In this Business English News lesson: The eurozone was thrown into renewed crisis this month as EU leaders struggled to agree on new stability measures.
As reported by the Guardian, “A world recession has drawn closer after the G20 summit failed to agree to fresh financial help for distressed countries and debt-ridden Italy was forced to agree to IMF monitoring of its austerity program.”
The eurozone was thrown into renewed crisis this month as EU leaders struggled to agree on new stability measures. As reported by the Guardian:
A world recession has drawn closer after the G20 summit failed to agree to fresh financial help for distressed countries and debt-ridden Italy was forced to agree to IMF monitoring of its austerity program.
The 17-nation eurozone block is not new to these kinds of financial problems. Like the rest of the world, their difficulties started several years ago during the credit crisis. Greece, however, has a more disturbing cause. From the Observer:
The eurozone crisis started two years ago when George Papandreou became head of the Greek government and announced that falsified government data stated the deficit as 5% when it was actually 12.7%.
By 2009, as the BBC noted, the situation had become dire:
Greece is burdened with debt amounting to 113% of its GDP – nearly double the eurozone limit of 60%. Ratings agencies have downgraded Greek bank and
government debt.
The downgrading of Greece’s credit rating had a contagion effect, causing the crisis to spread to other, low-performing countries such as Portugal, Ireland, Italy and Spain – sometimes referred to as PIIGS. According to the Economic Times:
European PIIGS are facing a huge sovereign debt crisis. And the reason for this is very plain and simple: all these countries have been living beyond their means.
EU leaders responded by making deep cuts to their budgets, Greece in particular.
The Voice of America summarised the situation in Greece in early 2010:
Greek Prime Minister George Papandreou proposed measures to freeze civil service salaries and raise fuel taxes and retirement ages. But some investors believe Athens may still need a bailout from other EU nations or the International Monetary Fund to avoid a default.
proposed measures to freeze civil service salaries and raise fuel taxes and retirement ages. But some investors believe Athens may still need a bailout from other EU nations or the International Monetary Fund to avoid a default.
However, the austerity measures were not enough to convince the markets and Greek debt became even more expensive to finance, forcing the EU to bail them out a second time. As CNN reported in October 2011:
EU leaders got Greek bondholders to agree to a 50% “haircut” or write-down of Greek debt – slashing the country’s debt bill by €100 billion.
After receiving additional help from the IMF, it looked like the crisis had been averted. But a few days later Papandreou dropped a bombshell when he announced a national referendum on the latest EU debt deal.
After hearing the news, German Chancellor Angela Merkel, expressed growing frustration with Greece.
The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no!
Papandreou was replaced by economist Lucas Papademos on November 11th . His first act was an attempt to stabilize the situation by focusing on the benefits of being a member of the eurozone:
The participation of our country in the eurozone is a guarantee for the country’s monetary stability. It is a driver of financial prosperity.
Italy was next, where after losing power earlier in the week, PM Silvio Berlusconi resigned on November 12th after parliament passed its own austerity package. Like Greece, Italy will have an economist take control of the situation. The BBC had this to say:
A technocrat government led by ex-EU commissioner Mario Monti seems likely….
The Italian Senate on Friday backed the plan, which includes a rise in the pension age, a fuel price hike and the sale of state assets.
The Wall Street Journal concluded that Europe has….
“…little option but to push ahead with fiscal tightening and structural reform, making economies more competitive to aid growth. But those policies will take time to yield results – and time is no longer on the eurozone’s side.