How long will the eurozone crisis last

Claus Vistesen of Pantheon Macroeconomics says the economy was stung by a value added tax VAT hike which led to a fall in spending and construction. A temporary VAT cut in Germany - intended to support the economy during the pandemic - came to an end at the turn of the year. Andrew Kenningham of Capital Economics also pointed to supply disruptions hitting Germany's large manufacturing sector, especially the motor industry.

The bigger picture is a region where economic activity has been set back once again by the spread of the virus and restrictions imposed to curb it. The figures are particularly bleak in the case of Italy, where the economy is still 6. That said, the economic damage in this phase of the health crisis is less severe.

That supports the idea that businesses have found ways to reduce the impact that restrictions have on what they do, although for some the effect is still severe. Looking ahead, this weak performance is expected to improve as vaccination programmes allow further easing of restrictions and support consumer confidence. In Germany, for instance, industry had been confronted with a decline in value added and a crisis in the exploitation of capital since Hence, the economic cycle that began after the global financial crisis in had already come to an end in , at the latest.

Yet the corona crisis is fundamentally different from the post global financial and economic crisis. While the latter was triggered by the bursting of the subprime mortgage bubble in the United States and spread from the financial markets to the so-called real economy, the measures to contain the coronavirus in most European countries are bringing a large number of industries, in particular tourism, catering, aviation, and non-food trading, to an almost complete standstill.

This is compounded by a severe decline of production in many industrial sectors, especially as global production networks disintegrate. The collapse of these sectors sucks the rest of the economy into the maelstrom of crisis. Ensuing credit defaults and the price erosion on the bond and stock markets shake up the already fragile banking and financial system in Europe.

The default of leveraged loans and collateralized loan obligations , i. Despite these differences, this crisis — just like the global financial and economic crisis after — is likely to be further exacerbated by the architecture of the European Economic and Monetary Union EMU. There are at least three indications of this.

First, the Eurozone crisis from to has never been fully overcome, despite official claims to the contrary. Although current account imbalances declined as a result of austerity policy, economic development remained weak after the devastating crisis years, especially in the southern European member states. Accordingly, unemployment remained high, especially among young people. Average real wages stagnated or fell, as in Spain or Italy, social inequality increased, and public debt surged.

Greece alone is burdened by a colossal debt of percent of GDP, despite the debt restructuring in The Eurozone crisis thus continued to seethe underneath the surface — but was concealed by ECB policies.

This did not, however, address the underlying crisis tendencies, but only suppressed them temporarily. Risk premiums for government bonds of Southern European countries have continued to go up and down over the past years, and with the outbreak of the SARS-CoV-2 virus in Europe, they shot up again, bringing Southern European countries under massive pressure on the financial markets once again. The European elites let the past ten years pass without correcting the fundamental contradictions and constructional flaws of the EMU.

Broadly speaking, these arise from two particular features of EMU architecture. As a result, Eurozone member states can become insolvent in principle, making them vulnerable to speculative attacks on the financial markets and debt crises. These flaws and contradictions in the EMU architecture became apparent in the financial and economic crisis after , and potential remedies have been intensively discussed by both the European institutions and European heads of state and government.

To be sure, these proposals — raised mainly by France and Southern European governments, but also supported by trade unions in Germany — would not challenge the fundamentally crisis-ridden character of capitalist accumulation as such.

What they could achieve, though, is to ensure that the contradictions of the EMU will not once again become the catalyst of a deeper crisis in Europe.

Nonetheless, these proposals have encountered fierce resistance by the Northern bloc in the Eurozone centered around Germany, also including the Netherlands, Austria, and Finland. But this is only part of the picture, particularly as France is one of the main net contributors to the EU. This has made the French power bloc highly dependent on the economic development there, and interested in stimulating it as much as possible.

By contrast, although the German power bloc relies on the euro as a key element in its world-market-oriented export strategy and thus on the preservation of the EMU, it seeks to keep the costs for its stabilization and defense to a minimum — and to outsource them, as far as possible, to the European periphery. This situation is aggravated by the fact that the financial markets remained largely unregulated, even after the last financial crisis.

To make things even worse, the securitization of loans, which played a major role in the last crisis, was revived by the Commission within the framework of the capital markets union, and new financial market risks were created with the introduction of so-called STS securitizations.

In April, the EU orders France, Spain, the Irish Republic and Greece to reduce their budget deficits - the difference between their spending and tax receipts. In October, amid much anger towards the previous government over corruption and spending, George Papandreou's Socialists win an emphatic snap general election victory in Greece. In November, concerns about some EU member states' debts start to grow following the Dubai sovereign debt crisis.

In December, Greece admits that its debts have reached bn euros - the highest in modern history. Ratings agencies start to downgrade Greek bank and government debt. Mr Papandreou insists that his country is "not about to default on its debts".

In January, an EU report condemns "severe irregularities" in Greek accounting procedures. Greece's budget deficit in is revised upwards to In February, Greece unveils a series of austerity measures aimed at curbing the deficit. Concern starts to build about all the heavily indebted countries in Europe - Portugal, Ireland, Greece and Spain. On 11 February, the EU promises to act over Greek debts and tells Greece to make further spending cuts.

The austerity plans spark strikes and riots in the streets. In March, Mr Papandreou continues to insist that no bailout is needed. The euro continues to fall against the dollar and the pound. The eurozone and IMF agree a safety net of 22bn euros to help Greece - but no loans. In April, following worsening financial markets and more protests, eurozone countries agree to provide up to 30bn euros in emergency loans. Greek borrowing costs reach yet further record highs.

The EU announces that the Greek deficit is even worse than thought after reviewing its accounts - Finally, on 2 May, the eurozone members and the IMF agree a bn-euro bailout package to rescue Greece. The euro continues to fall and other EU member state debt starts to come under scrutiny, starting with the Republic of Ireland. The Irish Republic soon passes the toughest budget in the country's history. Amid growing speculation, the EU denies that Portugal will be next for a bailout.

On 1 January, Estonia joins the euro, taking the number of countries with the single currency to In February, eurozone finance ministers set up a permanent bailout fund, called the European Stability Mechanism, worth about bn euros. In April, Portugal admits it cannot deal with its finances itself and asks the EU for help. In June, eurozone ministers say Greece must impose new austerity measures before it gets the next tranche of its loan, without which the country will probably default on its enormous debts.

Talk abounds that Greece will be forced to become the first country to leave the eurozone. In July, the Greek parliament votes in favour of a fresh round of drastic austerity measures, the EU approves the latest tranche of the Greek loan, worth 12bn euros.

A second bailout for Greece is agreed. In August, European Commission President Jose Manuel Barroso warns that the sovereign debt crisis is spreading beyond the periphery of the eurozone. The yields on government bonds from Spain and Italy rise sharply - and Germany's falls to record lows - as investors demand huge returns to borrow.

On 7 August, the European Central Bank says it will buy Italian and Spanish government bonds to try to bring down their borrowing costs, as concern grows that the debt crisis may spread to the larger economies of Italy and Spain. The G7 group of countries also says it is "determined to react in a co-ordinated manner," in an attempt to reassure investors in the wake of massive falls on global stock markets.