The sovereign debt crisis has led to a large number of reforms in the Euro-zone. In light of recent evidence of collective amnesia I decided to write a “short” chronology compiling and listing these developments, and their context, with relevant links.
September 15, 2008: Lehman Brothers declares bankruptcy…
which leads to increased risk and liquidity drain in the USA…
… and in Europe…
That prompts the following crises and reforms:
February 25, 2009: Larosiere Report on financial supervision in the EU (link) proposal upon which the ESRB and its agencies were based.
May 7, 2009:
- ECB announces the launch of the Covered Bond Purchase Programme.
- The ECB lowered the MRO by another 25 basis points, to 1.00%, by lowering the Deposit and Marginal Lending Facilities both by the same amount, with effect from May 13.
October 4, 2009: Papandreou’s PASOK wins Greek General election.
December 2, 2009: Council judges that Greece has not responded adequately to its March warning.
March 25-26, 2010: The Council agrees to the eventual creation of a billateral loan mechanism backed by the IMF to assist illiquid but solvent member states and safeguard financial stability in the euro area as a whole.
April 21, 2010: EC/IMF/ECB troika mission arrives to Athens to evaluate the country’s situation.
April 26, 2010: Germany accepts providing assistance to Greece if it asks for help.
May 11, 2010: EFSM regulation is enacted.
June 7, 2010: EFSF is incorporated under Luxembourg’s law.
September 7, 2010: European Council agrees on the creation of the ESRB, EBA, ESMA and EIOPA and on that the necessity of policy coordination within the framework of the SGP calls for the creation of a “European Semester“.
October 18, 2010: the Franco-German Deauville Agreement, proposes voting reform of SGP and withdrawal of Council voting rights for offending member states.
October 29, 2010: SGP3 Council agreement
November 21: 2010: Staff level agreement is reached to provide assistance to Ireland under EFSF.
February 1, 2011: Prime Minister Cowen, of Ireland, resigns.
February 4, 2011: Franco-German Competitiveness pact picks up the argument for growth and monitoring made in September 7, 2010
February 25, 2011 - The Barroso-Van Rompuy report attempts to articulate the Franco-German Competitiveness Pact for the rest of the EU.
March 11, 2011: Agreement on A Pact for the Euro (aka Euro+ Pact) for stronger economic policy cooperation, competitiveness and convergence. This was the result of the Franco-German Pact for Competitiveness initiative.
March 23, 2011: The Portuguese Prime Minister, Socrates, resigns.
April 7, 2011:
- Portugal requests financial assistance under EFSF.
- ECB increases MRO by 25 basis points, to 1.25%, by rising the Deposit and Marginal Lending facilities by the same amount with effect from April 13.
June 5, 2011: Passos Coelho wins Portuguese general election, replacing the centre left government with a centre-right coalition between the PSD and the PPD.
July 11, 2011: Euro-group signs the Treaty Establishing a European Stability Mechanism
July 21, 2011: Council meeting Conclusion:
- Proposing the attribution of a Second Adjustment Programme to Greece, worth €109 Bn
- Supporting Greek, Portuguese and Irish adjustments by lengthening the maturity and lowering the EFSF/ESM borrowing-lending spread.
- “Supporting” Greek debt PSI
- Allowing EFSF/ESM to purchase sovereign debt in secondary markets
- Calling for a speedy conclusion to the negotiation with the EP on the reform of the SGP.
October 4, 2011: The Council,
- Agreed a position on the regulation of derivatives markets upon which to base a negotiation with the European Parliament, demanding the reporting of all derivative contracts and clearing through Central Counterparts. This legislative process is to be finished by the end of 2012.
October 6, 2011: ECB relaunches CBPP for another year.
October 21, 2011: Eurogroup meeting ”conclude a secondeconomic adjustment programme for Greece, with an appropriate combination of additional newofficial financing and private sector involvement”, following the fifth review of the economic adjustment programme for Greece
October 26, 2011: Eurogroup meeting ”invites” a 50% PSI cut on Greek debt in exchange for supporting it with a second adjustment programme worth an extre €130 Bn.
October 31, 2011: Papandreou, the Greek Prime Minister, announces his intention to call a referendum to ratify the aggreement reached on October 26.
November 6, 2011: The Greek Prime Minister Resigns
November 8, 2011: The Italian Prime Minister, Berlusconi, Resigns
November 16, 2011: Approval of
- Council and EP Regulation on the effectve enforcement of budgetary surveillance in the euro area;
- Council and EP Regulation on enforcement measures to correct excessive macroeconomic imbalances in the euro area;
- Council and EP Regulation on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies;
- Council and EP Regulation on the prevention and correction of macroeconomic imbalances
November 20, 2011: Spanish Centre Right wins election against incumbent of the centre left
December 5, 2011: Franco-German Agreement on:
- Speeding ESM treaty ratification
- Extending QMV within ESM
- Clarify that PSI demands, made in October, will not be extended beyond Greece.
December 8, 2011:
- ECB lowers MRO by 25 basis points, to 1.00%, by lowering Deposit and Marginal Lending Facility by the same amount, with effect from December 14.
- ECB annouces measures to support bank lending, such as: Lowering Reserve Ratio (from 2% to 1%); conducting LTROs; increasing collateral availability (by expanding the range of assets accepted as collateral); and end liquidity absorbing (I assume) fine tuning operations.
December 9, 2011: Council Meeting introduces the “Fiscal Compact” as agreed by €Z MSs:
- A)Reinforced Economic Architecture with
- I) New Fiscal Compact:
- Balanced budget rule =”annual structural deficit does not exceed 0.5% of nominal GDP“
- Introduction of 1/20 debt rule, which forces every contracting party to decrease its national debt by 1/20 per year if it is above 60% of GDP
- “The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation” – This is further elaborated as meaning that “there will be automatic consequences unless a qualified majority of euro area Member States is opposed“.
- to be enshrined in national Constitutional law or equivalent
- The specific rule will be elaborated by member states, guided by principles proposed by the EC and under ECJ jurisdiction to ensure appropriate implementation.
- “Steps and sanctions proposed or recommended by the Commission will be adopted unless a qualified majority of the euro areaMember States is opposed”
- There is no specific Euro-area convergence, but rather a country specific equilibrium to which each unstable MS is to convergence towards.
- Economic Partnership Programmes to be presented submit to the Commission and the Council, by MSs under the Excessive Deficit Procedure, detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits.
- National debt issuance plans shall be presented to the Council (and supposedly to the Commission) ex ante.
- The implementation of the Economic Partnership Programmes and of yearly budgets shall be monitored by the Commission and by the Council.
- II)Stronger Policy Coordination and Governance:
- Agreement to make more use of Enhanced Cooperation
- Agreement to increase inclusion in the discussion of reforms, through more regular (at least twice/year) meetings
B)Strengthening the Stabilisation Tools:
- Rapid deployment of EFSF leverage
- “Common objective (…) for the ESM to enter into force in July 2012.” (1 year ahead of time)
- No PSI aside from Greece
- Introduction of liquidity guaranteeing Collective Action Clauses in sovereign debt contracts
- Replacing the “Mutual Agreement” clause in the ESM treaty by an “Emergency Procedure”, triggered in case the EC or the ECB consider that “an urgent decision related to financial assistance is needed when the financial and economic sustainability of the euro area is threatened”
December 22, 2011: ECB auctions € 498 Bn in 3 year LTROs.
January 30, 2012: Greek government is reported to have reached a preliminary agreement with the IIF, where private bond holders would accept a 70% haircut to the value of their bonds. The negotiations regarding the details and disbursement of the Second Adjustment programme for Greece (agreed in principle back on July 21, 2011) proceed.
February 15, 2012:
- Greek political leaders make written commitments to not jeopardise national economic reforms.
- Debt Sustainability Analysis (DSA) report requested by EU shows that Greece is likely to require a third bailout.
February 16, 2012: ECB exchanges an undisclosed amount of Greek bonds for new ones
February 28, 2012: Final agreement between Greece and IIF describes PSI as reducing the total debt burden to Greece by €107 Bn, through a 53.5% haircut on the value of the principal accompanied. This is to be accompanied by a 31.5% debt exchange of their principal for longer maturities.
March 1, 2012:
- ISDA rules that the Greek PSI did not amount to a CDS triggering “credit event”.
- ECB injects €529 Bn into 800 Euro-Zone banks through 3 year LTROs.
March 2, 2012:
- Council of the EU Meeting: 25 EU Member states sign the Fiscal Compact treaty, aka Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG)
- Statement of Euro Area heads of State and Government shows optimism that second adjustment programme for Greece “will be adopted in the coming days”.
May 22, 2012: First Round of French Presidential Election
May 6th, 2012:
- The CNMV (Comisión Nacional del Mercado de Valores) suspends the quotation for Bankia ahead of its AG meeting.
- Bankia asks government for 19 billion euro in state rescue, which added to the 4.5 billion euros in convertible bonds, brings the total cost up to 23.5 billion euros.
- Second Round of French Legislative Election - PS wins an absolute majority in Parliament
- Greek Legislative Election - ND has relative Majority
June 20, 2012: ND-PASOK-DIMAR Government is annouced
June 21, 2012:
- ECB Governing Council Meeting
- The Bank of Spain together with the Treasury announce the results of the audits by the Spanish Banking System conducted by Oliver Wyman and Roland Berger. According to the estimates extracted from the Stress Test Analysis, the country’s baking system could require between €16bn and €63bn.
- Draft Conclusions of the European Council Meeting leaked by the FT include capital boost to EIB and the potential for a roadmap towards Banking union. The hope is that as the 2010 directive brought homogeneity and cooperation from a hole of nationalism and coordination, this proposal will move towards centralised delegation at EU level. Other ideas gaining popularity also include the creation of Eurobills and a Debt Redemption Fund inspired by Delpla and Wizesacker’s “Blue Bond Proposal” article at Bruegel.
June 27, 2012: Deadline for the formation of a Greek Government. In the absence of such a political bargain, the country is expected to call another round of elections. Whether Greece will be able to receive assistance from the EFSF is still vague as that organisation can exercise some discretion over the €1bn still to be disbursed in the context of the May disbursement.
- An urgent timetable for the negotiation of the template and impletementation of a Banking Union (1st report by September 2012, Concluded negotiations by December 2012)
- The use of the ESM for direct recapitalisation underlying the Spanish bailout
- A loosely worded agreement in favour of the principle of semi-automatism for the implementation of secondary and primary market intervention for Italy.
July 2nd, 2012: Finland and the Netherlands break rank
- Netherlands refuses, ex-post, the Italian demand of automaticity for Bond market intervention.
- Finland demands that collateral be offered to EFSF/ESM, or at least to it, in exchange for bailout assistance.
July 10th, 2012: Finance Minister advises German Constitutional Court against a prolonged hearing on the legality of the ESM. Governor of Bundesbank, Weidmann, was less alarmist, saying that the EFSF could begin and ESM would pick up the tap once in place. Both urged The Court to allow ESM treaty.
June 16th, 2012: German Constitutional Court announces it will rule on the legatility of the ESM treaty by Sepetmber 12.
July 20th, 2012: Eurogroup formally agrees up to EUR100bn in assistance for Spain.
July 22th, 2012: German rhetoric on Greece turns negative
- Economics Minister Philipp Roesler predicted that Greece would most likely be unable to meet the goals agreed with its international lenders. “I want to say this here very clearly: if Greece does not meet its obligations, there can be no further payments to Greece,” he stressed.
- Horst Seehofer, the head of the CSU and Bavarian prime minister, tells the daily Bild in an interview that “we should not talk at all about a new aid package, and money from the agreed aid package must only flow if Greece fully meets its obligations.”
- “It could help to create confidence in markets if Greece were no longer part of the Eurozone,” FDP secretary general Patrick Doering told the daily Passauer Neue Presse. “Greece can become more competitive and recover faster outside of the Eurozone,” he argued.
July 25th, 2012:
- Rainer Bruederle, FDP parliamentary leader and former economics minister, adds to previous day negative outlook on Greece, stating that
“One can talk about a few weeks or maybe a couple of months but surely not about a delay of two years (for Greece to meet its fiscal targets. (…) There will be no majority in the Bundestag for additional aid for Greece“
- CDU/CSU parliamentary leader Volker Kauder tells Bild that “there cannot be any further concessions [for Greece] neither on timing nor content.”
- Michael Meister, the deputy leader of the CDU/CSU parliamentary group, echoed the comment in an interview with the daily Rheinische Post: “If more time [for Greece] means more money, I think this won’t come about.”
July 26th, 2012:
- Draghi hints at renewed (SMP?) intervention in Euro-Zone Bond markets following a week that saw Spanish Bond Yields rise above 7.5%.
- Ireland Returns to Bond markets with EUR5.23bn in Bond Switch (EUR1.04bn)and Outright Sale (EUR4.19bn).
July 29th, 2012: Following a conference call, Merkel and Monti vow to protect euro.
August 1st, 2012:
- Monti travels to Finland to attempt Finnish raprochement.
- German Transport Minister Peter Ramsauer said in an interview with German ARD public television that Greece will no have no alternative to leaving the Eurozone if it gets no further fiscal aid.
August 2nd, 2012:
- Monti meets Rajoy to attempt to convince him to request assistance from the EFSF, to no avail.
- At ECB press conference, Draghi clarifies new fiscal-monetary strategy:
- “Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines.The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions.”
- “The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. “
August 24th, 2012: Merkel changes German rhetoric to more positive approach, signalling commitment to Greek membership of Euro-Zone and the end to discussions of iminent exit, stating
September 6, 2012: ECB holds rates and announces OMTs. SMP comes to an end.
September 12, 2012:
- German Constitutional Court rules against an injunction of the ESM treaty.
- Dutch elections yield gains for centrist pro-EU(ro) parties.
September 25, 2012:
- Artur Mas, President of the government of Catalonia, calls snap regional elections for November 25th while strongly advocating Catalonian independence.
- German, dutch and Finnish Finance Minister publish a joint statement clarifying their recommendation, in opposition to the Conclusions of the June 28/29 European Council meeting, that:
September 28, 2012: Final recapitalization needs of Spanish banks reported to be worth EUR59.3bn.
October 8, 2012: ESM Becomes Operational
November 12, 2012: IMF’s Lagarde and Eurogroup’s Juncker publically clash at a press conference following negotiations about the Greek bailout. The IMF recommends haircuts to the assets, but EZ MSs prefer maturity extension.
November 13, 2012: Greece issues bills to avoid defaulting ahead of Nov 16 deadline
November 20, 2012: Second round of negotiations about the disbursal of the latestof the Greek bailout fail. Merkel expects results next Monday.
November 25, 2012: Regional election in Catalonia.
November 29, 2012: Barroso Unveils Euro Survival Plan
December 3, 2012: Greece announces terms of debt buyback.
December 4, 2012: Banking Union negotiations fail to yield agreement
December 5, 2012:
- Van Rompuy unveils his plan towards a genuine economic and monetary union. Fiscal union by added level of governance rather than by joint and several liability.
- Medium and longer term Spanish bond yields rise at auction.
- S&P puts downgrades Greece to Selective default on account of the distressed environment of the debt buy-back.
- ESM issues first bonds (to itself) worth EUR39.5bn to support Spanish Banks
December 6, 2012: Berlusconi’s PdL withdraws support to Monti’s government
December 13, 2012: EU Council agrees position on Single Supervisory Mechanism
January 8th, 2013: Ireland taps 2017 EUR2.5bn
January 23rd, 2013: Portugal taps 2017 for EUR2bn
February 1st, 2013: El Pais publishes a report about a slush fund operated by the Spanish Popular Party (incumbent). The subsequent fears of a government collapse lead to a rise in government bond yields.
February 7th, 2013: Spanish funding costs rise at auction
February 19th, 2013:Spain issues USD2bn 5yr Syndicated note.
February 20th, 2013: Spanish deficit figures come out better than expected.
February 21st, 2013: Spanish funding costs fall at auction.
February 27th, 2013: Italian funding costs rise at auction, but not as much as expected.
March 13th, 2013: Ireland issues EUR5bn in 10yr syndicated bonds.
March 18th, 2013: Eurogroup announces preliminary agreement of bailout terms with Cypriot government foreseeing a EUR10bn bailout agreement from ESM/IMF to Cyprus complemented by EUR5.8bn bailin of Cypriot depositors via a one-off 6.75% tax on deposits below EUR100k and a 9.9% tax on deposits above that threshold.
March 19th, 2013:
- Not a single Cypriot MP votes in favour of the bailout agreed the previous day.
- Spain’s Finance Minister, Luis de Guindos, distinguishes Spain from Cyprus:
“Deposit holders in Spain can be absolutely assured that not only is this a specific, concrete and unique situation in Cyprus, but all deposits of less than 100,000 euros are perfectly guaranteed in Cyprus, in Spain and in the whole of the European Union,”
- Former Central Bank of Cyprus chief Anthanasios Orphanides commented to Bloomberg
“We are witnessing historic times. What we are witnessing is the slow death of the European Project. We are in a situation that some European governments are essentially taking actions that are telling citizens of other member states that they are not equal under the law.
We have had decisions taken by the strongest government in Europe that is spreading misery sequentially to citizens in Greece, Ireland, Portugal, in Spain, in Italy and this is not going to end the way that European governments are handling this. We need to have a decision making process where governments are asked to care for citizens in other states. (…) In order for the EU area to stay together they needed to form a banking union which meant, they needed to have a common credible deposit insurance guarantee for everybody in the EU area. (…) by making a mockery of that right now, the governments who pushed for this measure are sending a message that they want no part of a banking union.”
March 20th, 2013: The central bank can offer emergency liquidity assistance (ELA) only to solvent banks, the ECB’s Asmussen told the German weekly. The solvency of Cypriot banks “must be viewed as non-existent …if there is no agreement soon on an aid program,” Asmussen told the German weekly Die Zeit, reiterating that the ECB can offer emergency liquidity assistance only to solvent banks.
March 21st, 2013: “The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013. Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”
March 22nd, 2013: Following the failure of negotiations with Euro-Zone partners and with the Russian Government, the Cypriot parliament votes in favour of financial restructure.
March 25th, 2013:
Eurogroup reaches an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. Depositors below EUR100K remain safe, no tax is included, bondholders and depositors above EUR100K to be wiped out, Laiki resolved, bad bank and transfers to BoC.
“The Governing Council of the ECB decided not to object to the request for provision of Emergency Liquidity Assistance (ELA) by the Central Bank of Cyprus, in accordance with the prevailing rules. It will continue to monitor the situation closely“.
- In an joint FT-Reuters interview, Jeroen Dijsselbloem, Eurogroup President, lays out his “pushing back the risks” approach:
“If there is a risk in a bank, our first question should be: “Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?” If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: “What can you do in order to save your own banks?
We have to bring down the tab to be picked up by the taxpayers.”
Asked about what it meant for other countries he replied
“It means: deal with it before you get in trouble. Strengthen your banks, fix your balance sheets, and realise that if a bank gets in trouble, the response will no longer automatically be we’ll come and take away your problems. We’re going to push them back. That’s the first response that we need. Push them back. You deal with them.”
While the words were never used, the market consensus was that the new approach was tantamount to arguing that depositors were no longer safe across the Euro-Zone, leading to a clarification and several criticisms.
- Jeroen Dijsselbloem issues a statement clarifying that
“Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.
Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.”
March 26th, 2013: A barrage of criticisms floods over Disselbloem:
- “We should focus on supporting Cyprus rather than unsettle markets with sappy remarks”, criticises Klaus-Peter Flosback, CDU’s spokesman for fiscal policy.
- “I think it has been made very clear that Cyprus is indeed a special case. It is no model for other instances,” Ewald Nowotny, Governor of Austria’s Central Bank commented on the sidelines of a conference at the Czech National Bank here.
- “I think [Eurogroup President Jeroen] Dijsselbloem was wrong” to suggest that Cyprus could be a model for future bailouts, he said. “There is no reason to apply the same methods elsewhere.” Argued Benoit Coere, Executive member of the ECB’s Governing Council - “It was a solution to a problem that had become desperate”
March 27th, 2013: Criticism of Disselbloem continues
- German government spokesman Steffen Seibert said at a regular government press conference that “Cyprus is a singular case and therefore special instruments are being used for Cyprus”
- Economic Adviser Peter Bofinger a member of the government’s council of independent economic advisers, the so-called five wise men, told the regional daily Passauer Neue Presse that “The remarks of Dijsselbloem were more than careless, (…) the signaling effect for the rest of the Eurozone is fatal (…) This is virtually a call for all investors to withdraw their money as soon as the slightest problems occur at a bank.”.
- European Central Bank Executive Board member Yves Mersch said in an interview: “The Cypriot model is not a template, it is rather specific measures tailored to a very exceptional situation, (…) We must send a clear signal to international investors and depositors that their money is safe in the Eurozone,” he added.
- “The guarantee of bank deposits must be an absolute and irrevocable principle“, French President, Francois Hollande, said at a news conference with Spanish Prime Minister, Mariano Rajoy.
March 27th, 2013:
- Cypriot Foreign Minister admits that Cyprus considered leaving the Euro-Zone as during its bailout negotiations.
- Bersani fails to find consensus support for government.
April 19th, 2013:After several inconclusive ballots, where neither Prodi, Marini nor anyone else found a majority, Giorgio Napolitano accepts to stand for reelection as Italian President in the hope that its will lead to a resolution in the Italian political crisis.
June 6th, 2013:
- State-owned Agricultural Development Bank of China sold only 11.51 billion yuan of six-month bills in a 20-billion-yuan offering.
- According to a Bloomberg report from June 7th, “China Everbright Bank Co. failed to repay 6 billion yuan borrowed from Industrial Bank Co. on time, yesterday” (June 6th)
Week Starting on June 10th, 2013: PBoC OMOs only inject CNY92bn into the financial sector by allowing the same amount of repos to mature. According to some comentators, this was not enough and reinforced the turbulence already present in the market.
June 14th, 2013: China’s Ministry of Finance sold only 9.53 billion yuan of government bills, far less than the 15 billion yuan offered. It was the first failed Finance Ministry auction since July 2011.
June 20th, 2013: Overnight SHIBOR rockets to 13.444%.
July 1st, 2013: Portuguese finance minister and staunch proponent of austerity, Victor Gaspar resigns from the Portuguese government on account of a lack of coesion over the government’s austeirty policies.
July 2nd, 2013: Maria Luis Albuquerque is sworn in as Gaspar’s replacement at the helm of the Portuguese finance ministry. Paulo Portas resigns from the government in protest against the replacement which he finds to close to the outgoing minister and his austerity policies, which prime minister Pedro Passos Coelhoes rejects. Negotiations between the two governmental parties follow.
July 4th, 2013: ECB announces forward guindance.
July 6th, 2013: Passos Coelhos offers Paulo Portas to become deputy-prime minister for economic coordination, which he accepts, seemingly solving the crisis.
July 23rd, 2013: Following consultations between all major parties no grand coalition is feasible. The Portuguese President is forced to accept the previous bargain struck on July 6th between the previous government’s coalition parties.