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European economic and financial system The Eurozone as an economic and monetary union surged in 1999. After that the economic development temps of the countries-members has grown to become one of the strongest economies in the World. The Eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. To be part of the Eurozone these countries had to accomplish a difficult program of economic measures. No state has left and there are no provisions to do so or to be expelled. Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. As a result of the global financial crisis that began in 2007-2008, the Eurozone endure its first official recession in the third quarter of 2008. Despite the recession, Estonia became member of the Eurozone and Iceland put in an EU application in order to join the euro, seeing it at the time as a safe haven. In 2009, the Lisbon Treaty formalized the Euro Group. But before his formalization, Eurozone leaders already held extraordinary summits in reaction to the financial crisis of 2008 in Paris. Rather than a Euro Group meeting finance ministers, met the heads of states in order to define a joint action plan for the Eurozone and the European Central Bank to stabilize the European economy. In spite of that in such meetings many euro governance reforms would be agreed, the crisis grew bigger and influenced different economical aspects. Between 2007 and 2009, several states from the 2004 enlargement acceded to the Eurozone. These were Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009 and Estonia in 2011. Most other 2004 countries faced greater difficulties in fulfilling the criteria to join and even now when they are part of the EU, they dont fulfill the European standards in all the aspects of economy. In March 2011 initiated a new reform of the Stability and Growth Pact that aims to straight the rules by adopting an automatic procedure imposed penalties in case of breaches of either the deficit or the debt rules. In 2012 the dialog continues, but very shy results. A victory by the anti-austerity axis could have been "an excuse to cut Greece out of the euro zone" The economic crisis that began in 2007 is heading for its fifth year. The so waited economic recovery that many predicted has not occurred, and the reasons are, above all, political. In spite of the broad consensus on the measures that should be taken, there is no political will. New Finance Minister Yannis Stournaras is preparing a new plan of austerity measures for the next two The European crisis resulted from a combination of complex factors, including the globalization of finance; easy credit conditions during the 20022008 period that encouraged high-risk lending and borrowing practices; the 20072012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 20082012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt
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burdens or socializing losses.1 Some of the European countries are no more capable to repay or re-finance their government debt without the assistance of third parties. That is why this crisis is called by the specialist the European sovereign debt crisis. Some crisiss Facts Analysis of the crisis should begin with analyzing the situation in the so called PIGS economies. PIGS is an acronym that refers to the economies of Portugal, Greece, Spain, and either or both Ireland and Italy. The economies of United Kingdom (as Great Britain) and Iceland are also included in variants.2 On 1 May 2010, the Greek government announced a series of austerity measures that were met with great anger by the Greek public, leading to massive protests, riots and social unrest. But this way it was possible to secure a three year 110 billion loan. As problems were not resolve government understood the necessity of a second bailout loan. The Troika (EU, ECB and IMF), gives Greece a second bailout loan worth 130 billion in October 2011, but with the activation being conditional on implementation of further austerity measures and a debt restructure agreement. On 9 March 2012 the International Swaps and Derivatives Association (ISDA) issued a communiqu calling the debt restructuring deal with its private sector involvement (PSI) a "Restructuring Credit Event" which will trigger payment of credit default swaps. Mid May 2012 the crisis and impossibility to form a new government after elections led to strong speculations Greece would have to leave the Eurozone shortly due. This phenomenon became known as "Grexit" and started to govern international market behavior3. The center-right's narrow victory in the June 17th election gives hope that a coalition will enable Greece to stay in the Euro-zone. But specialists as Rahbari and Buiter believe that Greece leaving the Euro is highly possible, and that the probability has tipped over 50% for it to occur in the next 18 months from February, 2012.

according to the Wall Street Journal. Specialist of the Wall Street Journal thinks that German Chancellor Angela Merkel might have preferred a Syriza victory as an excuse to cut Greece out of the euro zone.4

years would amount to 13.9 billion euros. At a press conference after the meeting 9 October(2012), Eurogroup chief

Lewis, Michael. Touring the Ruins of the Old Economy // New York Times. -2011. Haidar, Jamal Ibrahim. Sovereign Credit Risk in the Eurozone // World Economics. 2012(March) ps. 123-136. Grexit - What does Grexit mean?// Gogreece.about.com. April 10, 2012. -2012. 4 A Greek Reprieve: The Germans might have preferred a victory by the left in Athens.// Wall Street Journal. 18 June 2012.

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Jean-Claude Juncker and International Monetary Fund (IMF) chief Christine Lagarde acknowledged the "substantial progress" made by Greece, particularly recently. In another hand, in Ireland the sovereign debt crisis was not based on government over-spending, as it was in Greek, but from the state guaranteeing the six main Irish-based banks who had financed a property bubble. In December 2011, it was reported that Portugal's estimated budget deficit of 4.5 percent in 2011 would On 29 September 2008, Finance Minister Brian Lenihan issued a two-year guarantee to the banks' depositors and bond-holders. In 2009, was created ad National Asset Management Agency (NAMA), in response to the Irish financial crisis and the deflation of the Irish property bubble. This institution should acquire large propertyrelated loans from the six banks at a market-related "long-term economic value". Irish banks had lost an estimated 100 billion euros, much of it related to defaulted loans to property developers and homeowners made in the midst of the property bubble, which burst around 2007. The economy collapsed during 2008. Unemployment rose from 4% in 2006 to 14% by 2010, while the national budget went from a surplus in 2007 to a deficit of 32% GDP in 2010, the highest in the history of the eurozone, despite austerity measures. In July 2011 European leaders agreed to cut the interest rate that Ireland was paying on its EU/IMF bailout loan from around 6% to between 3.5% and 4% and to double the loan time to 15 years. The move was expected to save the country between 600700 million euros per year.5 The Euro Plus Monitor report from November 2011 attests to Ireland's vast progress in dealing with its financial crisis, expecting the country to stand on its own feet again and finance itself without any external support from the second half of 2012 onwards. On 26 July 2012, for the first time since September 2010, Ireland was able to return to the financial markets selling over 5 billion in long-term government debt. In the first half of 2011, Portugal requested a 78 billion IMF-EU bailout package in a bid to stabilize its public finances.7 Robert Fishman, in the New York Times article "Portugal's Unnecessary Bailout", points out that Portugal fell victim to successive waves of speculation by pressure from bond traders, rating agencies and speculators. In the first quarter of 2010, before pressure from the markets, Portugal had one of the best rates of economic recovery in the EU. From the perspective of Portugal's industrial orders, exports, entrepreneurial innovation and high-school achievement, the country matched or even surpassed its neighbors in Western Europe. On 16 May 2011, the eurozone leaders officially approved a 78 billion bailout package for Portugal, which became the third eurozone country, after Ireland and Greece, to receive emergency funds. The Portuguese government takes austerity measures as the elimination of its golden share in private corporations.
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In 2012, all public servants had already seen an average wage cut of 20% relative to their 2010 baseline, with cuts reaching 25% for those earning more than 1,500 euro per month. This led to a flood of specialized technicians and top officials leaving the public service, many looking for better positions in the private sector or in other European countries.

be substantially lower than expected, due to a one-off transfer of pension funds. The country would therefore meet its 2012 target a year earlier than expected.8 Spain had a comparatively low debt level among advanced economies prior to the crisis. The country's public debt relative to GDP in 2010 was only 60%, more than 20 points less than Germany, France or the US, and more than 60 points less than Italy, Ireland or Greece. Like Italy, Spain has most of its debt controlled internally, and both countries were in a better fiscal situation than Greece and Portugal at the outset of the financial crisis. However, debt relative to GDP is expected to reach 90.5% GDP during 2013. While public debt was restrained prior to the crisis, private mortgage debt fueled a housing bubble. Spain is the EUs fourth -largest economy, larger than Greece, Portugal and Ireland combined, that why its fall will cause the unleash of the dominos effect affecting another economies. In September 2011, yields on Cyprus long-term bonds had risen above 12%, since the small island of 840,000 people was downgraded by all major credit ratings agencies following a devastating explosion at a power plant in July and slow progress with fiscal and structural reforms. On 13 March 2012 Moody's has slashed Cyprus's credit rating into Junk status, warning that the Cyprus government will have to inject fresh capital into its banks to cover losses incurred through Greece's debt swap. Cyprus's banks were highly exposed to Greek debt and so are disproportionately hit by the haircut taken by creditors. It was reported on June 25, 2012 by The Financial Times that banks in Cyprus held 22 billion of Greek private sector debt.9 One of the central concerns prior to the bailout was that the crisis could spread to several other countries after reducing confidence in other European economies and also to nonmembers of the Eurozone.

Hayes, Cathy. Ireland gets more time for bailout repayment and interest rate cut // Irish Central.-2011. Euro Plus Monitor 2011. -2011. p. 55 7 Portugal requests bailout //Christian Science Monitor. -2011. (http://www.csmonitor.com/)

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Chip Krakoff. PIIGS To The Slaughter: After Greece, Portugal // Seeking Alpha (http://seekingalpha.com/) -2012. James Wilson. Cyprus requests eurozone bailout//The Financial Times. - 2012.

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Italy's deficit of 4.6 percent of GDP in 2010 was similar to Germanys at 4 .3 percent and less than that of the U.K. and France. Italy even has a surplus in its primary budget, which excludes debt interest payments. However, its debt has increased to almost 120 percent of GDP (U.S. $2.4 trillion in 2010) and economic growth was lower than the EU average for over a decade.10 On 15 July and 14 September 2011, Italy's government passed austerity measures meant to save 124 billion.11 In 2010, Belgium's public debt was 100% of its GDPthe third highest in the eurozone after Greece and Italy and there were doubts about the financial stability of the banks, following the country's major financial crisis in 20082009. Nevertheless, on 25 November 2011, Belgium's long-term sovereign credit rating was downgraded from AA+ to AA by Standard and Poor and 10-year bond yields reached 5.66%.12 France and Germany wants a balanced budget; automatic sanctions if deficits >3% GDP; harmonization of euro zone corporation taxes a tax on financial transactions. France is averse to Brussels power over national budget. Germany is against ECB Intervention to buy13bonds. UK says the more it is asked for, the more it will ask in return - and any treaty agreed by the UK would have to go through parliament. Denmark wants speedy resolution to crisis with minimum treaty change and UK wants to avoid major treaty change Denmark wants to avoid change that would trigger referendum. Austria, Netherlands, Finland and Luxembourg are alarmed by warnings of possible accreditation downgrade that would affect cost of borrowing. They also argue for a Brussels commissioner to have power to expel member states from the Eurozone. And they are reluctant to have treaty change. Belgium, Estonia, Malta, Slovakia and Slovenia want low borrowing costs and also want to be among the decision-makers. And they are against major treaty change. Gross external debt of the general government sector in the euro area and its member countries Percentages of GDP Countries Luxembourg Malta Slovak Republic Slovenia Cyprus 2005 0.0 4.5 16.0 8.4 18.9 2006 0.1 3.8 11.4 7.4 16.7 2007 0.1 3.0 13.4 7.7 13.9 2008 0.1 2.6 12.3 8.8 13.4 2009 2.4 5.2 11.2 10.0 13.7 Crisis in the Eurozone influence the internal politics of each of its members. In Spain, Portugal, Netherlands, Slovenia, Slovakia, Greek, Finland and Ireland the governments collapsed and in some cases were set early elections. In another hand in France, 2012 became the first time since 1981 that an incumbent failed to gain a second term. Also raise the influence of Germany in other countries, as the strongest economy of the Eurozone. Eurozone parliaments are in the process of ratifying a tough set of rules - insisted on by Germany - that will limit their governments "structural" borrowing (that is, excluding any extra borrowing due to a recession) to just 0.5% of their economies output each year. The pact, which will come into force once 12 out of the 17 eurozone member states have ratified it, will also limit their total borrowing to 3%.14 These rules are supposed to stop them accumulating too much debt, and make sure there won't be another financial crisis. To ensure that the internationally agreed, stricter rules for banks can take effect as planned on 1 January 2013, Germany approved legislation drafted by the Federal Ministry of Finance to transpose the Basel III rules into national law, in advance of final agreement in Brussels.15 But only a few know that the rules that want to impose Germany were already set. Countries agreed to exactly the same 3% borrowing limit back in 1997, when the euro was being set up. The "stability and growth pact" was insisted on by German finance minister Theo Waigel.16 Italy was the worst offender. It regularly broke the 3% annual borrowing limit. But actually Germany was the first big country to break the 3% rule. After that, France
10 11 12

Spain Germany Finland Netherlands Ireland France Italy Austria Belgium Portugal Greece Eurozone

24.0 27.3 39.2 33.6 17.2 36.7 43.1 49.9 44.8 43.4 67.1 14.1

23.5 31.0 36.1 34.9 16.6 36.6 49.0 52.3 46.4 49.5 74.3 13.0

21.9 30.3 33.3 32.4 15.4 35.0 43.0 50.8 44.2 48.5 73.5 13.8

18.8 30.5 29.6 29.6 15.9 33.9 41.0 49.8 51.9 48.0 78.2 18.3

20.9 33.9 28.4 42.7 31.8 40.2 45.2 53.6 56.6 53.0 80.3 21.4

Sources (as at 25 June 2010): ECB, IMF

Politics and Crisis

See CIA Factbook-Italy-Retrieved December 2011 (cia.gov) EU austerity drive country by country// BBC News. - 2011. Gill, Frank. Ratings on Belgium Lowered to 'AA' On Financial Sector Risks to Public Finances //Outlook Negative Standard and Poors Rating Service. 2011. 13 Eurocrisis//Okonomist. -2012.

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Eurozone crisis explained// BBC News. -2012. Germany puts pressure on talks in Brussels: Cabinet approves legislation on Basel III banking rules//Federal Ministry of Finance (http://www.bundesfinanzministerium.de) 16 Eurozone crisis explained// BBC News. -2012.

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followed. Of the big economies, only Spain kept its nose clean until the 2008 financial crisis; the Madrid governments stayed within the 3% limit every year from the euro's creation in 1999 until 2007. Not only has that - of the four, Spains government also had the smallest debts relative to the size of its economy. Greece never stuck to the 3% target, but manipulated its borrowing statistics to look good, which allowed it to get into the euro in the first place. As the time pass, protesters in European countries express their discontent with the measures taken by the governments. The violence is especially strong in Greece and Spain. According to the media, in Spain, where one in four workers is unemployed, the second general strike in eight months in protest against budget cuts coasted the government millions euro. Neighboring Portugal also has held some general strike. Protests are being called in some 40 towns and cities across the bailed-out nation, including Lisbon and Porto. Greece is the epicenter of the Eurozones debt crisis but its unions are focused on the national crisis and it has limi ted its protest to a three-hour work stoppage and a rally in Athens. Italian unions, too, are seeking a four-hour work stoppage. Union-led rallies are being called across France, Belgium and in Poland, where workers decry "social and wage-dumping" in their country. Crisis in the Eurozone as preface of a world economic crisis The rapid integration of global trade and capital flows over the past decades has made the links that connect different parts of the world economy ever more central to global prosperity. Yet the practices and institutions that regulate these links the international monetary system as well as the main international currencies that underpin this system are increasingly challenged. Against this backdrop, it is clear the current dollar-based international monetary system needs to evolve. But how it will evolve is highly uncertain. The widespread view is that the world is moving towards a multipolar currency system based on the euro, dollar and yuan. But each of these currency areas faces the need for significant internal adjustments that constrain their future international roles. The October 2012 Global Financial Stability Report (GFSR) finds increased risks to the global financial system, with the euro area crisis the principal source of concern. The report urges policymakers to act now to restore confidence, reverse capital flight, and reintegrate the euro zone. If they do not, Eurozone can become the center of a Worlds crisis. In both Japan and the United States, steps are needed toward medium-term fiscal adjustment. Emerging market economies have successfully navigated global shocks thus far, but need to guard against future shocks while managing a slowdown in growth. If the economy of the Eurozone falls, the economies of his closest partners will fall also. And especially will fall the economies of countries that depend of theirs European partners. Economic crisis in Spain especially influence Latin-American economies. For example, for Latin American countries remittances play an important role in the economy (totaling over 66.5 billion USD in 2007). This 1. ALLEN Franklin, CARLETTI Elena, CORSETTI Giancarlo (eds.). Life in the eurozone: with or without Remittances to Africa play an important role to national economies, but little data exists as many rely on informal channels to send money home. Todays African Diaspora consists of approximately 20 to 30 million adults, who send about USD 40 billion annually to their families and local communities back home. And important part of this diaspora lives in Europe, but because of the economic situation most of them are losing their works or inflation does not permit them to send money like before. Also global growth in the pharmaceutical market, in the technology market and others depend on the European crisis. Countries throughout the world will experience an economic slowdown as the sovereign debt crisis in Europe continues to unfold, according to a United Nations report launched in January 2012. The Report also warns that governments must urgently address high unemployment rates, particularly among youth. The World Economic Situation and Prospects 2012 (WESP) report gives a detailed picture on seven geographical regions and forecasts that growth rates for the next two years will slow down in most of them, with the exception of the African continent, which will continue to enjoy growth due to stable commodity prices and foreign investment. The decisions that will be made by the members of the European Union will influence the future of the World economic. Bibliography problem is also important for North Africans Countries, which receive millions of euro is France. In this situation also is Turkey with millions of immigrants in Germany.

sovereign default? Philadelphia, PA: Wharton Financial Institutions Center Press, 2011. 2. 3. MATOUSEK Roman. Financial integration in the European Union. London: Routledge, 2012. Structure of government debt in Europe in 2011. Eurostat, 2011.

(http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-12-034/EN/KS-SF-12-034-EN.PDF) 4. 5. BBC News: Eurozone Crisis (http://www.bbc.co.uk/news/business-18094883) NY Times: European Debt Crisis

(http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sovereign_debt_crisis/index.html) 6. EUROPEAN COUNCIL 24/25 MARCH 2011: CONCLUSIONS

(http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/120296.pdf) 7. 8. The EU Crisis Pocket Guide (November 2012) (http://www.tni.org/briefing/eu-crisis-pocket-guide) Leaving the Euro: A Practical Guide

(http://www.policyexchange.org.uk/images/WolfsonPrize/wolfson%20economics%20prize%20winning%20entry.pdf ) 9. 10. 11. Rainer Lenz Crisis in the Eurozone. Dutch, 2011. (http://library.fes.de/pdf-files/id/ipa/08169.pdf) World Economic Situation and Prospects 2012 (WESP) Global Financial Stability Report (GFSR)