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European debt crisis (2010–12)
2010–2012· Crisis or event
Fact, law or dataA rule, statute, definition or measured number.
From 2010 to 2012, Greece and other euro countries could not borrow affordably, threatening the euro itself.
See it on the Money & Finance map →How it works
In late 2009 Greece revealed its deficit was over 12% of GDP, about double earlier claims. Investors dumped bonds of weak euro members. Greece (2010 and 2012), Ireland, Portugal and later Cyprus took EU–IMF bailouts tied to austerity, and Spain got aid for its banks. Greece's 2012 restructuring cut privately held debt by more than half, the largest sovereign debt restructuring ever. Panic eased after ECB chief Mario Draghi pledged in July 2012 to do 'whatever it takes'.
Why it matters
It exposed the euro's design flaw: one currency and interest rate but separate budgets and banking systems. Greece lost about a quarter of its output.
Facts, rules and data
Eurostat's deficit revisions, EU and IMF program documents, ECB records, and the IMF's 2013 review admitting it underestimated austerity's damage in Greece.
Debates and risks
Whether austerity was necessary or self-defeating, and whether Greece would have done better leaving the euro, are still argued.
Connections (3)
▸The euro and the European Central Bank was tested by European debt crisis (2010–12)Fact, law or data
The connection
Sharing a currency meant Greece, Portugal, Ireland, Spain and Italy could not devalue or set their own interest rates when borrowing costs soared, and investors bet the euro might break up. Europe built rescue funds (the EFSF, then the ESM), and in July 2012 ECB chief Mario Draghi pledged to do 'whatever it takes' to save the euro. Yields fell.
When and why
Began in late 2009, when Greece revealed a far larger deficit than reported; Draghi's London speech came July 26, 2012.
How we know
Bond-spread data, official bailout records, and the ECB's September 2012 announcement of its OMT bond-buying program.
Debates and risks
Whether the euro's core design gap, a shared currency without a shared budget, has been fixed or merely patched.
▸IMF and World Bank co-funded bailouts, via the IMF, in European debt crisis (2010–12)Fact, law or data
The connection
Euro-area governments brought in the IMF for its crisis experience and money. The 'troika' of the European Commission, ECB and IMF set conditions for loans to Greece, Ireland, Portugal and Cyprus: spending cuts, tax rises and reforms. The IMF's roughly €30 billion share of Greece's first package was then its largest loan ever relative to a country's quota.
When and why
Greece's €110 billion package of May 2010, then Ireland in 2010, Portugal in 2011, Greece again in 2012 and Cyprus in 2013.
How we know
IMF program documents; the IMF's 2013 internal review admitted it underestimated the damage austerity would do in Greece.
Debates and risks
Whether austerity deepened Greece's depression, which shrank its economy by about a quarter, and whether debt relief should have come sooner.
▸European government bonds: German Bunds, French OATs, Italian BTPs split apart in yields during European debt crisis (2010–12)Fact, law or data
The connection
Before 2008 investors treated euro government bonds as nearly equal. When Greece revealed hidden deficits, spreads exploded: Greek 10-year yields topped 30% in 2012, and Italy paid more than 5 percentage points over Bunds in November 2011. ECB President Mario Draghi's July 2012 pledge to do 'whatever it takes' calmed markets.
When and why
Athens, Rome, Madrid and Frankfurt, 2010–12; Draghi spoke in London on July 26, 2012.
How we know
Bond yield histories from the ECB and Bloomberg, and records of Greece's 2012 debt swap.
Debates and risks
Whether the ECB can hold down spreads without political backing for joint EU bonds.