The impacts of the financial crisis in Europe have been severe and far-reaching. Billions of dollars have been loaned out to struggling countries; banks have turned belly up as they are unable to pay back debts; elections have been won and lost; “austerity” and “bailout” have become household words.
Now that Europe appears to be in the early stages of a recovery, many economists are trying to tally what we can learn from the crisis. Some have said that austerity measures were too harsh, imposing unrealistic goals on countries that were put into a trap from which it was too hard to recover.
Others have called for increased bank supervision to ensure that banking systems across the continent remain healthy. The question is especially pertinent given that another round of bank bailouts may be needed sooner rather than later, with Slovenia projected by some analysts to become the next victim of the banking plague.
The problem is that several of the countries that have received aid money are continuing to struggle even as the rest of Europe picks up. Let’s take a look at the five major countries to receive bailouts and how they’re doing now.
The most recent country to see a collapse is Cyprus: It took until March for the banking sector there to require international assistance. The country’s largest bank, Bank of Cyprus, went through a major period of restructuring, while the country’s second largest bank, Cyprus Popular Bank, had to be shut down entirely for a period in order to prevent a run in. This was bad news for people who kept their money in the country, some of whom were restricted to withdrawing 300 euros per day from their accounts during the meltdown.
September saw good news for the Mediterranean country, with international organizations approving the next phase of a projected 10 billion euro bailout deal. These groups cited restructuring of the public sector, accounting initiatives, exploration of the sale of state-owned assets, and other austerity measures as positive signs that the country is trying to keep the situation under control. Still, until unemployment levels return to pre-crisis levels, this island is far from the Mediterranean paradise some have envisioned it to be.
The failure of the Irish banking sector came as a surprise to many, considering that its members had passed a series of checks that investigated banking assets a short time prior to the announcement that the institutions were failing. The bailout total for the country came to some 85 billion euros, 22 million euros of which were provided by the International Monetary Fund — that’s more than 10 times the amount that has been projected for Cyprus.
Today, though, Ireland stands as the country that could be the first to exit the bailout program. The most likely solution for Ireland is to enter into a scheme whereby the European Central Bank buys bonds from the country: This means that the country would no longer be accruing debts specifically to international groups, and it has more stringent measures in place to qualify for the series of so-called outright monetary transactions. There is still the hurdle of more austerity measures to climb, though, as a package that includes 3.1 billion euros worth of cuts and tax hikes that was due to be implemented in 2014 remains controversial in the Irish Parliament and among Irish citizens.
The sum of money requested from international organizations by Portugal totals 78 billion euros. Though slightly less than the Irish sum, Portugal felt the need for international aid when rising bond rates made it virtually impossible for the country to raise the funds that it required to cover its budgetary needs. As unemployment rates rose, the government turned to international organizations in mid-2011.
The main problem for Portugal was not so much the banking system — at least, not immediately — but the public sector, which was rampant with patronage and ate up more money than it could take in. With government spending out of control and no money available from bonds, the country had to turn to extreme austerity measures to get the situation under control. While things appear to be getting better, the restructuring process for Portugal is by no means a walk in the park.
The crisis in Spain actually originated with a housing bubble. When prices dropped at some of the fastest rates on the continent at the end of the first decade of the 2000s, it was banks — not just real estate agents and homeowners — that found themselves on the short end of the stick. In 2012, Spain had to turn to the European Central Bank for assistance in restructuring its financial sector.
The reforms included trimming and bolstering Spain’s top three banks as well as the creation of SAREB, a so-called “bad bank” to absorb questionable and under-performing assets. The price tag for the reforms has so far come in at 41 billion euros, which is not bad, considering some of the other figures on this list. However, since 100 billion euros was approved for the country last year, it is possible that the sum will increase before the end of the crisis. With debt levels approaching 100 percent of gross domestic product and unemployment levels still well over 25 percent, Spain still has a long way to go before it’s out of the woods.
The country atop this list, Greece, comes as no surprise to anyone familiar with the European debt crisis. Facing massive budget shortfalls and the prospect of defaulting on its government debt, Greece has so far required two bailout programs from its so-called troika of international lenders. The price tag on the two bailouts comes to some 240 billion euros, nearly three times the next largest amount requested by a European nation.
Greece has had to pay the cost of accepting international bailout money. Besides undergoing a strict austerity program that has cut thousands of public sector jobs, the country faces the prospect of selling off state-held assets and restructuring its real estate holdings. Meetings between Greek government officials and representatives from groups like the International Monetary Fund and the European Central Bank are ongoing as the organizations attempt to assess the efficacy of the Greek government’s actions.
The worst part of the situation in Greece is that the situation is still far from showing a tangible improvement. The latest unemployment data have shown an increase in rates to nearly 28 percent, with some organizations projecting that the rate could reach the mid-30s a few years down the road. While the Greek government is on track to get into the black this year if it could ignore past debt payments, there is still a long way to go for the Mediterranean nation, which is projected to require an additional 10 billion euros of bailout money to breach a gap in the budget during the second half of 2014.