Fiscal Crises in the Eurozone: Assessing the Austerity Imposed by the Bailouts

Abstract

In the aftermath of the 2008–09 global financial crisis, the European Union (EU), most especially its Eurozone member states, was hit by a number of fiscal (or debt) crises, which began in Greece in December 2009, before moving on to Ireland and Portugal in 2010 and 2011, respectively. For their part, Spain, Italy, Belgium, and even France also ended up facing more or less strong headwinds from sovereign bond market investors as contagion, in the form of market and political uncertainty, spread throughout the Eurozone. The EU, with the help of the International Monetary Fund (IMF), worked hard to contain the debt crisis (or crises) and prevent it from propagating itself, but with limited success given the political difficulties involved in providing financial assistance to crisis-hit governments and banks (for details, see Chapter 2 by Ross in this volume). In the end, direct financial assistance (i.e., bailouts) had to be provided to Greece, Ireland, and Portugal. In Greece’s case, a second bailout package had to be put together a year and half after the first one, this time involving a restructuring of Greece’s public debt in order to avoid an outright (i.e., official) default.