Europe's crisis in action
Europe's "criminal" mistake in 2008 was that at the time of the collapse of the banks, Europe's leaders decided that their rescue should be left to the governments of each country. So the banks were rescued, but they remained in a "dead state". This is because no national government had the money and political will to do what it ought to do - to liquidate its own banks, to deliver them soundly to the private sector, to put limits on new dangerous moves to issue synthetic debts (toxic derivatives). ) etc.
Under pressure from Washington and the leaders of the International Monetary Fund, European leaders were led to the establishment of the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF).
The basic tool of the European Stabilization Mechanism (ESM) is the credits and guarantees for credits given to heavily indebted Member States, at a subsidized interest rate, by the most powerful Member States. The ESM agreement states that any Member State that offers the mechanism is obliged to implement a long-term adjustment program on the one hand, and a debt analysis is viable on the other.
The ESM will be funded with a base capital of € 80 billion by the Member States, which will pay them in five annual installments. In addition, under the standards of the interim mechanism, they could issue bonds worth up to 420 billion with guarantors in the Member States (Christoforou, 2011)
The European Financial Stability Facility (EFSF) is a company with a specific purpose, which established 16 countries in the eurozone in June 2010.
The purpose of the EFSF is to maintain the financial stability of the euro area through the provision of temporary financial assistance to probationers. To achieve this goal, the EFSF has made it possible to issue flexible bonds and other securities, with financial guarantees from eurozone member states.
A major advantage of the EFSF is that it can be borrowed at a lower interest rate because all three of the world's largest credit rating agencies pay the EFSF the highest or highest ratings.
The EFSF can directly buy bonds issued by eurozone member states with financial problems (Christoforou, 2011). This mechanism will potentially cause greater disaster in the crisis.
Greece continues to borrow from member states, mainly from Germany and France, at high interest rates to cover the obvious shortfall in the ability to repay loans.
This soon became a problem for the international community and the eurozone, which, under pressure, agreed with the Greek side to sign the Memorandum on 5 May 2010.
This includes the financial assistance of Greece amounting to 80 million euros from the countries of the eurozone and 30 billion euros from the International Monetary Fund with a low interest rate, provided that it follows structural adjustments under the sub-plan.
Among the measures are wage cuts, reduction of benefits by 10%, reductions in overtime and travel.
Book:P.Ioakeimidis 'Crisis in Europe'