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One for all and all for one? The Eurozone’s bailout arrangements

Leblond, Patrick and Paudyn, Bartholomew (2011) One for all and all for one? The Eurozone’s bailout arrangements. European Union Studies Association: EU Political Economy Bulletin (15). pp. 5-10.

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Abstract

The extreme volatility surrounding Greece’s fiscal woes in spring 2010 escalated fears of the potential disintegration of Economic and Monetary Union (EMU). Debt securities of euro area countries – most notably the ‘Club Med’ economies – were attacked by massive short selling as speculative investors wagered that a sovereign credit default was imminent. Not a day passed by without the threat of or an actual downgrade by one of the three main credit rating agencies. As a result, beleaguered member states found themselves overwhelmed by bond market conditions, which they had to satisfy in order to refinance their debts. The spreads between the yields of German debt on the one hand and Greek, Irish and Spanish debts on the other soared to new highs, threatening Italy and Portugal in their wake. Even the euro took a tumbling, from US$1.46 for the month of December 2009 on average to a low point of US$1.22 for June 2010. In spite of the Greek government’s multifarious attempts to restore market confidence with new budgetary cuts and fiscal reforms, it is not until the EU stepped in with a bailout package – after a lot of dithering – that the situation began to stabilize. But it took an even bigger bailout commitment on the EU’s part, in the form of the European Financial Stability Facility (ESFS), to quell the crisis (to some extent). This one was engineered mainly to protect the other member states from the so-called ‘periphery’, especially Portugal and Spain, which had not been able to convince markets that they were immune from contagion from Greece’s fiscal crisis because they could bring their public finances under control. This short article examines the EFSF in terms of its mechanics and its evolution into a permanent fixture of European economic and monetary integration. It also provides an assessment of its broader meaning for the euro and the European integration project more generally.

Item Type: Article
Official URL: https://eustudies.org/interest-sections/political-...
Additional Information: © 2011 European Union Studies Association
Divisions: International Relations
Subjects: H Social Sciences > HC Economic History and Conditions
J Political Science > JN Political institutions (Europe)
J Political Science > JZ International relations
Sets: Departments > International Relations
Date Deposited: 07 Oct 2014 10:29
Last Modified: 31 Aug 2020 23:33
URI: http://eprints.lse.ac.uk/id/eprint/59631

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