Eurozone crisis timeline

The euro was established in Maastricht in 1992, its main aims being to reduce costs to business within the Union and to increase cooperation between member states. The EU set out fiscal and monetary criteria for members to join the currency, of which a government deficit to GDP ratio not exceeding three per cent and a maximum government debt versus GDP ratio of 60 per cent are the criteria most in the spotlight in the current economic climate. The euro became an official currency in 1999 and of the EU countries at the time, Denmark, Sweden and the UK opted-out, while Greece joined in 2001.

The current crisis started unfolding around February 2010 when Greece outlined an austerity programme to trim a 2009 budget deficit of 12.7 per cent to GDP – this was previously reported at 3.7 per cent. The European Central Bank dismissed reports that Greece will have to leave the EU, with debt standing at 113 per cent of GDP. Soon after, markets started getting jittery on other heavily indebted countries, Portugal, Ireland, Italy and Spain. However, by March 2010 both Greece and Spain raised €5 billion each from international capital markets and Ireland pumped billions of euros into its ailing banking system. Portugal announced budget cuts and Fitch downgraded the country to AA-, while Standard & Poor’s kept faith in Greece’s BBB+ rating.

In the same month the eurozone and IMF backed a deal to bail out Greece. This was followed by up to €30 billion loans in April; Greek yields rose to 7.1 per cent, Fitch and Moody’s downgraded Greek debt to BBB- and A3 respectively, while S&P downgraded Greece to junk, Portugal to A- and Spain to AA-. The EU announced that Greece reviewed its 2009 deficit to 13.6 per cent and agreed a €110 billion bailout package in May.

In May 2010, three people died in the first bout of protests organised by labour unions in Athens. The EU agreed on a €750 billion fund to bail out euro members in financial straits while both Portugal and Spain announced measures to reduce their countries’ deficits. Fitch downgraded Spain to AA+, while the Spanish Central Bank nationalised savings bank CajaSur.

Between June and July 2010 Moody’s cut Greece to sub-investment grade, Portugal to A1 and Ireland to Aa2, and Europe released stress tests showing that out of 91 banks, seven failed – of which five were Spanish. Ironically Dexia, the Franco-Belgian bank that needed a government rescue, passed these stress tests.

In September 2010, Greece announced larger than expected declines in second quarter GDP figures, Moody’s downgraded Spain to Aa1, and Ireland said that the banking collapse in that country will cost them far more than anticipated. Ireland’s deficit is revised to 32 per cent of GDP, the largest deficit since the euro was created. Fitch downgraded Irish debt to A-. By November, Ireland announced measures to reduce the budget deficit to 9.1 per cent of GDP for 2011 and Prime Minister Brian Cowen announced early elections should Ireland’s request for €67 billion be approved. Approval was received later that month.

Eurozone ministers set up the European Stability Mechanism, a permanent bailout fund in February 2011. In March 2011, Moody’s and S&P cut Greek debt to B1 and BB-, while Fitch and S&P cut Portuguese debt to A- and BBB- respectively. Portuguese Prime Minister Jose Socrates resigned after his government collapsed over austerity measures.

In April 2011, Fitch revised Portugal to BBB-, while Moody’s downgraded them, first to Baa1, then to Baa3. Portugal asked the EU and IMF for bailout funds from the EU, and received €78 billion the following month.

In June 2011 eurozone ministers told Greece they must impose new austerity measures to receive further funds, triggering talk that Greece will default soon thereafter and would be asked to leave the euro. Cuts are imposed the following month, and the EU approved €12 billion in loans. Later that month the eurozone agreed a €109 billion package for Greece to prevent contagion spreading to other economies.

By August 2011, investors requested sharply higher yields on Italian and Spanish bonds, prompting the European Central Bank to buy bonds issued by the two sovereigns to bring borrowing costs back down. The following month Spain passed an amendment to its constitution restricting budget deficits to a strict limit, while Italy approved an austerity package amidst nationwide protests. S&P downgrades Italy to A. Data showed that the private sector shrank for the first time in two years.

Earlier this month eurozone finance ministers again delayed their decision on providing Greece with more cash, sending European stock markets tumbling.

This article is the objective and independent opinion of the author. The information contained in the article is based on public information. Some of the opinions expressed here above are of a forward looking nature and should not be interpreted as investment advice, nor should it be considered as an offer to sell or buy or subscribe to any investment vehicles or strategies that might have been mentioned in the article.

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Mr Micallef is an executive director at Curmi and Partners Ltd.