks have to strengthen their cushion to absorb losses to 9% of their loans, investments and risky assets, compared to 5 percent to 6 percent used during this summer's stress tests for the banks. The EC will submit the accelerated version of the so-called Basel III rules at a summit of EU on October 23, 2011.
********** PORTUGAL'S DEBT PROBLEMS ***********
On October 13, 2011, Portugese PM Passos Coelho reminded his nation that it was time to prepare for a deeper austerity plan.
********** PORTUGAL'S DEBT PROBLEMS ***********
**** G20 Finance Chiefs' and Central Bankers' Meet *****
In the backdrop of European debt crisis, finance ministers and heads of central banks from the G20 nations met at Paris for a two-day (October 14-15, 2011) meeting to discuss how best to prevent debt-related contagion in the Eurozone and support the continent's ailing banking system. The participants more or less agreed that it was time for the International Monetary Fund to chip in the situation with concrete proposals and resources as there were possibilities of debt problem spreading from Greece, Portugal and Ireland to larger economies such as Italy and Spain, third- and fourth-largest Eurozone economies. IMF provided roughly one-third fund so far to bail out Greece, Ireland and Portugal. An expanded IMF action in the Eurozone's debt crisis foretells inadequacy of the authority and resources of the EFSF, although both of them have been expanded in July 2011 and ratified by all 17 nations in Eurozone. On October 23, 2011, a summit of 27-nation European Union at Brussels will consider and, most likely, sign off on an expanded $600 billion EFSF, plans to re-capitalize continent's banks and a second bailout proposal for Greece.
**** G20 Finance Chiefs' and Central Bankers' Meet *****
*** ITALY's POLITICAL AND DEBT CRISIS ****
Italian parliament on October 11, 2011 failed to approve the 2010 balance sheet by one vote, necessitating a vote of confidence for PM Silvio Berlusconi's government. However, what surprised political analysts was the absence of Berlusconi's Finance Minister Giulio Tremonti during October 11, 2011, vote on 2010 balance sheet, thus indicating wide-spread dissention and disenchantment in his political party, People of Freedom Party. Berlusconi's government survived barely in October 14, 2011, confidence vote, with 316-301 margin. Berlusconi's government has been mired by one scandal after another since it returned to power in 2008 with the help of Northern League. His one-time right-wing ally Gianfranco Fini deserted him in 2010. The last straw was the economic mess with high debt load, leading to the downgrade of country's credit rating earlier in October 2011. Italy has a debt load of $2.64 trillion, or nearly 120% of GDP, second-highest among Eurozone nations after Greece.
On October 25, 2011, premier Berlusconi was scrambling to get parliament approve a measure to raise standard pension age from 65 to 67 as decided by EU leaders on Sunday (October 23). If parliament fails to approve the measure, that will trigger the collapse of Belusconi regime, leading President Giorgio Napolitano to make a call whether to ask Berlusconi to continue governance until new elections.
The debt problem that had so far afflicted smaller economies such as Greece, Portugal and Ireland seemed at the doorstep of the fourth-largest European economy with consequence far worse and deeper than analysts could anticipate. Under "friendly pressure", in the language of IMF chief Christine Lagarde, Italy on November 4, 2011 (during G-20 summit at Cannes, France) acceeded to subject its $75 billion austerity program to the IMF scrutiny. As Italian PM Silvio Berlusconi was struggling to get the austerity measures approved by parliament, world markets became leery of the so-called "contagion effect" on November 7, 2011 and the yield on 10-year Italian bonds rose to as high as 6.63% during the day. On November 9, 2011, the yield crossed the psychological threshold of 7-percent, leading to tumbles in world wide stock prices.
On November 10, 2011, it was increasingly clear that Berlusconi was on his way out after pushing the austerity measure successfully through parliament, and most likely, Mario Monti, a respected economist and Milan's Bocconi University President, would become the new PM. Monti earned reputation as a tough regulator when, as EU Competition Commissioner, he had blocked the GE acqusition of Honeywell.
On November 11, 2011, Italian Senate voted 156-12 to pass the austerity measure, and a sign of confidence, the yield on 10-year bond fell below the psychological threshold of 7 percent to 6.48 percent, leading to the rally of global stock markets. Also during the day (November 11), Senate conferred Mario Monti with one of the prestigious title, Senator-for-Life, as the Senate President Renato Schifani told Monti: "Our warmest and most cordial welcome". Monti, most likely the next premier after Berlusconi quits, was named unexpectedly on November 9, 2011 by President Giorgio Napolitano for the honorary title.
On November 12, 2011, the lower house of Italian parliament passed the auterity measure by 380-26 votes. After the measure was passed, PM Silvio Berlusconi resigned on November 12 as expected. On November 13, 2011, President Giorgio Napolitano chose Mario Monti as the new PM, and Monti started the process of assembling a cabinet in earnest.
In the run up to an EU Summit on December 8 and December 9, 2011, Italian Prime Minister Mario Monti on December 4, 2011 unveiled an ambitious package of austerity and tax hike measures, including raising the retirement age. Monti planned to submit the measure he had called the "Save Italy" measure to both houses of parliament soon. The so-called "Save Italy" measure included:
* A proposal to reintroduce a propery tax that Monti's predecessor Silvio Berlusconi had abolished in 2008 as part of his campaign promise.
* A proposal to prohibit cash transactions exceeding 1,000 euros ($1,340) in order to stop tax evasion.
* A proposal to increase country's VAT by 2 points to 23 percent starting in September 2012.
* A set of incentives for private employers to hire new workers.
*** ITALY's POLITICAL AND DEBT CRISIS ****
Because of fundamental difference over the approach on how to contain the European debt problem between the two European powerhouses France and Germany, there would be two days of summit for EU leaders: On October 23, 2011 and October 26, 2011. On October 24, German Chancellor Angela Merkel briefed the leaders of Social Democratic Party and Green Party that the EU Summit a day earlier at Brussels had okayed the lending limit increase to $1.39 trillion for the $600 billion EFSF. The Social Democratic leader Frank-Walter Steinmeier and the Green leaders Cem Oezdemir and Juergen Trittin said after the meeting that the enhanced lending pool of $1.39 trillion would be provided by Sovereign Wealth Funds and IMF beside the EFSF. Because of the move's significance, the parliamentary leader of the Merkel's conservative bloc, Volker Kauder, pressed for a parliamentary vote on October 26. The expansion of EFSF's powers and reach is one of the three-point items in the plate for EU leaders to consider to successfully attack the continent's debt problem. The other two are to take a deeper discount on the face value of Greek bonds and re-capitalize the continent's banks sufficiently to withstand any possible default by Greece or any other ailing nation. The three main components of discussion at the EU Summit on October 23 and October 26 are:
(I) Writing off more face value on Greek debt;
(II) Re-capitalizing continent's banks
(III) Strengthening the EFSF
The EU Summit on October 26, 2011 extended to the early morning of October 27 as German Chancellor Angela Merkel asserted German dominance in the continent's affairs by prodding other participants to fall in line of bring banks and private investors to take greater loss on Greek bonds. The resolution coming out of the Brussels Summit of EU include:
(I) Voluntary participation of banks and private investors to take a loss of 50% on Greek bonds;
(II) Re-capitalizing Europe's banks with $150 billion by June 2012 to accelerate the so-called Basel III rules;
(III) Strengthening the firepower of $600 billion EFSF by extending its line of credit up to $1.39 trillion.
****** G-20 Summit (Nov 3-4, 2011) at Cannes, France***
During Cannes Summit of G-20 nations, European debt crisis managed to take center stage as leaders of rich and leading economies struggled to come up with a strategy to prevent another economic meltdown in the continent and its contagion effect beyond. Under "friendly pressure", in the language of IMF chief Christine Lagarde, Italy on November 4, 2011 acceeded to subject its $75 billion austerity program to the IMF scrutiny. This is unprecedented overreach of IMF as the fund will oversee the reform of a country that is not currently getting any "rescue loan" as is the case of each of Ireland, Portugal and Greece.
****** G-20 Summit (Nov 3-4, 2011) at Cannes, France***
On November 10, 2011, the European Commission predicted that the eurozone economy would grow a meager 0.5 percent in 2012 compared to its earlier estimate of 1.8 percent. On November 15, 2011, EuroStat, the statistical agency of EU, estimated that the 27-nation block--barring Italy and Greece--grew a meager 0.2 percent in July-September, 2011 compared to April-June, 2011, matching the growth rate of April-June, 2011 quarter and far slower than the 0.7 percent rate prior to that.
Germany, a towering nation in EU, couldn't even escape the brunt of sovereign debt crisis as witnessed on November 23, 2011 with a lukewarm demand for 10-year German bonds. The $8.1 billion auction of 10-year German bond with 1.98 percent annual yield on November 23, 2011 met with only 60 percent of success. While German economy is widely considered as model for the eurozone, its debt-to-GDP ratio stands at a record high (81 percent). On November 23, German Chancellor Angela Merkel sparred with European Commission head Jose Manuel Barroso over the merit of eurobonds, a concept strongly favored by Barroso and has backing of other eurozone leaders such as Nicolas Sarkozy, but vociferously opposed by Germany.
On November 24, 2011, Fitch Ratings Agency downgraded bonds for Portugal and Hungary to junk status.
GDP and Population Breakdown of Eurozone Nations
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Nation ..GDP(trillions,2010) Population(millions,2011) Jobless Rate(2010)
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Austria.......... $0.38 ........ 8.2 ....... 6.9%
Belgium.......... $0.47 ........ 10.4 ....... 8.3%
Cyprus .......... $0.02 ........ 1.1 ....... 4.6%
Estonia.......... $0.02 ........ 1.3 ....... 16.9%
Finland.......... $0.24 ........ 5.3 ....... 8.4%
France.......... $2.58 ........ 65.3 ....... 9.3%
Germany.......... $3.32 ........ 81.5 ....... 7.1%
Greece.......... $0.31 ........ 10.8 ....... 12.5%
Ireland.......... $0.20 ........ 4.7 ....... 13.6%
Italy.......... $2.06 ........ 61 ....... 8.4%
Luxembourg.......... $0.05 ........ 0.5 ....... 6.0%
Malta.......... $0.01 ........ 0.4 ....... 6.9%
Netherlands..........$0.78 ........ 16.9 ....... 5.5%
Portugal.......... $0.23 ........ 10.8 ....... 10.8%
Slovakia.......... $0.09 ........ 5.5 ....... 12.5%
Slovenia.......... $0.05 ........ 2 ....... 10.7%
Spain.......... $1.41 ........ 46.8 ....... 20.1%
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Source: The Dallas Morning News (November 29, 2011); Eurostat; BBC
On November 29, 2011, the eurozone finance ministers approved the latest installment of $10.7 biliion aid package for Greece.
On November 30, 2011, six political parties in Belgium reached an agreement and presented it to King Albert II. Barring any last minute surprise, Socialist Elio Di Rupo will be sworn in as Prime Minister, a feat by itself after an inconclusive June 2010 election that had thrown a degree of uncertainty. Eventually European debt crisis brought the political parties to the negotiating table.
On November 30, 2011, central banks on the both sides of Atlantic announced a concerted and collaborative effort to spur lending as part of efforts to stanch the financial meltdown in Europe. The November 30, 2011, joint action by the U.S. Federal Reserve, European Central Bank, Bank of England and central banks of Canada, Japan and Switzerland--first such co-ordinated action since October 2008--will reduce the cost of an existing program for the banks to borrow US DOLLAR from their central banks, which in turn get those dollars from the US Federal Reserve, by fifty percent. The rate of borrowing will fall by half to about 0.6 percent. The loans will be available until February 2013, extending a present cutoff of August 2012.
Independent of the November 30, 2011, joint action by the central banks of the major industrial nations, China also announced on November 30 that it would relax the tight requirement of minimum reserve banks should hold in order to boost lending.
On December 5, 2011, Angela Merkel and Nicolas Sarkozy unveiled a joint German-Franco proposal that would put a binding fiscal disciplinary framework for them and other 15 euronations and would have to be ratified by 27-nation EU. The proposal, need to put into effect through changes in EU treaty, included:
* Introducing an automatic penalty if any nation exceeds budget deficit by more than 3 percent of GDP.
* Requiring nations to pass laws to balance the budget.
* Pledging to not require private bond investors to take any cut for any future bailout as was the case in Greece.
* Promise not to criticize or adversely comment on ECB.
However, dampening the effect of this landmark proposal, The Standard and Poor's on December 5 issued credit warnings for all 17 eurozone nations.
In December 2011, the European Central Bank pumped nearly $626 billion in the continent's banking industry.
On January 13, 2012, Standard and Poor's issued credit downgrades for Europe that had lowered credit ratings for the following countries:
France (AAA to AA+); Austria (AAA to AA+); Italy; Spain; Malta; Cyprus; Slovakia and Slovenia.
The bailout fund itself, European Financial Stability Facility (EFSF), retained the top grade of AAA. Issuing downgrades, S&P released the following statement: "In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systematic stresses in the eurozone". For France, it was a humiliating take as a sober finance minister, Francois Baroin, first broke the news.
Three days after downgrading ratings of nine euro nations, Standard and Poor's on January 16, 2012 downgraded the rescue fund (EFSF) to AA+ from AAA. The chief executive of the fund, Klaus Regling, played down the importance of downgrade by "only one credit agency". The $557 billion fund, according to Regling, has enough money to carry out funding for Ireland and Portugal, as well as a second bailout for Greece.
On January 27, 2012, Fitch Ratings downgraded five euro nations: Italy (A-), Spain (A), Belgium, Cyprus and Slovenia.
In December 2011, European Central Bank invited continent's banks to participate in a cheap loan program that would offer a rate of 1 percent for three years, compared with a previous maturity of one year. 529 banks borrowed roughly 489 billion euros, or $647 billion.
On February 20, 2012, eurozone finance ministers met at Brussels to discuss on a second, $172 billion bailout package for Greece and have a brainstorming session on a proposed new, permanent rescue fund--formally known as European Stability Mechanism--of $660 billion. There is growing voice of launching the $660 billion European Stability Mechanism in parallel with the temorary rescue fund, European Financial Stability Facility. The European Stability Mechanism will be effective July 1, 2012.
On April 27, 2012, Romanian PM Mihai Razvan Ungureanu became the latest victim of the European auterity measure as lawmakers passed a no-confidence vote against the 2-month-old government over the national anger stemming from government's action to raise a sales tax to 24 percent and cut salaries for civil servants. President Traian Besescu later nominated the opposition leader Victor Ponta to succeed.
The twin elections in two euro nations on May 6, 2012 returned political parties opposed to the current austerity drive with strong mandate. In the French runoff, Socialist Francois Hollande won the presidency and was inaugerated on May 15. Hollande was critical as a candidate to the austerity prescription championed by the man he had defeated Nicolas Sarkozy. In Greek parliamentary elections, the political parties on the right and left opposed to auterity measures made impressive gains in the May 6, 2012, parliamentary elections.
Yields on 10-year Spanish bonds rose to 6.29 percent on May 25, 2012 as the new PM Mariano Rajoy's confidence demonstrated even a week ago ceded to despair as the Bank of Spain committed $29.5 billion in recapitalization of Spain's one of the largest lenders, Bankia. Out of $29.5 billion committed, $5.7 billion will be recapitalized in June, and the remaining $23.8 billion in July, according to Bankia CEO Jose Ignacio Giorigolzarri. Responding to the urgent calls from Washington and European governments to accept bailout for its tattering banking sector, Spain on June 9, 2012 agreed to accept emergency loans of up to $125 billion from the bailout fund.
On June 25, 2012, Spain formally requested for up to $124 billion, or 100 billion euro, in aid for its banks.
On June 25, 2012, Cyprus sought aid from Europe's bailout fund as the country was faced with crisis due to its banks' exposure to Greek debt. During the day, Fitch Ratings Inc. downgraded Cyproit debt to junk status. Cyprus last year obtained a 3-year, $3.1 billion loan from Russia.
In the run-up to a crucial EU summit at Brussels on June 28 and June 29, European leaders were in intense negotiation to come up with a broader, bolder strategy of pooling European bonds together and integrating European banking system by some sort of common functional and requirement threads. However, German Chancellor Angela Merkel maintained her deep reservations for both measures, and instead focused on structural reform. But in a major concession to world demand for a pro-growth, instead of pro-austerity, emphasis, she handed a major victory to the new French President Francois Hollande by approving a $162 billion Europe-wide stimulus package on June 27, 2012. At the end of two-day summit on June 29, 2012, EU leaders came up with a bold bank rescue plan that envisaged:
** Centralized regulations for European banks, and if necessary, funneling rescue loans straight to the banks instead of channeling through respective governments.
** Easing of borrowing costs for Italy and Spain
** Crafting plans to rescue foundering nations without going through severe and painful austerity measures
** Closer monetary union, tying up currencies, budgets and governments through stronger bonding
At present, Europe's two bailout funds have approximately $625 billion in combined lending power, and out of that, up to $125 billion have already been committed to rescue Spanish banks. The remaining $500 billion dwarfs compared to $3.1 triilion in outstanding Italian and Spanish bonds.
On July 20,2012, Spanish region of Valencia became the first region to seek bailout, a week after a $22 billion fund was created to help Spain's 17 semi-autonomous regions. The fund created on July 13, 2012 will receive one-third of its money from the state company that oversees many lottery programs.
On November 28, 2012, European Commission approved $48 billion to rescue four large Spanish banks--BFA/Bankia, NCG, Catalunya and Banco de Valencia--in exchange for massive layoffs. The $48 billion aid will come from $130 billion Spanish government had negotiated back in May with EC to obtain from the European Stability Mechanism. This is the second installment of aid for Bankia.
European Finance Ministers agreed in the early hours of December 13, 2012 on creating of a central superviser for their beleaguered banks, thus taking many of the authorities from national governments and consolidating the overseeing roles and responsibilities into hands of a centralized authority at ECB. The concept opens up opportunity--as expressed by the French Finance Minister Pierre Moscovici--for a much more streamlined approach to bail out teteering banks in countries such as Spain and Italy by lending the banks directly without using a conduit through their national governments.
Eurostat, European Union's Statistical agency, on February 14, 2013 released grim data on the continent's economic health: Eurozone economy shrank by 0.6 percent during the October-December 2012 quarter compared to the preceding quarter. That followed another contraction of 0.1 percent in the previous quarter. The contraction in the latest quarter was led by Germany (0.6 percent), France (0.3 percent) and Italy (0.9 percent). European Union as a whole contracted by 0.5 percent.
After getting overwhelmingly elected in February 24, 2013, runoff, conservative president of Cyprus, President Nicos Anastrasiades, got his first taste of bitter pill as Cyproits had a run on their banks on March 16, 2013 after an early morning (of March 16, 2013) bailout deal at Brussels came to light. The deal called for a one-time tax of 9.9 percent on bank deposit over 100,000 euro and 6.75 percent on the bank deposit below that amount as part of 10 billion euro or $13 billion, new bailout aid package. To prevent the run on the tiny island nation's banking system, all bank branches have been shuttered since March 16, 2013, and only ATMs are dispensing cash to customers. The original intent of imposing a one-time tax on the bank deposit was to raise 5.75 billion euros as part of 15.75 billion euro, or $20.4 billion, aid package so that the remaining 10 billion euros, or $12.9 billion, could be provided by international and other European partners.
Cyprus' lawmakers on March 19, 2013 put a slightly different package--small investors with up to 20,000 euros in banks are exempt from one-time tax, while investors with over 100,000 euros will be slapped with 9.9 percent and the investors in the middle with 6.75 percent--to parliamentary vote. However, the package was rejected overwhelmingly amid widespread discontent among a restive populace. After the rejection of the package, the European Central Bank pledged on March 19, 2013 to provide liquidity to Cyprus' beleaguered banks, which had been shuttered since March 16, 2013, as lawmakers thought of the next steps. Of the $20.4 billion aid Cyprus needs, about half, or $10.73 billion, is needed to prop up island's two big banks: Bank of Cyprus and Laiki Bank. About $9.7 billion will be used to finance the country's deficits over the next four years, and to cover a $1.94 billion debt payment due in June 2013.
Of 68 billion euros, or $87.92 billion, in Cyprus' banking system, Russians hold nearly one-third, and in late 2011, Moscow provided a $3.23 billion loan to Cyproits.
On March 20, 2013, Cyproit lawmakers gave another shot to craft a package to raise 5.75 billion euros as part of 15.75 billion euro aid package. Under the new proposal, Cyproits with savings up to 100,000 euros will be slapped a 2 percent tax, while investors with more will be slapped 5 percent. Meanwhile, ECB asked Cyprus to come up with a plan by March 25, 2013, through which the central bank will provide the necessary liquidity to the banks.
Under ECB pressure, Cyprus parliament on March 22, 2013 approved three key measures--(1) restructuring country's ailing banks, (2) restricting financial transactions during the time of crisis, and (3) setting up a "solidarity" fund where investments and contributions will flow--out of total 9 bills passed. More bills will passed in coming couple of days. Because of proposed plan for restructuring of island's ailing banks, including toxic asset-laden Greek branches of Cyproit banks, the need of the hours is to raise about 3 billion euros, or $3.9 billion, instead of original 5.75 billion euros, or $7.5 billion.
On early March 25, 2013, Cyproit and European negotiators reached an eleventh hour deal that had barely averted collapse of island's banking system. However, Cyprus government decided on March 25 to extend the bank closeout by another 48 hours, leading to banking operations scheduled to resume on March 28, 2013 instead of March 26, 2013 as originally planned. Cyproit Finance Minister Michalis Sarris put some light on the deal clinched by Cyprus in early hours of March 25, 2013. Under the deal, as Sarris said on March 25, 2013, island's oversized banks would be slashed and large depositors would take a hefty loss.
On March 27, 2013, a day prior to resuming banking operation in the island, Finance Minister Michalis Sarris announced financial controls on operations once the banks opened on March 28, 2013. The controls announced on March 27, 2013 include:
* No electronic transfer of money out of island nation to be allowed
* Cash to be taken out of island nation to be capped at 3,000 euros (lower than the current cap of 10,000 euros)
* Daily ATM withdrawals to be raised to maximum of 300 euros from current max of 100 euros
* Credit and debit card charges to be capped at 5,000 euros per month
On April 2, 2013, Cyproit Finance Minister Michalis Sarris, who had negotiated a rescue package in early March 25, 2013 with European and international negotiators, resigned as his prior involvement as chief of island's second-largest bank raised eyebrows in the wake of its toxic assets tied to Greek bonds. President Nicos Anastasiades immediately accepted his resignation, and elevated Deputy Finance Minister Harris Georgiades as his replacement. As part of March 25, 2013, rescue deal, Laiki, the second-largest bank that was headed by Sarris before becoming Finance Minister is being merged with the largest bank of the island nation, Bank of Cyprus, with investors having 100,000 euros in deposit set to take a hit of 60% of their savings.
Meanwhile, Eurostat on April 2, 2013 portrayed a dire job picture in 17-nation eurozone, with jobless rates for both January and February 2013 hitting 12%. The January jobless rate has been revised upward from 11.9% to 12.0%.
On April 22, 2013, Eurostat came up with the latest deficit and debt figures for both 17-nation Eurozone and 27-nation European Union, and the picture was mixed. For 2012, Eurozone fiscal deficit stood at 3.7% GDP compared with 4.2 percent in 2011, while the debt stood at 90.6 percent of GDP for 2012, up from 87.3 percent of GDP in 2011. European Union registered a deficit of 4 percent of GDP in 2012, down from preceding year's 4.4 percent. The EU debt in the same time went up from 82.5 percent of GDP (2011) to 85.3 percent of the GDP (2012).
On April 28, 2013, the new PM Enrico Letta of center-left Democratic Party formed the coalition government in Italy.
On April 28, 2013, Greek parliament passed a measure to dismiss 15,000 civil servants by the end of 2014 as part of the next installment of aid package of about 2.8 billion euros.
On May 15, 2013, Eurostat reported sixth straight quarter of recession for the 17-nation Eurozone, with the common currency region's economy plunging 0.2 percent compared to the fourth quarter of 2012, and came on the top of 0.6 percent decrease during the fourth quarter of 2012.
On May 29, 2013, the European Commission gave France, Spain, the Netherlands, Poland, Portugal and Slovenia more time to accomplish the goal of bringing fiscal deficit to less than 3 percent of GDP, by extending the timeline for the Netherlands and Portugal by one additional year and the remaining four nations by two more years.
On July 8, 2013, the euro zone finance ministers met at Brussels and endorsed the recommendation of troika--IMF, EU and ECB--to disburse next round of aid package of 6.75 billion euro. The finance ministers announced that the aid package would come in three installments: July, August and October. The troika gave a favorable report on the reform being pursued by the Greek government, including government spending and payrolls of thousands of civil servants. However, it expressed reservation on the pace of reforms for a country hobbled by recession since 2007 and a staggeringly high jobless rate of about 27%.
The 17-nation Eurozone emerged from recession during the second quarter (April 1- June 30, 2013) from a streak of six-quarter downturn that had escalated the debt crisis in nations like Greece, Ireland, Portugal, Italy, Spain and Cyprus to an almost unmanageable level; cost millions of workers their jobs, further deteriorating the already shaky job market; and forced the troubled nations to implement deep austerity measures, fomenting political and social unrest across vast swath of the biggest economic bloc of the world. According to Eurostat, European Union's statistical agency, the Eurozone economy grew at the rate of 0.3 percent compared to the first quarter of 2013, when the economy shrank at 0.3 percent rate. The report issued on August 14, 2013 also said that the 28-nation European Union grew by 0.3 percent too in the second quarter of 2013. On annualized basis, the economy of the Eurozone grew 1.2 percent during the second quarter, less than 1.7 percent recorded by the US and 2.6 percent recorded by Japan.
The New Year's Day of 2014 brought a special sense of hope and joy to Latvians as the Baltic state, which joined European Union and NATO in 2004, became the 18th nation to join Eurozone. Riga's journey of deepening bonds with the west completed a full circle on January 1, 2014 since the three Baltic states--Lithuania, Estonia and Latvia--broke away from the Soviet Union in early 1990s.
Eurozone Grows by 0.3%
The 18-nation Eurozone grew by 0.3% during the last quarter of 2013 compared with the preceding quarter (July-September 2013). According to a report released by the Eurostat, European Union's Luxembourg-based statistical agency, on February 14, 2014, the GDP in Eurozone grew at the rate of 0.3% in October-December, 2013 quarter compared to July-September, 2013 quarter. The growth registered during the third quarter of 2013 was a mere 0.1%. The salient feature of the report was that Germany and France, Eurozone's two economic powerhouses, registered strong growth while the Netherlands broke out of recession. The annualized growth rate for Eurozone was 1.1% during the fourth quarter of 2013. The February 14, 2014, report also highlighted a moderate growth for 28-nation European Union: a growth of 0.4% during the fourth quarter of 2013 compared to the preceding quarter, amounting to 1.6 percent annualized growth.
EU Agrees on Tax Evasion Policies
After overcoming a concerted opposition by Luxembourg, European Union on March 20, 2014 agreed on a policy to fight tax evasion. Under the proposed legislation, there will be continent-wide exchange of information on bank deposits by foreigners and pursue tax evaders with foreign accounts on home soil.
Greeks Back to Bond Market
In a remarkable turnaround, Greece returned to the international bond market on April 10, 2014 with the issuance of $4.14 billion in 5-year-note with interest rate of 4.75%. During the peak of the debt crisis in 2010, Greece was shut out of the bond market as the investors had demanded high interest rates on Greek bonds, and had to berescued by an international bailout.
Portugal Bank in Trouble
In another disastrous turn on August 3, 2014, the central bank governor Carlos Costa said that Bank of Portugal would provide $6.6 billion in rescue package to one of the country's largest banks, Banco Espirito Santo, in order to prevent its collapse. As part of the deal, the bank will be split into two entities: one with the healthy business to be called Novo Banco, and Bank of Portugal's Resolution Fund will own it. The second entity will be left with bad assets, and current shareholders and junior bondholders will be on tenterhook.
ECB to Take Overseer Mantle Despite 13 of Europe's Large Banks Failing Stress Tests
European Central Bank will take the role of financial and banking overseer from individual national authorities on November 4, 2014 amid 13 of more than 130 large European banks failing stress test, leading to calls for them to submit plans to create remedial cushion that may collectively reach at least $12.5 billion.
Eurozone Growth Raises Odds of Economic Headwind
A meager 0.6 percent growth in the third quarter of 2014 raised an alarm in the 18-nation euro currency zone for an increased likelihood of the second recession in six years. However, this time, if recession comes, it will be much more painful and punishing as, according to the Eurostat estimate released on November 14, 2014, the Eurozone's three largest economies are showing all the pull-back sign, with European economic giant Germany showing a significant slowdown, France stuck in the mud and Italy most likely slipping into a triple-dip of economic recession. This time, countries whose sovereign debt problems brought the Eurozone into fiscal crisis five years ago are showing signs of economic growth, with Greece taking the lead, followed by Ireland and Portugal.
************************************** ECB NEWS ********************************
European Central Bank Takes Unprecedented Measures to Shore up the Stagnant Economy
Because of emerging fear of Eurozone slipping into another bout of recession and deflationary economy, the European Central Bank, led by its ever-dominant chief Mario Draghi, adopted a trio of measures on September 4, 2014 to jolt the economy. The measures include:
* Quantitative Easing/Asset Buyback, US Federal Reserve style, involving buyback of asset-backed securities such as packages of home loans and credit card debt
* Cutting Short-term Loan Rate charged to banks from 0.15 percent to 0.5 percent
* Encouraging banks to lend more by making it more expensive to perk the money at ECB by taking a key rate, already in negative territory (-0.1 %), to -0.3%.
European Central Bank Makes Hoarding Money Costly for Banks
In a desperate move to stimulate lending from banks, ECB on June 5, 2014 took a key deposit rate to negative territory of -0.10 percent, implying that European banks need to pay in order to keep money with the central bank. The central bank also lowered a key benchmark rate to 0.15 percent from 0.25 percent.
European Central Bank Begins Massive, "Open-Ended", Bond Buying Program
European Central Bank (ECB) and its assertive President Mario Draghi on January 22, 2015 steered the 19-nation euro zone into an unchartered fiscal territory by announcing a 60 billion euro monthly bond buyback program, called the so-called Quantitative Easing in fiscal parlance, to jolt a stalled economy and stimulate lending by financial institutions. With the presence of deflationary trends in euro zone economy, the move was highlighted the best tool available to ECB to help the economy growing again and gradually lift the prices to the set inflation target of 2 percent. In the aftermath of the announcement, euro dropped 2 percent against the US greenback, and now stood at the weakest exchange rate against the US dollar since 2003. The bond buyback program announced by ECB on January 22, 2015 involves both public- and private-sector assets.
ECB Continues Bond Buyback Plan; Holds Rates Steady
European Central Bank in a policy meeting on December 8, 2016 decided not to overturn the applecart of stimulus as there was an agreement by and large that the economic stimulus provided by ECB President Mario Draghi and his team had helped Euro zone steer clear from flirting with falling into a deep recession. The 25-member governing council of the European Central Bank on December 8, 2016 decided to extend bond buy-back, set to expire by the end of March 2017, through December 2017, but at a decelerated pace of 60 billion euros per month, down 25 percent from the level of 80 billion euros per month. However, Mario Draghi refused to use the term "tapering" to reflect the reduced bond buyback plan lest it would send any confusing signal from the central bank which seemed determined to jumpstart the European Union economy that remained stuck at a meager 0.3 percent during July-September 2016 quarter. In March 2016, ECB increased the monthly bond buyback by 20 billion euros to 80 billion euros and expanded the asset purchases to include corporate bonds.
ECB decided to keep the two benchmark rates steady:
* Refinancing Rate, interest charged to commercial banks for lending money from the ECB, at 0%
* Interest Rate for perking money with the ECB at -0.4 percent
ECB to Wind Down Bond Buying Program
European Central Bank on December 13, 2018 decided that it's now time to wind down the massive bond buying program that Eurozone's premier financial institution had begun in early 2015, leading to recovery of continent's economy and putting millions of people into workplace. ECB will wind down the bond buying program by the end of 2019.
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Eurozone Economy Struggles in Second Quarter 2015
The 19-nation common currency zone registered a meager 0.3 percent growth during second quarter (April-June 2015) of 2015, after growing 0.4 percent in the first quarter of the year, according to the report issued on August 14, 2015. However, the picture for the individual nations is more complex, with Germany pulling the growth engine almost by itself. German economy in the Q2, 2015 grew as much as 0.4 percent, up 0.1 percent from the first quarter's 0.3 percent. Germany's economy accelerated partly due to weakening of euro that boosted country's exports. French economy basically stalled in the second quarter after registering a whopping 0.7 percent growth in the first quarter. The Eurozone's third-largest economy, Italian economy, grew at a subpar rate of 0.2 percent in the second quarter after growing 0.3 percent in the first quarter.
Meager Growth for the Final Quarter, Whole Year
Eurozone's statistical agency, Eurostat, on February 12, 2016 reported a subpar growth in the 19-nation common currency zone for the last three month of 2015. For the final three months, Eurozone economy grew by 0.3 percent, and for all of 2015, it was 1.5 percent despite a tailwind provided by low oil prices. For the fourth quarter, Eurozone's largest economy, Germany, registered identical growth of 0.3 percent, but French economy's dismal 0.2 percent growth reflected a somber national mood due to fear in the aftermath the November 2015 terrorist attacks in Paris.
Eurozone Returns to Pre-Crisis Economic Level
The 19-nation common currency bloc on April 29, 2016 reported that the Eurozone had achieved a 0.6 percent growth rate in the first quarter of 2016, twice the rate of the last quarter of 2015, and returned to the level of the economic size that predated 2008 (economic) crisis.
