Briefing Note on

Euro Zone Crisis and its Impact on India

July 2012

Briefing Note on Euro Zone Crisis and its Impact on India

Contents
Executive
summary
. 3
Section 1 Global economic
scenario 4
Gross Domestic
Product
4
Debt to GDP ratio

.6
Current Account Balance
(CAB)7

Section 2 Global uncertainty and its impact on

India9
Impact on
exports
..9
Relationship between FIIs, Sensex and Exchange Rate
.12

Annexure

..17
Time lines: Euro zone
crisis17

Briefing Note on Euro Zone Crisis and its Impact on India

Section 1 Global economic scenario
The weakness that is being seen in major developed economies poses a risk to world economic
stability. The abysmal fiscal deficit situation has also now evolved into a source of political
contention. According to certain sections the prime reason behind the increasing deficits has been
falling government revenues and rising social benefit payments. The rise in the borrowings cost has
further compounded this situation. This rising public debt has engendered political and financial stress
in a number of European countries and, more broadly, has undermined support for further fiscal
stimuli.
A much weaker recovery of the world economy is far from a remote possibility, especially as
continued high unemployment, financial fragility, enhanced perceptions of sovereign debt distress and
inadequate policy responses could further undermine business and consumer confidence in the
developed countries.
Economic growth may remain moderate over coming quarters owing to weak global outlook in general
and contagion of the Euro Zone crisis in particular. Primarily talking about the slowdown that is being
seen in the Euro Area, one can see that it is spreading through the channels of trade, finance and
business and investor confidence sentiments to other emerging economies as well. Moreover, the
recent talks about possible fiscal consolidation measures being undertaken by some of the advanced
economies could further impact demand and growth adversely.
We try and assess the global situation by looking at primarily three parameters:
3

Gross Domestic Product

Gross Debt to GDP Ratio
Capital Account Deficit

Gross Domestic Product

The developed economies (excluding Euro Zone): In 2011 most of the developed economies witnessed
a slowdown in GDP growth rates vis--vis 2010. As the data shows the US economy growth declined
from 3.0 per cent in 2010 to 1.7 per cent in 2011. Similarly UKs GDP growth slowed down to 0.7
per cent in 2011 from the 2.1 per cent that was seen in 2010. Japans economy saw a deceleration
with its growth falling by 0.7 per cent in 2011 vis--vis the 4.4 per cent growth that was recorded in
2010.
Euro Zone: The IMF data suggests that the GDP growth for the European Union in 2011 was 1.6 per
cent as against a higher growth of 2.0 per cent that was there in the year 2010. Within the EU we see
that Greece, which has been at the center of everyones attention, has seen its economy decelerating
right from the year 2008.
Further, owing to demand that has been seen of lately for an austerity drive to be adopted by the
troubled Euro countries to bring down their rather precarious debt position has led to a sharp
downturn in economic activities thereby resulting in the Euro Zone demand dwindling.
Developing economies: As against this the developing countries were able to show greater resilience.
Apart from Brazil most of the other BRICS nations did not witness a major change in their GDP
growth rates. South Africa in fact registered a higher growth rate of 3.1 per cent in 2011 as against 2.9
per cent that was there in 2010. Russia too was able to hold on to its growth rate. Although China and
India did see slight moderation in their respective growths but that was there as they had been
growing at very high rates for consistently for the past few years.
Refer table 1 for trend in GDP growth rates over the last few years for major economies.
Table 1
GDP growth rate at constant price
2006

2007

2008

2009

2010

2011

2012

Japan

1.7

2.2

-1.0

-5.5

4.4

-0.7

2.0

United Kingdom

2.6

3.5

-1.1

-4.4

2.1

0.7

0.8

United States

2.7

1.9

-0.3

-3.5

3.0

1.7

2.1

Austria

3.7

3.7

1.4

-3.8

2.3

3.1

0.9

Belgium

2.7

2.9

1.0

-2.8

2.3

1.9

0.0

Cyprus

4.1

5.1

3.6

-1.9

1.1

0.5

-1.2

Estonia

10.1

7.5

-3.7

-14.3

2.3

7.6

2.0

Finland

4.4

5.3

0.3

-8.4

3.7

2.9

0.6

France

2.7

2.2

-0.2

-2.6

1.4

1.7

0.5

Germany

3.9

3.4

0.8

-5.1

3.6

3.1

0.6

Greece

4.6

3.0

-0.1

-3.3

-3.5

-6.9

-4.7

Ireland

5.3

5.2

-3.0

-7.0

-0.4

0.7

0.5

Italy

2.2

1.7

-1.2

-5.5

1.8

0.4

-1.9

Luxembourg

5.0

6.6

0.8

-5.3

2.7

1.0

-0.2

Malta

2.9

4.3

4.1

-2.7

2.3

2.1

1.2

Netherlands

3.4

3.9

1.8

-3.5

1.6

1.3

-0.5

Portugal

1.4

2.4

0.0

-2.9

1.4

-1.5

-3.3

Slovak Republic

8.3

10.5

5.8

-4.9

4.2

3.3

2.4

Slovenia

5.9

6.9

3.6

-8.0

1.4

-0.2

-1.0

Spain

4.1

3.5

0.9

-3.7

-0.1

0.7

-1.8

Advanced economies

3.0

2.8

0.0

-3.6

3.2

1.6

1.4

Euro area

3.3

3.0

0.4

-4.3

1.9

1.4

-0.3

European Union

3.6

3.4

0.5

-4.2

2.0

1.6

0.0

Developing Asia

10.3

11.4

7.8

7.1

9.7

7.8

7.3

ASEAN-5

5.7

6.3

4.8

1.7

7.0

4.5

5.4

Latin America and the

Caribbean
Middle East and North Africa

5.7

5.8

4.2

-1.6

6.2

4.5

3.7

6.1

5.6

4.7

2.7

4.9

3.5

4.2

Brazil

4.0

6.1

5.2

-0.3

7.5

2.7

3.0

China

12.7

14.2

9.6

9.2

10.4

9.2

8.2

India

9.5

10.0

6.2

6.6

10.6

7.2

6.9

Indonesia

5.5

6.3

6.0

4.6

6.2

6.5

6.1

Russia

8.2

8.5

5.2

-7.8

4.3

4.3

4.0

South Africa

5.6

5.5

3.6

-1.5

2.9

3.1

2.7

Turkey

6.9

4.7

0.7

-4.8

9.0

8.5

2.3

Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF
projection
Figures from 2012 onwards are IMF
projection

However, in todays globally integrated world, it is highly uncertain as to whether the developing
countries would be able to sustain their growth momentums. This is because as the GDP in the
developed nations along with the Euro Zone declines even further, the exports to these countries is
bound to get affected adversely. Moreover, the financial economy in the developing countries will also
be impacted as Capital Flows (FDI & FIIs) might see a slowdown due to the gloomy global
conditions.
Debt to GDP ratio

Growing Debt has been a major reason for the current crises that most of the European nations find
themselves in. Although, some amount of debt shall always have to be borne upon to induce growth
in the economy however it is the continued overdependence on borrowings that are bound to have dire
consequences and dilute the fiscal positions of the government. Specifically talking about the PIIGS
(Portugal, Ireland, Italy, Greece, and Spain) nations we see that their debt levels were so high that it
became almost impossible for them to repay their loans, and thus most of them approached either the
other better placed European partners or the International Monetary Fund for loans in order to
sustain themselves.
Furthermore, as seen in the previous section the slowing down of the economic growth in these
countries is going to further have repercussions on the financial stability of the region. As slowdown
in growth would invariably lead to lower tax revenue being generated thereby hampering the
governments repaying capacity.
As seen from the data the general government debt as percentage of GDP in case of Greece, Ireland,
Italy, and Portugal has been more than 100 per cent in the year 2011. In fact in case of both Greece
and Italy this has been the case ever since 2008. The high interest on government debt of these
countries almost triggered off a virtual bankruptcy. Such huge and unsustainable sovereign debts
resulted in a sovereign debt crisis in Euro zone. Refer table 2 for data on debt to GDP ratio.

Table 2
General government gross debt as % of GDP
Country

2008

2009

2010

2011

2012

2013

Japan

191.8

210.2

215.3

229.8

235.8

241.1

United Kingdom

52.5

68.4

75.1

82.5

88.4

91.4

United States

76.1

89.9

98.5

102.9

106.6

110.2

Austria

63.8

69.5

71.8

72.2

73.9

74.3

Belgium

89.3

95.9

96.2

98.5

99.1

98.5

Cyprus

48.6

58.3

61.3

71.8

74.3

75.2

Estonia

4.5

7.2

6.7

6.0

5.7

5.4

Finland

33.9

43.5

48.4

48.6

51.6

52.8

France

68.3

79.0

82.4

86.3

89.0

90.8

Germany

66.7

74.4

83.2

81.5

78.9

77.4

Greece

110.7

127.1

142.8

160.8

153.2

160.9

Ireland

44.2

65.2

92.5

105.0

113.1

117.7

Italy

105.8

116.1

118.7

120.1

123.4

123.8

Luxembourg

13.7

14.8

19.1

20.8

23.8

26.8

Malta

62.3

68.0

69.4

70.9

71.4

70.7

Netherlands

58.5

60.8

62.9

66.2

70.1

73.7

Portugal

71.6

83.1

93.4

106.8

112.4

115.3

Slovak Republic

27.9

35.6

41.1

44.6

47.1

48.8

Slovenia

21.9

35.3

38.8

47.3

52.5

55.9

Spain

40.2
53.9
61.2
68.5
79.0
84.0
Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF projection
Figures from 2012 onwards are IMF

projection

Current Account Balance (CAB)

Countries engage in international trade for a variety of reasons. Exports are a means of generating
foreign exchange which can be used in financing the imports, obtain economies of specialization,
exports also act as an important means to measure the competitiveness of a countrys industries.
Most of the major economies within the European Union have had a rather weak current account
balance position. The data reflects the decline in the competitiveness of most of the European
nations exports.
The weak current account position would invariably mean dependence on capital flows to maintain
the balance of payments position. This however under the prevailing conditions could further
aggravate the external debt situations of various economies.
Specifically looking at the Euro Zone situation we see that amongst the PIIGS nations barring Ireland
all the remaining four nations have a negative CAB as a percentage of GDP. In fact that has been the
case for them ever since 2008. Greeces current account deficit as percentage of its GDP stood at 9.7
per cent in 2011. Refer table 3 for figures on current account balance.
Table 3
Current account balance as % of GDP
Country

2008

2009

2010

2011

2012

2013

Japan

3.2

2.8

3.6

2.0

2.2

2.7

United Kingdom

-1.4

-1.5

-3.3

-1.9

-1.7

-1.1

United States

-4.7

-2.7

-3.2

-3.1

-3.3

-3.1

Austria

4.9

2.7

3.0

1.2

1.4

1.4

Belgium

-1.6

-1.7

1.5

-0.1

-0.3

0.4

Cyprus

-15.6

-10.7

-9.9

-8.5

-6.2

-6.3

Estonia

-9.7

3.7

3.6

3.2

0.9

-0.3

Finland

2.6

1.8

1.4

-0.7

-1.0

-0.3

France

-1.7

-1.5

-1.7

-2.2

-1.9

-1.5

Germany

6.2

5.9

6.1

5.7

5.2

4.9

Greece

-14.7

-11.0

-10.0

-9.7

-7.4

-6.6

Ireland

-5.7

-2.9

0.5

0.1

1.0

1.7

Italy

-2.9

-2.1

-3.5

-3.2

-2.2

-1.5

Luxembourg

5.1

6.5

7.7

6.9

5.7

5.6

Malta

-5.3

-8.3

-6.4

-3.2

-3.0

-2.9

Netherlands

4.3

4.2

6.6

7.5

8.2

7.8

Portugal

-12.6

-10.9

-10.0

-6.4

-4.2

-3.5

Slovak Republic

-6.6

-3.2

-3.5

0.1

-0.4

-0.4

Slovenia

-6.9

-1.3

-0.8

-1.1

0.0

-0.3

Spain

-9.6
-5.2
-4.6
-3.7
-2.1
-1.7
Source: International Monetary Fund, World Economic Outlook Database, April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF projection
Figures from 2012 onwards are IMF
projection

Section 2 Global uncertainty and its impact on India

Impact on exports
Indias exports are fairly well diversified across countries and Indias exports are positively linked to
the global economic growth. The current global economic slowdown has its emergence in the Euroregion but the contagion is being witnessed in all major economies of the world. Several countries are
seeing a slowdown in their economic growth. For instance, we take two developed economies, EU
countries and emerging market economies to analyze the impact of euro crisis on Indias exports.
Graph 1
Growth rate of developed economies (Percent)

Source: International Monetary Fund, World Economic Outlook Database, April

2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF
projection

Figures from 2012 onwards are

IMF projection

From the graph given above it is amply clear that growth in these developed countries has not been
consistent with the more recent years seeing a deceleration in growth. Indias exports are driven by
growth in the global markets. And if we look at the share in Indias global exports of some of these
countries and other nations facing economic uncertainty, then we see this figure trending down
indicating that the erstwhile growth markets for our exports are somewhat loosing their importance.
See table 4 for details on this last point.
Graph 2 indicates that the euro areas economic growth rate was in negative in 2012 and declining at a
very fast rate. Since 2008 the European economies have been seeing a weakening of the growth
momentum and now again some of these countries are on the brink of a recession.

Graph 2
Growth rate of PIIGS economies (Percent)

Source: International Monetary Fund, World Economic Outlook Database,

April 2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF
projection

Figures from 2012 onwards

are IMF projection

The 27 EU countries have a share of 18.6 percent in Indias exports and it is the second largest
destination for our exports. The euro areas instability had been negatively reflected in Indias exports
to the euro region.
The share of EU countries in Indias total exports has declined from 20.2 percent in 2009-10 to 18.6
percent in 2010-11 on account of the sovereign debt crisis in major economies of this region. If we
look at our exports to the PIIGS countries, then we see that the share of these countries in Indias
overall exports has declined with time. See table 4 for details.
Now look at the growth performance of the BRICS partner countries over the last few years. Here we
see that growth in these countries too has decelerated but the extent of slowdown is much less than
what is seen in case of some of the developed countries including those in the EU region.

10

Graph 3
Growth rate of BRICS partners economies (Percent)

Source: International Monetary Fund, World Economic Outlook Database, April

2012
Note: 2011 Figures for Cyprus, Greece, Malta, Portugal, Spain are IMF

projection

Figures from 2012 onwards are

IMF projection

Table 4
Composition of Indias exports: Share of major trading partners
2004-05

2005-06

2006-07

2007-08

2008-09

Developed Economies
14.92
12.71

USA

16.48

16.83

UK

4.41

4.91

4.45

Japan

2.55

2.41

2.27

Germany

3.38

3.48

Portugal

0.27

0.25

0.29

Spain

1.66

1.56

Italy
France

2.74

2009-10

2010-11

20112012(AprSep)

11.41

10.93

10.17

11.18

4.11

3.59

3.48

2.84

2.82

2.37

1.63

2.03

2.07

1.81

3.45

3.03

2.69

2.69

0.30

0.24

0.21

0.21

0.19

1.49

1.41

1.37

1.14

1.02

0.98

2.44

2.84

2.40

2.06

1.90

1.81

1.72

2.01

2.02

1.66

1.59

1.63

2.14

2.02

1.34

Netherland

1.92

2.40

2.12

3.22

3.43

3.58

3.09

2.83

Ireland
Greece

0.25

0.27

0.18

0.19

0.24

0.15

0.11

0.11

0.37

0.55

0.53

0.33

0.47

0.25

0.14

0.25

21.85

22.53

21.23

21.17

21.24

20.16

18.64

17.13

Brazil

0.81

1.06

BRICS Partners
1.15
1.55

1.43

1.35

1.58

1.87

Russia

0.76

0.71

0.71

0.58

0.59

0.55

0.63

0.55

China

6.72

6.56

6.58

6.66

5.05

6.50

7.81

5.15

EU Countries
(27)

European Countries
3.15
3.14

11

South Africa

1.18

1.48

1.77

1.63

1.07

1.15

1.59

1.45

Source: Ministry of
Commerce, Govt. of India

Relationship between FIIs, Sensex and Exchange Rate

In this section we analyze the trends in the foreign institutional investment flows, the movement in
Sensex and the movement in the exchange rate. We do this looking at data for the period 2008 to 2012.
We start with 2008 to understand if the global liquidity crisis (that had its origins in the US) had any
impact on the Indian markets or not.
As the graphs below show, in 2008-09 FIIs had pulled out money from India for most part of the
year. This is understandable because the many of these investors were facing difficulties in their home
markets and to partly compensate for the losses being faced at home, they moved money out from
many emerging markets including India. This outflow or rather the withdrawal of money from India
had two effects. One, it took a toll on the sensex and two, it put pressure on the Rupee that saw it
value plummet from Rs. 40 to a $ in April 2008 to over Rs. 50 to a $ in March 2009.

Beginning fiscal 2009-10, market sentiments started improving and FIIs were seen to return back to
the Indian markets. In the months following March 2010, India emerged as one of the better
performing markets globally and this was support by our own good economic performance as well as
improvement seen in some parts of the developed world. FII flows into India were robust through the
period April to September 2010. And this trend was accompanied by an improvement in the market
performance. On one hand the sensex rose and on the other hand we saw the value of the Indian
Rupee gaining strength against the $.

12

The year 2010-11 saw a similar trend developing. FIIs pumped in sizable amounts in the Indian
market barring the months of May and February when there was a net outflow of funds. This was a
sign of confidence amongst foreign investors with regard to the growth prospects for the Indian
market. This was also a period when the sensex saw some improvement in its level.

While 2009-10 and 2010-11 proved to be good from the point of view of foreign investment inflows,
things changed quiet a bit in 2011-12. As the crisis in the Euro zone intensified, FIIs once again came
under pressure and started withdrawing from emerging markets including India. This movement
13

(which paralleled trends we saw in 2008-09) led to a decline in the Sensex as well as loss in value of
the INR against the $.

Source:
FII has been taken from SEBI
Sensex
data taken from BSE website

Monthly Exchange Rate is Months

trading days average

The data given in the table below and the graphs based on this set of numbers show that there is a
clear link or rather a strong relation between FII flows and movement in the BSE Sensex. Both in
2008-09 and in 2011-12, which were periods of widespread uncertainty and pessimism in most of the
developed countries across the world, we witnessed a slowdown (and on most occasions a
withdrawal) of FII flows into the country. And this had a direct bearing on the movement in the
Sensex, which went down every time FIIs pulled money out of India. Likewise there exists a relation
between FII flows and movement in the exchange rate. Whenever FIIs have pulled money out of the
Indian market, the INR has lost its value and depreciated against the $.
Table 5
FII flows, Sensex and Exchange Rate
FII
2008-09

Direct Impact

Sensex

Impact of FII and Sensex

Exchange Rate

April

-627

15,772

40.0

May

-5,174

17,560

42.1

Jun

-11,095

16,591

42.8

July

1,782

13,480

42.8

Aug

46

14,064

42.9

14

2009-10

2010-11

2011-12

Sep

-5,074

14,413

45.6

Oct

-17,205

13,007

48.7

Nov

1,617

10,209

49.0

Dec

2,377

9,163

48.6

Jan

-3,443

9,721

48.8

Feb

-3,124

9,340

49.3

Mar

-5,890

8,763

51.2

April

8,999

9,746

50.1

May

17,406

11,635

48.5

Jun

4,898

14,747

47.8

July

13,182

14,506

48.5

Aug

4,523

15,695

48.3

Sep

20,573

15,691

48.4

Oct

15,973

17,186

46.7

Nov

6,181

15,839

46.6

Dec

8,711

16,947

46.6

Jan

8,413

17,473

46.0

Feb

4,363

16,339

46.3

Mar

29,438

16,438

45.5

April

12,393

17,555

44.5

May

-6,986

17,537

45.8

Jun

11,249

16,943

46.6

July

24,724

17,679

46.8

Aug

14,686

17,911

46.6

Sep

32,668

18,027

46.1

Oct

24,303

20,094

44.4

Nov

21,211

20,272

45.0

Dec

3,214

19,530

45.2

Jan

5,364

20,622

45.4

Feb

-3,270

18,425

45.4

Mar

6,883

17,982

45.0

April

7,196

19,463

44.4

May

-4,276

19,224

44.9

Jun

4,883

18,527

44.8

July

10,653

18,975

44.4

Aug

-7,903

18,352

45.4

Sep

-1,866

16,964

47.7

Oct

3,079

16,256

49.3

Nov

-3,263

17,541

50.8

Dec

21,873

16,556

52.5

Jan

26,329

15,535

51.2

Feb

35,228

17,180

49.2

15

2012-13

Mar

1,793

17,715

50.4

April

-4,897

17,430

51.8

May

17,371

53.4

Jun

16,217

55.5

Recently we have seen that the RBI in consultation with the government has announced a series of
measures to open up the capital account further. These measures which include steps like increasing
the investment limit in the government bond market, making terms for availing and use of ECBs by
corporates a little more flexible, expanding the list of potential investors in the G-SEC market are
encouraging and have been taken with the view to encourage more capital flows into the country and
to prop up the sliding Rupee.
However, reactions from an array of stakeholders show that these measures would be of limited use
unless they are backed by key structural reforms that have a bearing on the overall investment
environment. These policy changes have not resulted in any fresh and sizable flows and this is a sign
of lack of confidence in the investor community with regard to Indias economic environment and its
growth prospects in the near term.
Our large and growing fiscal deficit as well as current account deficit is having a bearing on the
exchange rate. This is also affecting our credit rating with many large sovereign rating agencies issuing
a warning to that affect. This has led to an increase in the interest rates that are being charged to or
asked from Indian borrowers in the international market and hence any move to encourage ECBs
would see its impact getting diluted due to this factor.
It may be noted that FDI or direct investment is of a more durable variety. FDI inflows into the
country do not get too influenced by volatility in the global financial markets. We have seen this as
during periods of stress in the recent past, FDI flows have remained robust with only occasional dips.
The policy makers must therefore make an effort to promote such inflows to stem the continuing
weakness of the Indian Rupee. Alternatively they can consider bringing the current account and the
trade deficit under control by extending price decontrol measures to products like diesel, further
discouraging imports of gold and promoting the domestic capital goods sector.

16

Annexure
Time lines: Euro zone crisis
2008

2009

2010

2011

EU leaders agree on a 200bn-euro stimulus plan

In April, the EU orders France, Spain, the Irish Republic and Greece to reduce their budget
deficits
In December, Greece admits that its debts have reached 300bn euros
Greece is burdened with debt amounting to 113% of GDP - nearly double the Euro zone limit
of 60%. Ratings agencies start to downgrade Greek bank and government debt.

In February, Greece unveils a series of austerity measures aimed at curbing the deficit.
On 11 February, the EU promises to act over Greek debts and tells Greece to make further
spending cuts.
The Euro zone and IMF agree a safety net of 22bn euros to help Greece
The EU announces that the Greek deficit is even worse than thought after reviewing its
accounts - 13.6% of GDP, not 12.7%.
2 May, the Euro zone members and the IMF agree a 110bn-euro bailout package to rescue
Greece.
In November, the EU and IMF agree to a bailout package to the Irish Republic totaling 85bn
euros.

In February, Euro zone finance ministers set up a permanent bailout fund, called the European
Stability Mechanism, worth about 500bn euros.
In April, Portugal admits it cannot deal with its finances itself and asks the EU for help.
In May, the Euro zone and the IMF approve a 78bn-euro bailout for Portugal.
In July, the Greek parliament votes in favour of a fresh round of drastic austerity measures,
the EU approves the latest tranche of the Greek loan, worth 12bn euros.
In August, European Commission President Jose Manuel Barroso warns that the sovereign
debt crisis is spreading beyond the periphery of the Euro zone.
On 7 August, the European Central Bank says it will buy Italian and Spanish government
bonds to try to bring down their borrowing costs, as concern grows that the debt crisis may
spread to the larger economies of Italy and Spain.
Italy passes a 50bn-euro austerity budget to balance the budget by 2013 after weeks of
haggling in parliament.
On 4 October, Euro zone finance ministers delay a decision on giving Greece its next
installment of bailout cash, sending European shares down sharply.

17

2012

On 6 October the Bank of England injects a further 75bn into the UK economy through
quantitative easing, while the European Central Bank unveils emergency loans measures to
help banks.
On 14 October G20 finance ministers meet in Paris to continue efforts to find a solution to the
debt crisis in the Euro zone.
On 21 October Euro zone finance ministers approve the next, 8bn euro ($11bn; 7bn), tranche
of Greek bailout loans, potentially saving the country from default.
On 26 October European leaders reach a "three-pronged" agreement described as vital to solve
the region's huge debt crisis.

On 13 January, credit rating agency Standard & Poor's downgrades France and eight other
Euro zone countries, blaming the failure of Euro zone leaders to deal with the debt crisis.
On 12 February, Greece passes the unpopular austerity bill in parliament - two months before
a general election.
On February 22, a Markit survey reports that the Euro zone service sector has shrunk
unexpectedly, raising fears of a recession.
March begins with the news that the Euro zone jobless rate has hit a new high.
On 13 March, the Euro zone finally backs a second Greek bailout of 130bn euros.
On 12 April, Italian borrowing costs increase in a sign of fresh concerns among investors about
the country's ability to reduce its high levels of debt.
On 25 May, Spain's fourth largest bank, Bankia, says it has asked the government for a bailout
worth 19bn euros ($24bn; 15bn).
On 9 June, after emergency talks Spain's Economy Minister Luis de Guindos says that the
country will shortly make a formal request for up to 100bn euros ($125bn; 80bn) in loans
from Euro zone funds to try to help shore up its banks.
On 12 June, optimism over the bank bailout evaporates as Spain's borrowing costs rise to the
highest rate since the launch of the euro in 1999.
On 15 June, former UK Chancellor of the Exchequer Gordon Brown underlined fears of
contagion with a warning that France and Italy may need a bailout.
On 17 June, Greeks went to the polls, with the pro-austerity party New Democracy getting
most votes., allaying fears the country was about to leave the Euro zone.

18