Late 2000s recession in Europe
Encyclopedia
While the recession of the late 2000s began in the United States
, the crisis spread to Europe rapidly and has affected much of the region with several countries already in recession
as of February 2009, and most others suffering marked economic setbacks. The global recession was first seen in Europe
, as Denmark
was the first country to fall in recession.
in the first quarter of 2008 reported a contraction in GDP of 1.5 percent, its first economic contraction since it began reporting by quarter and first recorded contraction since 1983. However, Ireland's Central Statistics Office reported growth in GNP of about 0.8 percent, Ireland's government considers GNP a better measure of the economy. Analysts have predicted Ireland's economy will contract further in the rest of the year. A report from NCB Stockbrokers predicts gross national product will fall by 1 percent in 2008 and by 0.4 percent in 2009 due to a decline in multinationals hit by the global economic slowdown. An economist from NCB said non-residential investment would fall by 5 percent in 2008 and by 12 percent in 2009. Ireland's GDP saw a contraction in the second quarter by 0.5 percent making Ireland the first member of the eurozone to enter a recession. The government is being advised by Merrill Lynch, the American broker that ran out of capital in September 2008. In January 2009 it was forced to nationalise
its third largest bank, Anglo Irish Bank
and to announce recapitalisation of its top two banks, AIB and Bank of Ireland
. In February 2009, the government announced record unemployment levels in the country, with its highest monthly increase in 40 years and 1,500 people being laid off daily.
Ireland exited the recession in the 3rd quarter of 2009 posting a 0.3% growth in its economy, due to recent heavy budget cuts by the Irish government. However, although they technically exited recession, the Irish economy still has a lot of hurdles to overcome if it is to return to normality.
's Martinsa-Fadesa, a construction company, has declared bankruptcy as it failed to refinance a debt of €5.1 billion. The two banks with most exposure to Martinsa-Fadesa are reportedly Caja Madrid
, at €900m, and Banco Popular Español
, at €400m. Spain's finance minister Pedro Solbes
has said it would not bail out the company. In the second quarter in Spain house prices reportedly fell 20 percent. In Castilla-La Mancha some 69 percent of all houses built over the past three years are still unsold. Deutsche Bank
said it expects a 35 percent fall in real house prices by 2011. Spain's premier, Jose Luis Zapatero, blamed the European Central Bank for making matters worse by raising interest rates. More than 98 percent of home loans in Spain are priced off floating rates linked to Euribor
, which has risen 145 basis points since August. Housing accounts for over 10 percent of Spain's economy. The Bank of Spain is concerned about the health of smaller regional lenders with heavy exposure to the mortgage market.
Although Spain has avoided recession in the first half of 2008, unemployment in the country has risen by 425,000 over the past year, reaching 9.9 percent. Car sales in Spain fell 31 percent in May. Spain's factory output slumped 5.5 percent in May. The country's business lobby Circulo de Empresarios warned of a "high probability" that Spain's economy would fall into recession in the second half of 2008 due to the housing collapse. Spain had a 7.9 percent decline in retail sales in June compared to the previous year, the largest drop since Spain began registering the results and the seventh consecutive monthly decline. This included a 17.9 percent drop in retail sales of household goods. June food sales in Spain fell by 6.8 percent. Morgan Stanley
issued a major alert on the health of Spanish banks and the Spanish economy in a report, saying, "A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009." Morgan Stanley also warned there was 40 percent chance of a 0.5 percent contraction of the Spanish economy in 2009, with a risk of an even more extreme 1.4 percent contraction in 2009. According to Spanish automobile manufacturers' association ANFAC new car sales fell 27.5 percent in July from the same time in 2007, the third consecutive monthly drop of over 20 percent. Spain's government forecast the unemployment rate would rise to 10.4 percent in 2008 and to 12.5 percent in 2009. Spain's second largest bank BBVA predicted the unemployment rate could reach 14 percent in 2009. Spain's Purchasing Managers Index for the manufacturing sector in July fell to a new low suggesting a deep recession. In the second quarter Spain's economy grew by 0.1 percent, the lowest gain in 15 years.
As of December 2009, Spain's government forecast the unemployment rate would rise to 20 percent in 2009. It's predicted a 25% rate, due to the way the tally is carried out by the government. According to Spain’s Finance Minister, the “Spain faces its deepest recession in half a century”.
officials had warned the economy could contract by as much as 1.5 percent in the second quarter because of declining export orders. The economy of Germany indeed contracted in both the second and third quarters putting Germany now in a technical recession. Although the idea was fought for a moment Angela Merkel and the German government approved a €50 billion strong rescue plan to protect the German economy of the crisis, making of it Western Europe's biggest rescue plan for now in this crisis. Germany's industrial output was down 2.4 percent in May, the fastest rate for a decade. Orders have now fallen for six months in a row, the worst run since the early 1990s. The German Chamber of Industry and Commerce warned of up to 200,000 job losses in coming months. German retails sales fell 1.4 percent in June more than any expectations. The German economy declined by 0.5 percent in the second quarter.
has slumped 6.6 percent over the past year. However, Greece's economy will continue to grow for both 2008 and 2009; Eurostat expects the Greek economy to grow 3.1% and 2.5% respectively. However Greece faces a very big challenge with its public finances because of the crisis.
announced plant closures and temporary layoffs at factories in Turin, Melfi and Sicily. Car sales in Italy have fallen by almost 20 percent over each of the past two months. Italy's car workers' union said; "The situation is evidently more serious than had been understood." On 10 July 2008 economic think tank ISAE lowered its growth forecast for Italy to 0.4 percent from 0.5 percent and cut the 2009 outlook to 0.7 percent from 1.2 percent. Analysts have predicted Italy had entered a recession in the second quarter or would enter one by the end of the year with business confidence at its lowest levels since the September 11 attacks. Italy's economy contracted by 0.3 percent in the second quarter of 2008.
by 0.3 percent, Finland
by 0.2 percent while the Netherlands
showed zero growth in the second quarter. However the final estimates released by the INSEE
, France's statistical agency, showed the French economy grew by 0.14 percent during the third quarter thus barely avoiding a technical recession. In the first quarter of 2009, France fell into recession, the last developed nation in Europe to do so.
In order to fight the economic crisis, French president Nicolas Sarkozy
announced a €26 billion rescue plan which will amount to an additional €15.5 billion in addition to the normal budget for 2009 and will increase France's public deficit to 4%. It is similar, to an extent, to Barack Obama's proposal to stimulate the U.S. economy by investing in the nation's vital infrastructure. Further proposals include tax rebates for small businesses as well as easing restrictions on building permits and government contracts particularly with construction and civil engineering.
This is due to the "prime à la casse" program where buyers received a rebate of up to €1,000 for scrapping their polluting old vehicles and purchasing new environmentally-friendly/ fuel efficient cars. As a consequence, car sales in France in December 2008 were 30% higher than in December 2007 although on the total 2008 year the sales was down 0.7%. Because the French new cars market fared better than most as well as increased sales in South America, French brands, particularly Renault, now have bigger shares of the world's market despite selling fewer cars in 2008 than in 2007. Another highly exposed industry is naval construction, an order concerning a packet boat for NCL
was already cancelled. In order to fill the blank in the construction planning the French government is expected to order soon a third Mistral BPC, as well as smaller ships, for the French navy to DCNS. This is part of the Sarkozy's rescue plan. DCNS also won its biggest export contract ever when the Brazilian government placed a €7 billion large order to the company. The order concerns four Scorpène class submarine
with a conventional propulsion and a fifth one with a nuclear propulsion, as well as a naval shipyard and a naval base.
The French cooperative bank Caisse d'Epargne
suffered a €600 million derivatives
trading loss in October 2008, which it blamed partly on the high market volatility
at the time. The group of employees responsible for making the unauthorised trades were dismissed. French banks have also been affected to some point by the fraud set by Bernard Madoff
. Most importantly Natixis
, an investment bank, potentially lost €450 million in the process and BNP Paribas
could lose €350 million. Neither Natixis or BNP Paribas directly invested in Madoff's but through bonds issued by the US treasury they could face such loses. It is to be determined if all of these are effectively lost, which ones can be recovered and what can be saved by legal procedures. Other groups like AXA
, Société Générale
, Crédit Agricole
and Groupama
could also face loses to some point.
On 28 September 2008, Dutch
-Belgian
bank Fortis
was partially nationalized with a cash infusion from the Benelux
countries amounting to €11.2 billion. Fortis' troubles started in the beginning of the year with an announcement that it faced around $1.5bn of losses in the American sub-prime catastrophe. In June, the company announced a selloff of assets to raise €5 bn to improve the liquidity of the organisation. This, however, proved insufficient. On 6 October 2008, it was announced the French bank BNP Paribas would take over 75 percent of Fortis' activities in Belgium, and 66 percent in Luxembourg
, in exchange for the Belgian government becoming the new group's major shareholder. However the Belgian government was accused of pressuring shareholders and collapsed over the controversy thus delaying the operation. A new proposition was made on 30 January 2009 with slightly different terms. BNP Paribas would take over 75% of Fortis' banking activities in Belgium and only 10% of the insurance activities in return of what the Belgian government would take 11.7% of BNP Paribas. This agreement would come with a warranty from the Belgian government that it would cover up to €5 billion if more toxic assets were to be discovered. On 30 September 2008 the Belgian, French and Luxembourg governments said they would invest €6.4bn into keeping Dexia
, Belgium's second largest bank, afloat.
In May 2008 industrial output fell in the Netherlands by 6 percent.
On 19 March 2009, the INSEE
announced worse contraction than previously said, predicting a −2.9% set back of the croissance, and a jobless rate up to 8.8 as soon as June 2009.
Investors Service cut Portugal's sovereign bond rating down two notches from an Aa2 to an A1. Due to spending on economic stimuli, Portugal's debt
had increased sharply compared to the gross domestic product. Moody noted that the rising debt would weigh heavily on the government's short-term finances. Earlier in the year, Portugal was one of the countries identified in the 2010 Euro Crisis as concern spread over increasing government deficit and debt levels in certain countries.
Also in 2010, the country reached a record high unemployment rate of nearly 11%, a figure not seen for over two decades, while the number of public servants remained very high.
International financial market
s compelled the Portuguese Government led by Prime Minister José Sócrates
, to make radical changes in economic policy, like other European governments had done before. Thus, in September 2010, the Portuguese Government announced a fresh austerity package following other Eurozone
partners, through a series of tax hikes and salary cuts for public servants. In 2009, the deficit had been 9.4 percent, one of the highest in the Eurozone and way above the European Union
's Stability and Growth Pact
three percent limit.
In November 2010, risk premium
s on Portuguese bond
s hit euro lifetime highs as investors and creditors worried that the country would fail to reign in its budget deficit and debt. The yield on the country's 10-year government bonds reached 7 percent – a level the Portuguese Finance Minister Fernando Teixeira dos Santos
had previously said would require the country to seek financial help from international institutions.
A report published in January 2011 by the Diário de Notícias
, a leading Portuguese newspaper, demonstrated that in the period between the Carnation Revolution
in 1974 and 2010, the democratic Portuguese Republic government
s had encouraged over expenditure and investment bubbles through unclear public-private partnerships. This had funded numerous ineffective and unnecessary external consultancy and advising committees and firms, allowed considerable slippage in state-managed public works
, inflated top management and head officers' bonuses and wages, causing a persistent and lasting recruitment policy that has boosted the number of redundant public servants. The economy has also been damaged by risky credit
, public debt creation and mismanaged European structural and cohesion funds for almost four decades. Apparently, the Prime Minister Sócrates's cabinet was not able to forecast or prevent any of this when symptoms first appeared in 2005, and later was incapable of doing anything to ameliorate the situation when the country was on the verge of bankruptcy in 2011.
On 23 March 2011, José Sócrates resigned following passage of a no confidence motion sponsored by all five opposition parties in parliament over spending cuts and tax increases.
On 6 April 2011, the resigning Prime Minister announced on the television that the country, facing a status of bankruptcy, would request financial assistance to the IMF
(at the time managed by Dominique Strauss-Kahn
) and the European Financial Stability Facility
, like Greece and the Republic of Ireland had done before.
In order to accomplish the European Union
/IMF-led rescue plan for Portugal's sovereign debt crisis, in July and August 2011, the new government led by Pedro Passos Coelho
announced it was going to cut on state spending and increase austerity measures, including public servant wage cuts and additional tax increases.
showed a contraction of 0.6 percent in the first quarter of 2008 following a contraction of 0.2 percent in the fourth quarter of 2007. Estonia
similarly saw an economic contraction of 0.9 percent in the second quarter, following a 0.5 percent contraction in the first quarter. Latvia
's gross domestic product fell 0.2 percent in the second quarter following a fall of 0.3 percent in the first quarter. Sweden's economy showed zero growth in the second quarter of 2008. The entire economy of the European Union declined by 0.1 percent in the second quarter. A European Commission forecast predicted Germany, Spain and the UK would all enter a recession by the end of the year while France and Italy would have flat growth in the third quarter following second quarter contractions. Economists at Switzerland
's second-largest bank predict a recession in 2009.
Chairwoman of the Association of Estonian Food Industry, Sirje Potisepp, warned the Estonian food industry would probably face bankruptcies citing two major beverage companies in Estonia filing for bankruptcy. Ratings agency Fitch
warned Ukraine
could be headed for a currency crisis
as economic fundamentals deteriorate and the country enters another period of political uncertainty
. Fitch said the current account deficit was likely to widen further as prices of gas imports rise and prices of its steel exports fall and said Ukraine was likely to need to borrow more at a time when global debt markets have ground to a virtual standstill. Ukraine's central bank chief, Petro Poroshenko, said he saw no need to intervene to protect the currency. Only a few countries retained their high GDP predictions for the year 2008, and can be mentioned Romania
and Slovakia
. Despite high economic growth in 2008 (8.7%), Romania is touched very hard by the crisis, analysts forecasting a contraction of 8–9% for 2009, as the new government established in the late 2008 is unable to take any anti-crisis measures.
is the only member of the European Union
to have avoided recession, meaning that in 2009 Poland created the most GDP growth in the EU. As of December 2009 the Polish economy had not entered recession nor contracted, while its International Monetary Fund
(IMF) 2010 GDP growth forecast of 1.9 per cent is expected to be upgraded. In the second quarter of 2010, growth was at least 3.1 per cent. As of 30 August 2010, the EU's GDP growth forecast for Poland in 2010 stands at 2.7 per cent, outperforming the EU average of 1 per cent.
has declined 40% against the euro
during 2008 and has experienced inflation of 14%. Iceland
's interest rates have been raised to 15.5% to deal with the high inflation. This loss of currency value
has put pressure on banks in Iceland, which are largely dependent on foreign debt. On 29 September 2008 Iceland's Glitnir
was effectively nationalized after the Icelandic government acquired 75% of the bank's stock. According to the government the bank "would have ceased to exist" within a few weeks if there had not been intervention.
Iceland's Prime Minister Geir Haarde
in a television address on 6 October 2008 said credit lines to Icelandic banks had been cut off and that "the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy" and that the government was looking to other countries for sources of liquidity. Iceland's parliament responded to the crisis by approving a bill giving the Government wideranging powers over the banks, including the ability to seize their assets, force them to merge or compel them to sell off their overseas subsidiaries. The parliament went on to seize control and nationalize Iceland's second largest bank, Landsbanki
, on 8 October 2008. The Parliament also extended a £400m loan to the nation's largest bank, Kaupthing, in hopes that it would strengthen the institution's balance sheet
.
On 8 October 2008 UK Prime Minister
Gordon Brown
announced that the UK government would launch legal action against Iceland, whose government announced that they had no intention of compensating any of the estimated 300,000 UK savers after the nationalization of Landsbanki
and its online brand, Icesave. Chancellor of the Exchequer
Alistair Darling
announced that the UK government would foot the entire bill, estimated at £4bn, and that he was taking steps to freeze the assets of Landsbanki. The following day, Darling used the Anti-Terrorism, Crime and Security Act 2001
as the basis for seizing the assets of Landsbanki Islands hf
, an Iceland-based bank. Icelanders launched an on-line petition drive to protest this action, which as seen as comparing Icelandic banks with Al-Qaida.
Iceland's GDP is expected by economists to shrink at least 10 percent as a result of the crisis, putting Iceland by some measure in an economic depression
.
On 27 January 2009 the government collapsed.
(ECB) announced on October 16 that it was bailing out Hungary
with a 5 billion euro (US$6.7 billion) loan facility, just days after the Hungarian Finance Ministry said it was seeking consultations with the International Monetary Fund
(IMF) about a possible support package. The ECB’s unprecedented move in bailing out a non-euro state underlines the crisis unraveling in Hungary and its possible impact on the rest of Central Europe
. Several players will be affected, but at particular risk are the Austria
n banks which invested so heavily in the region. A potential serious hiccup of the Austrian banks could mark a significant blow to Europe’s already troubled banking system.
Hungary, which joined the European Union in 2004, has been hit hard by the current financial crisis due to its heavy dependence on foreign capital to finance its economy and has one of the biggest public deficits in the EU. Prior to the international bailout, the government had feared the worst, including a collapse of the national currency, Prime Minister Ferenc Gyurcsány
said.
In November Hungary has received a $25 billion cash injection from the International Monetary Fund to save it from financial collapse. In December, the IMF transferred $5 billion and the ECB $2 billion.
The economy of the United Kingdom
has also been hit by rising oil prices and the credit crisis. Sir Win Bischoff, chairman of Citigroup
, said he believes that house prices in Britain will keep falling for another two years. The Ernst & Young
Item club predicted growth of only 1.5 percent in 2008, slowing to 1 percent in 2009. They also predicted consumer spending would slow to only 0.2 percent, and forecast a two-year drop in investment. The Institute of Directors
’ quarterly business opinion survey showed business optimism at its lowest level since the survey began in 1996. Deputy Governor of the Bank of England
, John Gieve
said inflation would accelerate "well over" 4 percent while economic growth is "slowing fast." Bank of England Governor Mervyn King
said there may be "an odd quarter or two of negative growth," following the first quarter of 2009. Gieve said he couldn't rule out the UK economy heading into a recession, adding the economy was "quite a long way" from the end of the slowdown.
Nationwide, the UK's biggest building society, warned the UK could head into a recession after house prices in July 2008 fell 8.1 percent from the previous year. Housing prices declined by 1.7 percent in July, double the decline recorded in June. Standard & Poor's said on 30 July 2008 that 70,000 homeowners were in negative equity
and it could rise to 1.7 million or about one in six homeowners in the UK based on an expected 17 percent decline into 2009. The Bank of England reported that mortgage approvals fell by a record of nearly 70 percent.
In Northern Ireland
, house sales saw a fall of some 50 per cent according to a survey by the University of Ulster/Bank of Ireland and housing prices fell on average by 4 percent. British manufacturing activity declined by the most in almost a decade in July, the third consecutive month of declines.
The number of companies that went into administration in May–July 2008 was 938, an increase of 60 percent compared with the same period in 2007. The number of company liquidations in the second quarter of 2008 rose to 3,689, a 16 percent increase and the highest quarterly figure in five years. House builders expected the number of houses built in 2008 in England and Wales to be the lowest since 1924. The declines were seen as an indication the United Kingdom had a high chance of entering a recession. Factory production in the UK dropped 0.5 percent in June 2008 when twelve out of 13 categories of factory production fell. The economic output of the UK was reported to have increased by just 0.2 percent in the second quarter 2008, the joint-slowest pace since 2001.
The value of sterling relative to other currencies dropped by around 30%.
The Office for National Statistics
later gave a revised number saying growth in the British economy was at zero, the worst since the second quarter of 1992. The current slowdown has ended 16 years of continuous economic growth, the longest period of economic expansion in Britain since the 19th century. A report from the National Institute for Economic and Social Research said the economy contracted by 0.1 percent in the period from May to July 2008 and 0.2 percent from June to August 2008.
A voter backlash due to the personal financial effects of the global credit crunch was widely attributed by politicians of the United Kingdom Labour Party
, which had been in power since 1997, as the reason their political fortunes took a dramatic downturn through May 2008, with a succession of defeats in by-elections and the London Mayoral election, and the worst opinion poll result in their history. Political opponents countered this apparent excuse by pointing to the fact that the incumbent Prime Minister Gordon Brown
, who had taken office in June 2007 just before the crisis broke, had been the country's 'Iron Chancellor
', and had allegedly not ensured the country had sufficient monetary reserves to be able to lower taxes and ease the burden on voters, despite overseeing one of the longest sustained periods of economic growth
in the country's history. In August 2008 the party also faced calls to impose a windfall tax
on the utility companies, who were reaping record profits due to the fuel crisis, perceived as in bad taste given rising food and fuel prices.
On 17 September 2008, news emerged that the banking and insurance group HBOS
(Halifax Bank of Scotland) was in merger talks with Lloyds TSB
about creating a UK retail banking giant worth £30bn. The move received the backing of the British government which stated that it will over-rule any claims from the competition authorities.
According to the Office for National Statistics
unemployment claims in August 2008 increased by 32,500 to reach 904,900. The wider Labour Force Survey measure found joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999.
In September 2008, British bank Bradford & Bingley
's £20 billion savings business was acquired by Spanish bank Grupo Santander
. While its retail deposit business along with its branch network will be sold to Santander. The mortgage book, personal loan book, headquarters, treasury assets and its wholesale liabilities will be taken into public ownership.
From 1 December 2008, the UK Government made the decision to cut VAT from 17.5% to 15% for 13 months in an attempt to encourage a big spend from UK shoppers before Christmas
.
On 4 December 2008, the Bank of England
cut interest rates from 3% to 2%, which amounts to the lowest level since 1951.
On 8 January 2009, the Bank of England reduced rates even further, from 2% to 1.5%, the lowest level in the its 315 year history.
On 23 January 2009, Government figures from the Office for National Statistics
showed that the UK was officially in recession for the first time since 1991; with a 1.5% fall in gross domestic product during the final quarter of 2008 being the sharpest for 28 years.
On 5 February 2009 interest rates were cut further from 1.5% to 1%.
A February 2009 research on the main British insurers showed that most of them are not considering officially raising insurance premiums for the year 2009, in spite of the 20% raise predictions made by The Daily Telegraph
or The Daily Mirror
. However, it is expected that the capital liquidity will become an issue and determine increases, having their capital tied up in investments yielding smaller dividends, corroborated with the £644 million underwriting losses suffered in 2007.
On 5 March 2009, the Bank of England cut interest rates yet again, from 1% to 0.5%. The same week, it announced that it would begin a policy of quantitative easing
, printing up to £150 billion of new money.
Figures published in March 2009 by the Bank of England revealed that over $1 trillion in foreign holdings had been withdrawn from UK banks between spring and the end of 2008, representing a huge loss of confidence in UK financial institutions.
By November 2008, unemployment had risen to over 1.8 million (compared to just over 1.5 million at the start of the year) and by March 2009 had surpassed 2 million, the highest for 13 years. It was feared that unemployment could surpass 3 million in 2010 - a level not seen since the 1980s. However, the end of the recession in the United Kingdom was declared on 26 January 2010, and the subsequent peak in unemployment has been just over 2.5million.
A report by the ONS
produced in March 2009 stated that the UK economy shrank by 1.6 percent during the last quarter of 2008, with a 1% drop in household spending. A further decline of up to 4% GDP during 2009 was predicted.
In April 2009, it was reported that first quarter GDP had shrunk by 1.9 percent, with a prediction of a 4.1 percent drop for the year. The largest contributor to this figure was manufacturing output, which fell by 6.9 percent over the quarter.
In May 2009, Standard And Poor cut its rating outlook for the UK to negative. Official figures also showed that British public borrowing hit a record high for the month of April, the first month of the new tax year – net public borrowing came in at £8.5bn in April 2009, compared to April 2008's figure of £1.8bn
In June 2009, the figure for the first quarter GDP drop was revised downwards from 1.9 to 2.4 percent, with economic output falling 4.1% from the previous year. Revised figures also showed that the recession began in Q2 of 2008, rather than Q3 of 2008 as previously reported.
In the 3 months to May 2009, the unemployment rate showed a record quarterly rise of 281,000 to stand at 2.38 million – equivalent to 7.6% of the working population. In the three months to June, the number of job vacancies fell to a record low of 429,000, down by 35,000 from the previous quarter.
By the end of June 2009, the public sector debt stood at £798.8 billion, equivalent to 56.6% of GDP, the highest percentage since records began in 1974. This compared to £641.4 billion or 44.4% of GDP in June 2008. The figure is expected to rise still higher when the costs of bailing out RBS and LLoyds Bank
are added.
By the start of August 2009, UK unemployment had hit 2.44 million, the highest since 1995. The Bank of England announced that due to the deepening recession in the UK, it would be extending its quantitative easing program to a new total of £175 billion. In November 2009, The Bank of England announced it would be adding a further £25 billion in continuation of quantitative easing in assisting the UK economy through the recession.
In December 2009, it was revealed that the UK's unemployment total was just shy of 2.5 million - another monthly rise and the highest level for 15 years - but the number of people claiming unemployment benefit had actually fallen by more than 6,000. By this stage, the UK was one of the last major economies still in recession. However, on 26 February 2010 it was revealed that the UK economy had grown by 0.3% within the last quarter of 2009 and the UK was out of recession.
However, many economists were still unsure of the situation - the relatively small drop in unemployment benefit claimants could be attributed to seasonal jobs, and with a general election imminent, the government had every reason to present the best economic picture possible. Other factors which could have produced an artificially high growth rate included the end of the "cash-for-clunkers" car replacement scheme, and the ending of a VAT cut from 15% to 17.5% in January causing many consumers to push forward their purchases. In addition, £200 billion had been pumped into the economy via QE, and the central bank rate had been held at almost 0% for most of the year. Thus although official figures showed that the UK had indeed exited recession fears of a double-dip recession remained.
has been one of the hardest hit in Europe. The country's trade deficit fell by more than 60 percent during the first half of 2009, but not because of exports taking off, but due to business bankruptcies and unemployment decreasing consumption. The economy is expected to recover and resume growth in late 2011.
's economy grew at a steady pace, which most experts attributed to the Putin's policies, sharp rouble devaluation of 1998, Boris Yeltsin
-era structural reforms, rising oil price
and cheap credit from western banks. After Vladimir Putin
's first term as President (during most of which Mikhail Kasyanov
held prime-ministership), some analysts described Russia's short-term economic growth as impressive and maintained that Putin was "at least partially responsible for it": a series of fundamental reforms had been implemented, including a flat income tax of 13 percent, a reduced profits tax, and new land and legal codes.
In October 2008 Russia emerged as one of the countries hardest-hit by the global economic crisis
, the stock market crash having been precipitated by Vladimir Putin
's verbal attack on Mechel
in July that year and Russian peacekeepers' aid to the South Ossetian Republic in August.
In 2008, Russia's benchmark RTS share index
lost 72.4 percent, ranking it as an unusual performer of all major emerging markets.
In January 2009, Russia's State Statistics Service released data, according to which the Russian industrial production
slumped in December 2008 by 10.3 percent after falling 8.7 percent in November that year.
However, the Russian main stock exchange index has doubled by autumn 2009, compared to the end 2008, and, by the end of 2009, has almost reached the pre-crisis levels.
has not been severely affected, and no banks or financial institutions have had real trouble. However, some effects have been visible, mostly based on distrust and similar psychological mechanisms. The stockmarket has declined heavily, because of influence from New York and other markets. Some banks, especially Swedbank
had invested heavily in US housing bonds.
The banks did not trust each other well and the difference between the interbank interest rate
and the state interest rate has gone up at least 1%. The housing loan interest rates have gone up even further. The global sales especially of cars has gone down, forcing the Swedish car industry to lay off staff and contractors. The increased fear of enduring recession and the increased financing costs have lowered company investments and private consumption.
Sweden entered recession after a two consecutive quarter of economic contraction. The Swedish GDP contracted by 0,1% during both the second and third quarters of 2008. Sweden's economy
sank into recession in the third quarter of 2008. In October retail sales dropped 0.6 percent in the month, and household consumption fell 0.2 percent in the third quarter. The Riksbank offered 60 billion kronor ($7.71 billion) in loans to financial firms at an auction, after having opened credit facilities to maintain the liquidity in the banking sector. At the beginning of December, the government launched a financial stability package to rev up the economy, while the central bank, urged by the OECD, cut down its interest rates to 2%
was hit heavy by the economic crisis of 2008, analysts say the plights of Ukraine are slumping steel prices, local banking problems and the cutting of Russian gas supply in January 2009. Key industries such as metallurgy and machine building are laying off workers, and real wages have started to fall for the first time in a decade.
presented the European Economic Recovery Plan
, a plan of 200 billion euros (1.2% of GDP) to fight against the consequences of the economic crisis in the European Union
. In reality, the plan is a series of national measures to be implemented by each governments, without much coherency between the policies. The measures included incentives to investment, tax cuts and social measures.
s and related infrastructure with a total budget of around € 50million as part of the Green Car Initiative.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the crisis spread to Europe rapidly and has affected much of the region with several countries already in recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
as of February 2009, and most others suffering marked economic setbacks. The global recession was first seen in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, as Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
was the first country to fall in recession.
Eurozone
In the eurozone as a whole, industrial production fell 1.9 percent in May, 2008, the sharpest one-month decline for the region since the exchange rate crisis in 1992. European car sales fell 7.8 percent in May compared with a year earlier. Retail sales fell by 0.6 percent in June from the May level and by 3.1 percent from June in the previous year. Germany was the only country out of the four biggest economies in the eurozone to register an increase of activity in July though the increase was sharply down. Economic analysts from RBS and capital Economics say the decline raises the risk of the eurozone entering a recession in 2008. In the second quarter, the eurozone's economy was reported to have declined by 0.2 percent. The economy declined again in the third quarter putting the eurozone in a technical recession.Ireland
IrelandRepublic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
in the first quarter of 2008 reported a contraction in GDP of 1.5 percent, its first economic contraction since it began reporting by quarter and first recorded contraction since 1983. However, Ireland's Central Statistics Office reported growth in GNP of about 0.8 percent, Ireland's government considers GNP a better measure of the economy. Analysts have predicted Ireland's economy will contract further in the rest of the year. A report from NCB Stockbrokers predicts gross national product will fall by 1 percent in 2008 and by 0.4 percent in 2009 due to a decline in multinationals hit by the global economic slowdown. An economist from NCB said non-residential investment would fall by 5 percent in 2008 and by 12 percent in 2009. Ireland's GDP saw a contraction in the second quarter by 0.5 percent making Ireland the first member of the eurozone to enter a recession. The government is being advised by Merrill Lynch, the American broker that ran out of capital in September 2008. In January 2009 it was forced to nationalise
Anglo Irish Bank hidden loans controversy
The Anglo Irish Bank hidden loans controversy began in the Republic of Ireland in December 2008 when the chairman of Anglo Irish Bank, Ireland's third largest bank, admitted he had hidden a total of €87 million in loans from the bank, triggering a series of incidents which led to the eventual...
its third largest bank, Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
and to announce recapitalisation of its top two banks, AIB and Bank of Ireland
Bank of Ireland
The Bank of Ireland is a commercial bank operation in Ireland, which is one of the 'Big Four' in both parts of the island.Historically the premier banking organisation in Ireland, the Bank occupies a unique position in Irish banking history...
. In February 2009, the government announced record unemployment levels in the country, with its highest monthly increase in 40 years and 1,500 people being laid off daily.
Ireland exited the recession in the 3rd quarter of 2009 posting a 0.3% growth in its economy, due to recent heavy budget cuts by the Irish government. However, although they technically exited recession, the Irish economy still has a lot of hurdles to overcome if it is to return to normality.
Spain
SpainSpain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
's Martinsa-Fadesa, a construction company, has declared bankruptcy as it failed to refinance a debt of €5.1 billion. The two banks with most exposure to Martinsa-Fadesa are reportedly Caja Madrid
Caja Madrid
Caja Madrid, formally the Caja de Ahorros y Monte de Piedad de Madrid, headquartered in Madrid, is the oldest of the Spanish savings banks. It was founded on December 3, 1702 as Monte de Piedad de Madrid by Francisco Piquer, an Aragonese priest...
, at €900m, and Banco Popular Español
Banco Popular Español
Banco Popular Español is the fourth largest banking group in Spain. The group consists of the following companies:*A national bank: Banco Popular Español...
, at €400m. Spain's finance minister Pedro Solbes
Pedro Solbes
Pedro Solbes Mira is a Spanish economist. While independent in the sense of not affiliated to any party, his various ministerial roles in Spain have always been within Socialist Workers' Party cabinets...
has said it would not bail out the company. In the second quarter in Spain house prices reportedly fell 20 percent. In Castilla-La Mancha some 69 percent of all houses built over the past three years are still unsold. Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
said it expects a 35 percent fall in real house prices by 2011. Spain's premier, Jose Luis Zapatero, blamed the European Central Bank for making matters worse by raising interest rates. More than 98 percent of home loans in Spain are priced off floating rates linked to Euribor
Euribor
The Euro Interbank Offered Rate is a daily reference rate based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market .-Scope:...
, which has risen 145 basis points since August. Housing accounts for over 10 percent of Spain's economy. The Bank of Spain is concerned about the health of smaller regional lenders with heavy exposure to the mortgage market.
Although Spain has avoided recession in the first half of 2008, unemployment in the country has risen by 425,000 over the past year, reaching 9.9 percent. Car sales in Spain fell 31 percent in May. Spain's factory output slumped 5.5 percent in May. The country's business lobby Circulo de Empresarios warned of a "high probability" that Spain's economy would fall into recession in the second half of 2008 due to the housing collapse. Spain had a 7.9 percent decline in retail sales in June compared to the previous year, the largest drop since Spain began registering the results and the seventh consecutive monthly decline. This included a 17.9 percent drop in retail sales of household goods. June food sales in Spain fell by 6.8 percent. Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
issued a major alert on the health of Spanish banks and the Spanish economy in a report, saying, "A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009." Morgan Stanley also warned there was 40 percent chance of a 0.5 percent contraction of the Spanish economy in 2009, with a risk of an even more extreme 1.4 percent contraction in 2009. According to Spanish automobile manufacturers' association ANFAC new car sales fell 27.5 percent in July from the same time in 2007, the third consecutive monthly drop of over 20 percent. Spain's government forecast the unemployment rate would rise to 10.4 percent in 2008 and to 12.5 percent in 2009. Spain's second largest bank BBVA predicted the unemployment rate could reach 14 percent in 2009. Spain's Purchasing Managers Index for the manufacturing sector in July fell to a new low suggesting a deep recession. In the second quarter Spain's economy grew by 0.1 percent, the lowest gain in 15 years.
As of December 2009, Spain's government forecast the unemployment rate would rise to 20 percent in 2009. It's predicted a 25% rate, due to the way the tally is carried out by the government. According to Spain’s Finance Minister, the “Spain faces its deepest recession in half a century”.
Germany
In GermanyGermany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
officials had warned the economy could contract by as much as 1.5 percent in the second quarter because of declining export orders. The economy of Germany indeed contracted in both the second and third quarters putting Germany now in a technical recession. Although the idea was fought for a moment Angela Merkel and the German government approved a €50 billion strong rescue plan to protect the German economy of the crisis, making of it Western Europe's biggest rescue plan for now in this crisis. Germany's industrial output was down 2.4 percent in May, the fastest rate for a decade. Orders have now fallen for six months in a row, the worst run since the early 1990s. The German Chamber of Industry and Commerce warned of up to 200,000 job losses in coming months. German retails sales fell 1.4 percent in June more than any expectations. The German economy declined by 0.5 percent in the second quarter.
Greece
Industrial output in GreeceGreece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
has slumped 6.6 percent over the past year. However, Greece's economy will continue to grow for both 2008 and 2009; Eurostat expects the Greek economy to grow 3.1% and 2.5% respectively. However Greece faces a very big challenge with its public finances because of the crisis.
Italy
In Italy, FiatFiat
FIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
announced plant closures and temporary layoffs at factories in Turin, Melfi and Sicily. Car sales in Italy have fallen by almost 20 percent over each of the past two months. Italy's car workers' union said; "The situation is evidently more serious than had been understood." On 10 July 2008 economic think tank ISAE lowered its growth forecast for Italy to 0.4 percent from 0.5 percent and cut the 2009 outlook to 0.7 percent from 1.2 percent. Analysts have predicted Italy had entered a recession in the second quarter or would enter one by the end of the year with business confidence at its lowest levels since the September 11 attacks. Italy's economy contracted by 0.3 percent in the second quarter of 2008.
France, Benelux
Other eurozone members saw a decline in their economies in the second quarter as well; FranceFrance
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
by 0.3 percent, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
by 0.2 percent while the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
showed zero growth in the second quarter. However the final estimates released by the INSEE
INSEE
INSEE is the French National Institute for Statistics and Economic Studies. It collects and publishes information on the French economy and society, carrying out the periodic national census. Located in Paris, it is the French branch of Eurostat, European Statistical System...
, France's statistical agency, showed the French economy grew by 0.14 percent during the third quarter thus barely avoiding a technical recession. In the first quarter of 2009, France fell into recession, the last developed nation in Europe to do so.
In order to fight the economic crisis, French president Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
announced a €26 billion rescue plan which will amount to an additional €15.5 billion in addition to the normal budget for 2009 and will increase France's public deficit to 4%. It is similar, to an extent, to Barack Obama's proposal to stimulate the U.S. economy by investing in the nation's vital infrastructure. Further proposals include tax rebates for small businesses as well as easing restrictions on building permits and government contracts particularly with construction and civil engineering.
This is due to the "prime à la casse" program where buyers received a rebate of up to €1,000 for scrapping their polluting old vehicles and purchasing new environmentally-friendly/ fuel efficient cars. As a consequence, car sales in France in December 2008 were 30% higher than in December 2007 although on the total 2008 year the sales was down 0.7%. Because the French new cars market fared better than most as well as increased sales in South America, French brands, particularly Renault, now have bigger shares of the world's market despite selling fewer cars in 2008 than in 2007. Another highly exposed industry is naval construction, an order concerning a packet boat for NCL
Norwegian Cruise Line
Norwegian Cruise Line is a company operating cruise ships, headquartered in unincorporated Miami-Dade County, Florida. It began operations in 1966 under the name Norwegian Caribbean Line. The company is best known for its Freestyle Cruising concept, which means that there are no set times or...
was already cancelled. In order to fill the blank in the construction planning the French government is expected to order soon a third Mistral BPC, as well as smaller ships, for the French navy to DCNS. This is part of the Sarkozy's rescue plan. DCNS also won its biggest export contract ever when the Brazilian government placed a €7 billion large order to the company. The order concerns four Scorpène class submarine
Scorpène class submarine
Scorpène class submarines are a class of diesel-electric attack submarine jointly developed by the French DCN and the Spanish company Navantia and now by DCNS. It features diesel propulsion and an additional air-independent propulsion ....
with a conventional propulsion and a fifth one with a nuclear propulsion, as well as a naval shipyard and a naval base.
The French cooperative bank Caisse d'Epargne
Groupe Caisse d'Epargne
Groupe Caisse d'Epargne is a French semi-cooperative banking group, founded in 1818, with around 4700 branches in the country. The group is active in retail and private banking, as well as holding a significant stake in the publicly traded investment bank Natixis.-Operations:The group's most...
suffered a €600 million derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
trading loss in October 2008, which it blamed partly on the high market volatility
Volatility (finance)
In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
at the time. The group of employees responsible for making the unauthorised trades were dismissed. French banks have also been affected to some point by the fraud set by Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
. Most importantly Natixis
Natixis
Natixis is a French corporate and investment bank created in November 2006 from the merger of the asset management and investment banking operations of Natexis Banque Populaire and IXIS ....
, an investment bank, potentially lost €450 million in the process and BNP Paribas
BNP Paribas
BNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...
could lose €350 million. Neither Natixis or BNP Paribas directly invested in Madoff's but through bonds issued by the US treasury they could face such loses. It is to be determined if all of these are effectively lost, which ones can be recovered and what can be saved by legal procedures. Other groups like AXA
AXA
AXA S.A. is a French global insurance group headquartered in the 8th arrondissement of Paris. AXA is a conglomerate of independently run businesses, operated according to the laws and regulations of many different countries. The AXA group of companies engage in life, health and other forms of...
, Société Générale
Société Générale
Société Générale S.A. is a large European Bank and a major Financial Services company that has a substantial global presence. Its registered office is on Boulevard Haussmann in the 9th arrondissement of Paris, while its head office is in the Tours Société Générale in the business district of La...
, Crédit Agricole
Crédit Agricole
Crédit Agricole S.A. is the largest retail banking group in France, second largest in Europe and the eighth largest in the world by Tier 1 capital according to The Banker magazine. It is also part of the CAC 40 stock market index....
and Groupama
Groupama
Groupama contraction of GROUPe des Assurances Mutuelles Agricoles is an international insurance group based in Paris, France...
could also face loses to some point.
On 28 September 2008, Dutch
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
-Belgian
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
bank Fortis
Fortis (finance)
Fortis N.V./S.A. was a company active in insurance, banking and investment management. In 2007 it was the 20th largest business in the world by revenue but after encountering severe problems in the financial crisis of 2008, most of the company was sold in parts, with only insurance activities...
was partially nationalized with a cash infusion from the Benelux
Benelux
The Benelux is an economic union in Western Europe comprising three neighbouring countries, Belgium, the Netherlands, and Luxembourg. These countries are located in northwestern Europe between France and Germany...
countries amounting to €11.2 billion. Fortis' troubles started in the beginning of the year with an announcement that it faced around $1.5bn of losses in the American sub-prime catastrophe. In June, the company announced a selloff of assets to raise €5 bn to improve the liquidity of the organisation. This, however, proved insufficient. On 6 October 2008, it was announced the French bank BNP Paribas would take over 75 percent of Fortis' activities in Belgium, and 66 percent in Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...
, in exchange for the Belgian government becoming the new group's major shareholder. However the Belgian government was accused of pressuring shareholders and collapsed over the controversy thus delaying the operation. A new proposition was made on 30 January 2009 with slightly different terms. BNP Paribas would take over 75% of Fortis' banking activities in Belgium and only 10% of the insurance activities in return of what the Belgian government would take 11.7% of BNP Paribas. This agreement would come with a warranty from the Belgian government that it would cover up to €5 billion if more toxic assets were to be discovered. On 30 September 2008 the Belgian, French and Luxembourg governments said they would invest €6.4bn into keeping Dexia
Dexia
Dexia N.V./S.A., also referred to as the Dexia Group, is a Belgian-French financial institution active in public finance, providing retail and commercial banking services to individuals and SMEs, asset management, and insurance...
, Belgium's second largest bank, afloat.
In May 2008 industrial output fell in the Netherlands by 6 percent.
On 19 March 2009, the INSEE
INSEE
INSEE is the French National Institute for Statistics and Economic Studies. It collects and publishes information on the French economy and society, carrying out the periodic national census. Located in Paris, it is the French branch of Eurostat, European Statistical System...
announced worse contraction than previously said, predicting a −2.9% set back of the croissance, and a jobless rate up to 8.8 as soon as June 2009.
Portugal
In the summer of 2010, Moody'sMoody's
Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...
Investors Service cut Portugal's sovereign bond rating down two notches from an Aa2 to an A1. Due to spending on economic stimuli, Portugal's debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
had increased sharply compared to the gross domestic product. Moody noted that the rising debt would weigh heavily on the government's short-term finances. Earlier in the year, Portugal was one of the countries identified in the 2010 Euro Crisis as concern spread over increasing government deficit and debt levels in certain countries.
Also in 2010, the country reached a record high unemployment rate of nearly 11%, a figure not seen for over two decades, while the number of public servants remained very high.
International financial market
Financial market
In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...
s compelled the Portuguese Government led by Prime Minister José Sócrates
José Sócrates
José Sócrates Carvalho Pinto de Sousa, GCIH , commonly known by José Sócrates , is a Portuguese politician who was the Prime Minister of Portugal from 12 March 2005 to 21 June 2011....
, to make radical changes in economic policy, like other European governments had done before. Thus, in September 2010, the Portuguese Government announced a fresh austerity package following other Eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
partners, through a series of tax hikes and salary cuts for public servants. In 2009, the deficit had been 9.4 percent, one of the highest in the Eurozone and way above the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
's Stability and Growth Pact
Stability and Growth Pact
The Stability and Growth Pact is an agreement among the 27 Member states of the European Union that take part in the Eurozone, to facilitate and maintain the stability of the Economic and Monetary Union...
three percent limit.
In November 2010, risk premium
Risk premium
A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset...
s on Portuguese bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
s hit euro lifetime highs as investors and creditors worried that the country would fail to reign in its budget deficit and debt. The yield on the country's 10-year government bonds reached 7 percent – a level the Portuguese Finance Minister Fernando Teixeira dos Santos
Fernando Teixeira dos Santos
Fernando Teixeira dos Santos , GOIH is a Portuguese economist and professor. He was Minister of Finance in the Portuguese Government led by José Sócrates .-Career:...
had previously said would require the country to seek financial help from international institutions.
A report published in January 2011 by the Diário de Notícias
Diário de Notícias
Diário de Notícias is a Portuguese daily newspaper, founded in Lisbon, on December 29, 1864 by Tomás Quintino Antunes and Eduardo Coelho. It gradually became one of the best known Portuguese newspapers...
, a leading Portuguese newspaper, demonstrated that in the period between the Carnation Revolution
Carnation Revolution
The Carnation Revolution , also referred to as the 25 de Abril , was a military coup started on 25 April 1974, in Lisbon, Portugal, coupled with an unanticipated and extensive campaign of civil resistance...
in 1974 and 2010, the democratic Portuguese Republic government
Government of Portugal
The Government is one of the four sovereignty organs of the Portuguese Republic. It is also the organ that conducts politics in general in the country and is also the superior body in public administration...
s had encouraged over expenditure and investment bubbles through unclear public-private partnerships. This had funded numerous ineffective and unnecessary external consultancy and advising committees and firms, allowed considerable slippage in state-managed public works
Public works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...
, inflated top management and head officers' bonuses and wages, causing a persistent and lasting recruitment policy that has boosted the number of redundant public servants. The economy has also been damaged by risky credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, public debt creation and mismanaged European structural and cohesion funds for almost four decades. Apparently, the Prime Minister Sócrates's cabinet was not able to forecast or prevent any of this when symptoms first appeared in 2005, and later was incapable of doing anything to ameliorate the situation when the country was on the verge of bankruptcy in 2011.
On 23 March 2011, José Sócrates resigned following passage of a no confidence motion sponsored by all five opposition parties in parliament over spending cuts and tax increases.
On 6 April 2011, the resigning Prime Minister announced on the television that the country, facing a status of bankruptcy, would request financial assistance to the IMF
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(at the time managed by Dominique Strauss-Kahn
Dominique Strauss-Kahn
Dominique Gaston André Strauss-Kahn , often referred to in the media, and by himself, as DSK, is a French economist, lawyer, politician, and member of the French Socialist Party...
) and the European Financial Stability Facility
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
, like Greece and the Republic of Ireland had done before.
In order to accomplish the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
/IMF-led rescue plan for Portugal's sovereign debt crisis, in July and August 2011, the new government led by Pedro Passos Coelho
Pedro Passos Coelho
Pedro Manuel Mamede Passos Coelho , is Prime Minister of Portugal. Passos Coelho started very early in politics, becoming the national leader of the youth branch of the Social Democratic Party...
announced it was going to cut on state spending and increase austerity measures, including public servant wage cuts and additional tax increases.
Denmark
DenmarkDenmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
showed a contraction of 0.6 percent in the first quarter of 2008 following a contraction of 0.2 percent in the fourth quarter of 2007. Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...
similarly saw an economic contraction of 0.9 percent in the second quarter, following a 0.5 percent contraction in the first quarter. Latvia
Latvia
Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...
's gross domestic product fell 0.2 percent in the second quarter following a fall of 0.3 percent in the first quarter. Sweden's economy showed zero growth in the second quarter of 2008. The entire economy of the European Union declined by 0.1 percent in the second quarter. A European Commission forecast predicted Germany, Spain and the UK would all enter a recession by the end of the year while France and Italy would have flat growth in the third quarter following second quarter contractions. Economists at Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
's second-largest bank predict a recession in 2009.
Chairwoman of the Association of Estonian Food Industry, Sirje Potisepp, warned the Estonian food industry would probably face bankruptcies citing two major beverage companies in Estonia filing for bankruptcy. Ratings agency Fitch
Fitch
- Places :* Fitch, North Carolina* Fitch's Covered Bridge, Delhi, New York* Fitch H. Beach Airport, an airport at Charlotte, Michigan, USA* Fitch Township, Ohio* Mount Fitch, in Massachusetts, on the Appalachian Trail* Fitchburg, Massachusetts...
warned Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
could be headed for a currency crisis
Currency crisis
A currency crisis, which is also called a balance-of-payments crisis, is a sudden devaluation of a currency caused by chronic balance-of-payments deficits which usually ends in a speculative attack in the foreign exchange market. It occurs when the value of a currency changes quickly, undermining...
as economic fundamentals deteriorate and the country enters another period of political uncertainty
2008 Ukrainian political crisis
The 2008 Ukrainian political crisis started after President Viktor Yushchenko's Our Ukraine–People's Self-Defense Bloc withdrew from the governing coalition following a vote on a bill to limit the President's powers in which the Prime Minister's Bloc Yulia Tymoshenko voted with the opposition...
. Fitch said the current account deficit was likely to widen further as prices of gas imports rise and prices of its steel exports fall and said Ukraine was likely to need to borrow more at a time when global debt markets have ground to a virtual standstill. Ukraine's central bank chief, Petro Poroshenko, said he saw no need to intervene to protect the currency. Only a few countries retained their high GDP predictions for the year 2008, and can be mentioned Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
and Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...
. Despite high economic growth in 2008 (8.7%), Romania is touched very hard by the crisis, analysts forecasting a contraction of 8–9% for 2009, as the new government established in the late 2008 is unable to take any anti-crisis measures.
Poland
PolandPoland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
is the only member of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
to have avoided recession, meaning that in 2009 Poland created the most GDP growth in the EU. As of December 2009 the Polish economy had not entered recession nor contracted, while its International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) 2010 GDP growth forecast of 1.9 per cent is expected to be upgraded. In the second quarter of 2010, growth was at least 3.1 per cent. As of 30 August 2010, the EU's GDP growth forecast for Poland in 2010 stands at 2.7 per cent, outperforming the EU average of 1 per cent.
Iceland
The Icelandic krónaIcelandic króna
The króna is the currency of Iceland. The króna is technically subdivided into 100 aurar , but in practice this subdivision is no longer used....
has declined 40% against the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
during 2008 and has experienced inflation of 14%. Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...
's interest rates have been raised to 15.5% to deal with the high inflation. This loss of currency value
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
has put pressure on banks in Iceland, which are largely dependent on foreign debt. On 29 September 2008 Iceland's Glitnir
Glitnir (bank)
Glitnir was an international Icelandic bank. It was created by the state-directed merger of the country's three privately held banks - Alþýðubanki , Verzlunarbanki and Iðnaðarbanki - and one failing publicly held bank - Útvegsbanki - to form Íslandsbanki in 1990...
was effectively nationalized after the Icelandic government acquired 75% of the bank's stock. According to the government the bank "would have ceased to exist" within a few weeks if there had not been intervention.
Iceland's Prime Minister Geir Haarde
Geir Haarde
Geir Hilmar Haarde was Prime Minister of Iceland from 15 June 2006 to 1 February 2009 and Chairman of the Icelandic Independence Party from 2005 to 2009. Geir initially led a coalition between his party and the Progressive Party...
in a television address on 6 October 2008 said credit lines to Icelandic banks had been cut off and that "the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy" and that the government was looking to other countries for sources of liquidity. Iceland's parliament responded to the crisis by approving a bill giving the Government wideranging powers over the banks, including the ability to seize their assets, force them to merge or compel them to sell off their overseas subsidiaries. The parliament went on to seize control and nationalize Iceland's second largest bank, Landsbanki
Landsbanki
Landsbanki, also commonly known as Landsbankinn in Iceland, is a private Icelandic bank with international operations...
, on 8 October 2008. The Parliament also extended a £400m loan to the nation's largest bank, Kaupthing, in hopes that it would strengthen the institution's balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
.
On 8 October 2008 UK Prime Minister
Prime Minister of the United Kingdom
The Prime Minister of the United Kingdom of Great Britain and Northern Ireland is the Head of Her Majesty's Government in the United Kingdom. The Prime Minister and Cabinet are collectively accountable for their policies and actions to the Sovereign, to Parliament, to their political party and...
Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
announced that the UK government would launch legal action against Iceland, whose government announced that they had no intention of compensating any of the estimated 300,000 UK savers after the nationalization of Landsbanki
Landsbanki
Landsbanki, also commonly known as Landsbankinn in Iceland, is a private Icelandic bank with international operations...
and its online brand, Icesave. Chancellor of the Exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
Alistair Darling
Alistair Darling
Alistair Maclean Darling is a Scottish Labour Party politician who has been a Member of Parliament since 1987, currently for Edinburgh South West. He served as the Chancellor of the Exchequer from 2007 to 2010...
announced that the UK government would foot the entire bill, estimated at £4bn, and that he was taking steps to freeze the assets of Landsbanki. The following day, Darling used the Anti-Terrorism, Crime and Security Act 2001
Anti-terrorism, Crime and Security Act 2001
The Anti-Terrorism, Crime and Security Act 2001 was formally introduced into the Parliament of the United Kingdom on 19 November 2001, two months after the terrorist attacks on New York on 11 September. It received royal assent and came into force on 14 December 2001...
as the basis for seizing the assets of Landsbanki Islands hf
Landsbanki
Landsbanki, also commonly known as Landsbankinn in Iceland, is a private Icelandic bank with international operations...
, an Iceland-based bank. Icelanders launched an on-line petition drive to protest this action, which as seen as comparing Icelandic banks with Al-Qaida.
Iceland's GDP is expected by economists to shrink at least 10 percent as a result of the crisis, putting Iceland by some measure in an economic depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....
.
On 27 January 2009 the government collapsed.
Hungary
On 10 October 2008, the Forint dropped by 10%. The European Central BankEuropean Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
(ECB) announced on October 16 that it was bailing out Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
with a 5 billion euro (US$6.7 billion) loan facility, just days after the Hungarian Finance Ministry said it was seeking consultations with the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) about a possible support package. The ECB’s unprecedented move in bailing out a non-euro state underlines the crisis unraveling in Hungary and its possible impact on the rest of Central Europe
Central Europe
Central Europe or alternatively Middle Europe is a region of the European continent lying between the variously defined areas of Eastern and Western Europe...
. Several players will be affected, but at particular risk are the Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
n banks which invested so heavily in the region. A potential serious hiccup of the Austrian banks could mark a significant blow to Europe’s already troubled banking system.
Hungary, which joined the European Union in 2004, has been hit hard by the current financial crisis due to its heavy dependence on foreign capital to finance its economy and has one of the biggest public deficits in the EU. Prior to the international bailout, the government had feared the worst, including a collapse of the national currency, Prime Minister Ferenc Gyurcsány
Ferenc Gyurcsány
Ferenc Gyurcsány is a Hungarian politician. He was the sixth Prime Minister of Hungary from 2004 to 2009.He was nominated to take that position on 25 August 2004 by the Hungarian Socialist Party , after Péter Medgyessy resigned due to a conflict with the Socialist Party's coalition partner...
said.
In November Hungary has received a $25 billion cash injection from the International Monetary Fund to save it from financial collapse. In December, the IMF transferred $5 billion and the ECB $2 billion.
Bulgaria
On June 10, 2009 Bulgarian authorities declared the country was officially in recession with its economy shrinking 4.2 percent from January to June . The Bulgarian economy contracted by 4.8 percent year-on-year in the second quarter for the first time in 12 years. Unemployment is rising rapidly. The agriculture sector registered a 6.6-percent decline in activity in the second quarter of 2009 compared to the same period last year, while industry shrank by 9.8 percent. The services sector meanwhile grew by 0.3 percent. Bulgaria's imports during the first half of this year compared to January–June 2008 contracted by 24.2 percent and exports declined by 18.2 percent.United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
has also been hit by rising oil prices and the credit crisis. Sir Win Bischoff, chairman of Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
, said he believes that house prices in Britain will keep falling for another two years. The Ernst & Young
Ernst & Young
Ernst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
Item club predicted growth of only 1.5 percent in 2008, slowing to 1 percent in 2009. They also predicted consumer spending would slow to only 0.2 percent, and forecast a two-year drop in investment. The Institute of Directors
Institute of Directors
The Institute of Directors is a UK-based organisation, established in 1903 and incorporated by royal charter in 1906 to support, represent and set standards for company directors...
’ quarterly business opinion survey showed business optimism at its lowest level since the survey began in 1996. Deputy Governor of the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
, John Gieve
John Gieve
Sir Edward John Watson Gieve, KCB is a former British Civil Servant, who served as Deputy Governor for Financial Stability of the Bank of England and an ex officio member of the Monetary Policy Committee from 2006 to 2009....
said inflation would accelerate "well over" 4 percent while economic growth is "slowing fast." Bank of England Governor Mervyn King
Mervyn King (economist)
An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of...
said there may be "an odd quarter or two of negative growth," following the first quarter of 2009. Gieve said he couldn't rule out the UK economy heading into a recession, adding the economy was "quite a long way" from the end of the slowdown.
Nationwide, the UK's biggest building society, warned the UK could head into a recession after house prices in July 2008 fell 8.1 percent from the previous year. Housing prices declined by 1.7 percent in July, double the decline recorded in June. Standard & Poor's said on 30 July 2008 that 70,000 homeowners were in negative equity
Negative equity
Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets with negative equity are often referred to as being "underwater", and loans and borrowers with negative equity are said to be "upside down".People...
and it could rise to 1.7 million or about one in six homeowners in the UK based on an expected 17 percent decline into 2009. The Bank of England reported that mortgage approvals fell by a record of nearly 70 percent.
In Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...
, house sales saw a fall of some 50 per cent according to a survey by the University of Ulster/Bank of Ireland and housing prices fell on average by 4 percent. British manufacturing activity declined by the most in almost a decade in July, the third consecutive month of declines.
The number of companies that went into administration in May–July 2008 was 938, an increase of 60 percent compared with the same period in 2007. The number of company liquidations in the second quarter of 2008 rose to 3,689, a 16 percent increase and the highest quarterly figure in five years. House builders expected the number of houses built in 2008 in England and Wales to be the lowest since 1924. The declines were seen as an indication the United Kingdom had a high chance of entering a recession. Factory production in the UK dropped 0.5 percent in June 2008 when twelve out of 13 categories of factory production fell. The economic output of the UK was reported to have increased by just 0.2 percent in the second quarter 2008, the joint-slowest pace since 2001.
The value of sterling relative to other currencies dropped by around 30%.
The Office for National Statistics
Office for National Statistics
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...
later gave a revised number saying growth in the British economy was at zero, the worst since the second quarter of 1992. The current slowdown has ended 16 years of continuous economic growth, the longest period of economic expansion in Britain since the 19th century. A report from the National Institute for Economic and Social Research said the economy contracted by 0.1 percent in the period from May to July 2008 and 0.2 percent from June to August 2008.
A voter backlash due to the personal financial effects of the global credit crunch was widely attributed by politicians of the United Kingdom Labour Party
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
, which had been in power since 1997, as the reason their political fortunes took a dramatic downturn through May 2008, with a succession of defeats in by-elections and the London Mayoral election, and the worst opinion poll result in their history. Political opponents countered this apparent excuse by pointing to the fact that the incumbent Prime Minister Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
, who had taken office in June 2007 just before the crisis broke, had been the country's 'Iron Chancellor
Chancellorship of Gordon Brown
Gordon Brown served as a British chancellor of the exchequer from 2 May 1997, when the Labour Party returned to power for the first time in 18 years, to 27 June 2007, when he became prime minister. It was the second-longest continuous period of office of any chancellor, surpassed only by Nicholas...
', and had allegedly not ensured the country had sufficient monetary reserves to be able to lower taxes and ease the burden on voters, despite overseeing one of the longest sustained periods of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
in the country's history. In August 2008 the party also faced calls to impose a windfall tax
Windfall tax
In Australia, windfall tax may refer to either:* Commonwealth places windfall tax, imposed under the Commonwealth Places Windfall Tax Act 1998 and the Commonwealth Places Windfall Tax Act 1998...
on the utility companies, who were reaping record profits due to the fuel crisis, perceived as in bad taste given rising food and fuel prices.
On 17 September 2008, news emerged that the banking and insurance group HBOS
HBOS
HBOS plc is a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group having been taken over in January 2009...
(Halifax Bank of Scotland) was in merger talks with Lloyds TSB
Lloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
about creating a UK retail banking giant worth £30bn. The move received the backing of the British government which stated that it will over-rule any claims from the competition authorities.
According to the Office for National Statistics
Office for National Statistics
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...
unemployment claims in August 2008 increased by 32,500 to reach 904,900. The wider Labour Force Survey measure found joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999.
In September 2008, British bank Bradford & Bingley
Bradford & Bingley
Bradford & Bingley plc is a British bank with headquarters in the West Yorkshire town of Bingley. In 2008, partly due to the credit crunch, the bank was nationalised and in effect split into two parts; the mortgage book remained with the now publicly owned Bradford & Bingley plc, and the deposits...
's £20 billion savings business was acquired by Spanish bank Grupo Santander
Grupo Santander
The Santander Group is a banking group centered on Banco Santander, S.A., the largest bank in the Eurozone and one of the largest banks in the world in terms of market capitalisation. According to Forbes Magazine Global 2000, it is the 13th largest public company in the world...
. While its retail deposit business along with its branch network will be sold to Santander. The mortgage book, personal loan book, headquarters, treasury assets and its wholesale liabilities will be taken into public ownership.
From 1 December 2008, the UK Government made the decision to cut VAT from 17.5% to 15% for 13 months in an attempt to encourage a big spend from UK shoppers before Christmas
Christmas
Christmas or Christmas Day is an annual holiday generally celebrated on December 25 by billions of people around the world. It is a Christian feast that commemorates the birth of Jesus Christ, liturgically closing the Advent season and initiating the season of Christmastide, which lasts twelve days...
.
On 4 December 2008, the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
cut interest rates from 3% to 2%, which amounts to the lowest level since 1951.
On 8 January 2009, the Bank of England reduced rates even further, from 2% to 1.5%, the lowest level in the its 315 year history.
On 23 January 2009, Government figures from the Office for National Statistics
Office for National Statistics
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...
showed that the UK was officially in recession for the first time since 1991; with a 1.5% fall in gross domestic product during the final quarter of 2008 being the sharpest for 28 years.
On 5 February 2009 interest rates were cut further from 1.5% to 1%.
A February 2009 research on the main British insurers showed that most of them are not considering officially raising insurance premiums for the year 2009, in spite of the 20% raise predictions made by The Daily Telegraph
The Daily Telegraph
The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B...
or The Daily Mirror
The Daily Mirror
The Daily Mirror is a British national daily tabloid newspaper which was founded in 1903. Twice in its history, from 1985 to 1987, and from 1997 to 2002, the title on its masthead was changed to read simply The Mirror, which is how the paper is often referred to in popular parlance. It had an...
. However, it is expected that the capital liquidity will become an issue and determine increases, having their capital tied up in investments yielding smaller dividends, corroborated with the £644 million underwriting losses suffered in 2007.
On 5 March 2009, the Bank of England cut interest rates yet again, from 1% to 0.5%. The same week, it announced that it would begin a policy of quantitative easing
Quantitative easing
Quantitative easing is an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy...
, printing up to £150 billion of new money.
Figures published in March 2009 by the Bank of England revealed that over $1 trillion in foreign holdings had been withdrawn from UK banks between spring and the end of 2008, representing a huge loss of confidence in UK financial institutions.
By November 2008, unemployment had risen to over 1.8 million (compared to just over 1.5 million at the start of the year) and by March 2009 had surpassed 2 million, the highest for 13 years. It was feared that unemployment could surpass 3 million in 2010 - a level not seen since the 1980s. However, the end of the recession in the United Kingdom was declared on 26 January 2010, and the subsequent peak in unemployment has been just over 2.5million.
A report by the ONS
Office for National Statistics
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...
produced in March 2009 stated that the UK economy shrank by 1.6 percent during the last quarter of 2008, with a 1% drop in household spending. A further decline of up to 4% GDP during 2009 was predicted.
In April 2009, it was reported that first quarter GDP had shrunk by 1.9 percent, with a prediction of a 4.1 percent drop for the year. The largest contributor to this figure was manufacturing output, which fell by 6.9 percent over the quarter.
In May 2009, Standard And Poor cut its rating outlook for the UK to negative. Official figures also showed that British public borrowing hit a record high for the month of April, the first month of the new tax year – net public borrowing came in at £8.5bn in April 2009, compared to April 2008's figure of £1.8bn
In June 2009, the figure for the first quarter GDP drop was revised downwards from 1.9 to 2.4 percent, with economic output falling 4.1% from the previous year. Revised figures also showed that the recession began in Q2 of 2008, rather than Q3 of 2008 as previously reported.
In the 3 months to May 2009, the unemployment rate showed a record quarterly rise of 281,000 to stand at 2.38 million – equivalent to 7.6% of the working population. In the three months to June, the number of job vacancies fell to a record low of 429,000, down by 35,000 from the previous quarter.
By the end of June 2009, the public sector debt stood at £798.8 billion, equivalent to 56.6% of GDP, the highest percentage since records began in 1974. This compared to £641.4 billion or 44.4% of GDP in June 2008. The figure is expected to rise still higher when the costs of bailing out RBS and LLoyds Bank
Lloyds Banking Group
Lloyds Banking Group plc is a major British financial institution, formed through the acquisition of HBOS by Lloyds TSB in 2009. As at February 2010, HM Treasury held a 41% shareholding through UK Financial Investments Limited . The Group headquarters is located at 25 Gresham Street in London, with...
are added.
By the start of August 2009, UK unemployment had hit 2.44 million, the highest since 1995. The Bank of England announced that due to the deepening recession in the UK, it would be extending its quantitative easing program to a new total of £175 billion. In November 2009, The Bank of England announced it would be adding a further £25 billion in continuation of quantitative easing in assisting the UK economy through the recession.
In December 2009, it was revealed that the UK's unemployment total was just shy of 2.5 million - another monthly rise and the highest level for 15 years - but the number of people claiming unemployment benefit had actually fallen by more than 6,000. By this stage, the UK was one of the last major economies still in recession. However, on 26 February 2010 it was revealed that the UK economy had grown by 0.3% within the last quarter of 2009 and the UK was out of recession.
However, many economists were still unsure of the situation - the relatively small drop in unemployment benefit claimants could be attributed to seasonal jobs, and with a general election imminent, the government had every reason to present the best economic picture possible. Other factors which could have produced an artificially high growth rate included the end of the "cash-for-clunkers" car replacement scheme, and the ending of a VAT cut from 15% to 17.5% in January causing many consumers to push forward their purchases. In addition, £200 billion had been pumped into the economy via QE, and the central bank rate had been held at almost 0% for most of the year. Thus although official figures showed that the UK had indeed exited recession fears of a double-dip recession remained.
Romania
Romania's economyEconomy of Romania
Romania has a developing, upper-middle income market economy, the 11th largest in the European Union by total nominal GDP and the 8th largest based on purchasing power parity...
has been one of the hardest hit in Europe. The country's trade deficit fell by more than 60 percent during the first half of 2009, but not because of exports taking off, but due to business bankruptcies and unemployment decreasing consumption. The economy is expected to recover and resume growth in late 2011.
Russia
From 1999 until the autumn of 2008 RussiaRussia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
's economy grew at a steady pace, which most experts attributed to the Putin's policies, sharp rouble devaluation of 1998, Boris Yeltsin
Boris Yeltsin
Boris Nikolayevich Yeltsin was the first President of the Russian Federation, serving from 1991 to 1999.Originally a supporter of Mikhail Gorbachev, Yeltsin emerged under the perestroika reforms as one of Gorbachev's most powerful political opponents. On 29 May 1990 he was elected the chairman of...
-era structural reforms, rising oil price
Price of petroleum
The price of petroleum as quoted in news generally refers to the spot price per barrel of either WTI/light crude as traded on the New York Mercantile Exchange for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange for delivery at Sullom Voe.The price...
and cheap credit from western banks. After Vladimir Putin
Vladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
's first term as President (during most of which Mikhail Kasyanov
Mikhail Kasyanov
Mikhail Mikhailovich Kasyanov - was the Prime Minister of Russia from May 2000 to February 2004.He is the leader of the People's Democratic Union and an ex-member of the opposition coalition "The Other Russia".-Political career:...
held prime-ministership), some analysts described Russia's short-term economic growth as impressive and maintained that Putin was "at least partially responsible for it": a series of fundamental reforms had been implemented, including a flat income tax of 13 percent, a reduced profits tax, and new land and legal codes.
In October 2008 Russia emerged as one of the countries hardest-hit by the global economic crisis
Late 2000s recession
The late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
, the stock market crash having been precipitated by Vladimir Putin
Vladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
's verbal attack on Mechel
Mechel
Mechel is one of Russia’s leading mining and metallurgical companies, producing coal, iron ore, nickel steel, rolled steel products, hardware, heat and electric power. Headquartered in Moscow, the company operates facilities in Russia, Romania, Lithuania, Kazakhstan, Bulgaria, and the United...
in July that year and Russian peacekeepers' aid to the South Ossetian Republic in August.
In 2008, Russia's benchmark RTS share index
RTS Index
The RTS Index is an index of 50 Russian stocks that trade on the RTS Stock Exchange in Moscow. The list of stocks is reviewed every 3 months by the RTS Information Committee.The index value is calculated in a real-time mode...
lost 72.4 percent, ranking it as an unusual performer of all major emerging markets.
In January 2009, Russia's State Statistics Service released data, according to which the Russian industrial production
Industrial production
Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of GDP , they are highly sensitive to interest rates and consumer demand...
slumped in December 2008 by 10.3 percent after falling 8.7 percent in November that year.
However, the Russian main stock exchange index has doubled by autumn 2009, compared to the end 2008, and, by the end of 2009, has almost reached the pre-crisis levels.
Sweden
SwedenSweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
has not been severely affected, and no banks or financial institutions have had real trouble. However, some effects have been visible, mostly based on distrust and similar psychological mechanisms. The stockmarket has declined heavily, because of influence from New York and other markets. Some banks, especially Swedbank
Swedbank
Swedbank AB is a leading Nordic-Baltic banking group with 9.5 million retail customers and 534,000 corporate customers in Sweden, Estonia, Latvia, and Lithuania. In Sweden, the group has 377 branches. In the Baltic countries, it has another 224 branches...
had invested heavily in US housing bonds.
The banks did not trust each other well and the difference between the interbank interest rate
Interbank lending market
The interbank lending market is a market in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate...
and the state interest rate has gone up at least 1%. The housing loan interest rates have gone up even further. The global sales especially of cars has gone down, forcing the Swedish car industry to lay off staff and contractors. The increased fear of enduring recession and the increased financing costs have lowered company investments and private consumption.
Sweden entered recession after a two consecutive quarter of economic contraction. The Swedish GDP contracted by 0,1% during both the second and third quarters of 2008. Sweden's economy
Economy of Sweden
The economy of Sweden is a developed diverse economy, aided by timber, hydropower and iron ore. These constitute the resource base of an economy oriented toward foreign trade...
sank into recession in the third quarter of 2008. In October retail sales dropped 0.6 percent in the month, and household consumption fell 0.2 percent in the third quarter. The Riksbank offered 60 billion kronor ($7.71 billion) in loans to financial firms at an auction, after having opened credit facilities to maintain the liquidity in the banking sector. At the beginning of December, the government launched a financial stability package to rev up the economy, while the central bank, urged by the OECD, cut down its interest rates to 2%
Ukraine
UkraineUkraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
was hit heavy by the economic crisis of 2008, analysts say the plights of Ukraine are slumping steel prices, local banking problems and the cutting of Russian gas supply in January 2009. Key industries such as metallurgy and machine building are laying off workers, and real wages have started to fall for the first time in a decade.
Norway
The Norwegian government pension fund suffered an investment loss of $92 billion during 2008. However, the overall value of the fund rose due to oil sales and currency movements.European Economic Recovery Plan
In November, 2008, the European CommissionEuropean Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
presented the European Economic Recovery Plan
2008 European Union stimulus plan
On 26 November 2008, the European Commission proposed a European stimulus plan amounting to 200 billion euros to cope with the effects of the global financial crisis on the economies of the members countries...
, a plan of 200 billion euros (1.2% of GDP) to fight against the consequences of the economic crisis in the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. In reality, the plan is a series of national measures to be implemented by each governments, without much coherency between the policies. The measures included incentives to investment, tax cuts and social measures.
Electromobility
Electrification of transport (electromobility) figures prominently in the Green Car Initiative (GCI), included in the European Economic Recovery Plan. DG TREN is supporting a large European "electromobility" project on electric vehicleElectric vehicle
An electric vehicle , also referred to as an electric drive vehicle, uses one or more electric motors or traction motors for propulsion...
s and related infrastructure with a total budget of around € 50million as part of the Green Car Initiative.