European countries have pulled together to create the world’s biggest financial assistance funds. By working together, the European Commission, the International Monetary Fund and the European Central Bank, help governments in need to devise assistance programmes to stabilise fragile economies and address deep-rooted economic problems.
When international investors stopped lending the Greek government the money on which it had grown dependent, euro area finance ministers and the International Monetary Fund (IMF) joined forces. On 2 May 2010 EUR 110 billion was set aside to support the Greek government in implementing reforms that would restore its economy. The money, of which EUR 80 billion came from Greece’s euro area partners, was disbursed by the European Commission in tranches between May 2010 and June 2013, following Greece’s successful implementation of promised reforms.
On 14 March 2012, euro area finance ministers and the IMF approved a second round of economic assistance for Greece, worth EUR 164.5 billion. This time, Greece’s fellow euro area countries stepped in with EUR 144.7 billion through the European Financial Stability Facility, a rescue fund that was launched in August 2010. A deal with financial investors to reduce Greece’s crushing debt burden by almost EUR 200 billion was also arranged.
Disbursement of the money was divided into tranches to be paid out between March 2012 and December 2014, in parallel with the completion of reforms that are crucial to the revival of Greece’s economy.
In November 2012, euro area finance ministers and the IMF agreed to further help Greece by cutting the cost of their loans and giving the country more time to repay them.
Between December 2010 and December 2013 Europe’s rescue funds, the International Monetary Fund, the United Kingdom, Sweden and Denmark, lent Ireland EUR 85 billion to restore its national finances and repair its economy following the collapse of the country’s largest banks.
Ireland’s considerable reforms to restore its finances and reinvigorate its economy paid off. In January 2014, Ireland became the first euro area country to successfully emerge from a macroeconomic assistance programme. It is no longer dependent on international financial assistance and its economy is expected to grow by 1.8 % in 2014 with a current account surplus of 6.8 %.
When financial investors started demanding ever-higher returns for lending to governments, Portugal found itself unable to pay. On 17 May 2011, European finance ministers and the International Monetary Fund agreed to lend Portugal EUR 78 billion to finance its budget deficit, reduce the government’s debts, repair its banking sector, and finance reforms to stimulate economic growth and create jobs. Portugal has already received more than EUR 71 billion, with the rest expected to come by mid-2014. Despite its challenging situation, Portugal’s reforms have significantly improved the country’s finances and its economy. Portugal’s government achieved a budget surplus last year and the economy is set to start growing again this year.
A burst property bubble left the Spanish banking sector holding billions of euros worth of loans that borrowers could no longer repay. Euro area countries used their financial assistance funds, the European Financial Stability Facility and the European Stability Mechanism to help Spain repair its struggling banking sector by setting aside EUR100 billion in loans, that were paid out between July 2012 and December 2013. European help, and advice from the International Monetary Fund, enabled Spain to ensure its viable banks got enough money to start lending again and to safely close banks with no future.
Hurt by the severe recession in Greece and an accident at a major power station, and vulnerable because of its over-sized banking sector, Cyprus turned to its euro area partners for help. On 24 April 2012 euro area governments and the International Monetary Fund agreed to lend Cyprus EUR 10 billion to restructure its banking sector, rebuild its public finances and invest in a more balanced and healthy economy. The money, EUR 9 billion of which comes from the euro area’s European Stability Mechanism rescue fund, is being disbursed in tranches, in parallel with reforms, until 2016.