Euro area bail-outs

  Greece, Ireland and Portugal have received financial support from the rest of the European Union and from the International Monetary Fund, given their impossibility to access private financing under reasonable conditions. In exchange, they have to apply adjustment plans to sort out their public accounts and get back on the path to growth. Should the economic and financial deterioration of these countries be stopped and reversed, the crisis's contagion to other members of the euro area should be contained, thereby preventing it from jeopardizing the euro's survival.

  The starting point dates back to autumn 2009, when it was realized that the budget figures provided by Greece's government did not add up. The unsustainable situation of the public accounts was hidden via accounting irregularities. When the truth came out, doubts soared regarding the capacity of the Greek economy to meet its public debt payments. Given the dead-end in which Greece found itself, at the beginning of May 2010 a bail-out was established totalling 110 billion euros. In exchange, Greece undertook to adjust its economy and its public accounts: raising taxes, cutting the wages and numbers of civil servants, reducing pensions and combating tax fraud. Numerous general strikes have accompanied the implementation of these measures.

  In spite of the efforts made to put an end to the crisis, the Greek case led to a lack of confidence in financial markets regarding those economies of the euro area in the worst situation. The next victim was Ireland which, in November 2010, had to be bailed out. Unlike the case of Greece, Ireland's problems came from the maladjustment of its real estate sector and its overlarge banking sector. The 85 billion euros of financial aid are aimed fundamentally at recapitalizing, restructuring and reducing the size of its banking sector. In exchange: tax hikes, job cuts in the public sector, cuts in social spending, etc. The next domino to fall was Portugal when, at the beginning of April 2011, it asked for the financial support mechanism to be activated: 78 billion euros. The deterioration of its public accounts, its gradual loss of competitiveness over the last few years and growing external imbalance had turned the Portuguese economy into another propitiatory victim of the financial turbulences.

  These plans to sort out and rescue economies have had differing results. In the case of Portugal, it's still too early to say, as the plan wasn't implemented until May 2011. Ireland is doing well, having stabilized its financial system and making progress in the macroeconomic area. Greece is the most problematic case, given that its economy has hardly improved and access to the capital market is still blocked, so that another aid programme has had to be set up, this time totalling 109 billion euros.

  Many wonder whether the tough adjustment conditions demanded by these bail-outs are merely deteriorating the economy even further, thereby complicating the adjustment of the public accounts. What is true is that any adjustment must necessarily weigh heavily on the real economy, as members of the euro area lack any monetary or exchange rate instruments. But even with monetary and exchange rate autonomy, under the current conditions real adjustment is inevitable, as illustrated by the British case and even in the United States. A reasonable, realistic, balanced plan of adjustments and reforms that emphasizes the recovery of competitiveness is the best formula to restore investor confidence and repair imbalances that should never have occurred in the first place.

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