The economic crisis – The EU’s response





Timeline showing developments from 2008 to the present, with key documents and summaries

Summary of actions and links on economic governance
Timeline of the financial crisis response including regulations, directives and proposals
Timeline on rating agencies including links to regulations, directives and proposals

The economic situation in individual countries
Balance-of-payments assistance
Monthly summary of state aid measures
Macro-Financial Assistance to non EU-countries

Fiscal consolidation and strengthened economic governance

The EU has been taking concrete steps for a much stronger integration within the Economic and Monetary Union. EU action has been focusing on restoring the sustainability of public finances and addressing other macroeconomic imbalances as well as on providing financial assistance to Member States in difficulties. In addition, new rules will ensure stronger and more effective economic governance, particularly for the euro area, with adequate mechanisms to monitor progress and ensure enforcement.

Key elements

  • Treaty on stability, coordination and governance in the Economic and Monetary Union (fiscal compact): This treaty, also known as the "fiscal compact", entered into force on 1 January 2013 following its ratification by Finland. The treaty aims to strengthen fiscal discipline in the euro area through the "balanced budget rule" and the automatic correction mechanism.
  • Treaty establishing the European Stability Mechanism (ESM): Euro area countries signed it on 2 February 2012. The ESM is designed to safeguard financial stability in the euro area by providing conditional financial assistance to Member States under severe market pressure. It entered into force in October 2012 and will gradually replace the temporary European Financial Stability Facility (EFSF), created by euro area countries in May 2010.
  • The “Six pack”: This reinforced the Stability and Growth Pact with new rules on economic and fiscal surveillance and introduced a new Macroeconomic Imbalances Procedure, which aims to prevent the emergence of harmful imbalances and to correct those already existing. The "Six Pack" entered into force in December 2011.
  • The European Semester: This allows EU Member States to coordinate ex ante their budgetary and economic policies, in line with both the Stability and Growth Pact and the Europe 2020 strategy. It was approved by the Member States in September 2010.
  • The "Two Pack", a strengthened budgetary surveillance in the euro area: The European Commission proposed two new regulations on 23 November 2011. They were adopted by the Council on 13 May 2013. The "Two Pack" entered into force on 30 May 2013.
  • Green paper on stability bonds: Published by the European Commission on 23 November 2011, it structures the political debate in the EU on the rationale, pre-conditions and possible options of coordinated or joint debt issuance.
  • Credit rating agencies: New rulespdf for credit rating agencies entered into force on 20 June 2013. They aim to reduce over-reliance on credit ratings while at the same time improving the quality of the rating process. Under the new rules, credit rating agencies will have to be more transparent when rating sovereign states.
    More information
  • Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance.
  • More information on credit rating agencies

Reform and repair of the financial sector

The EU action is aimed at implementing a stricter regulatory regime for the financial sector not only internally but also on a global level (G20). At the same time, it is necessary to strengthen the financial sector so that banks can support the economy by providing credit.

Key elements

Reforms to boost growth and job creation

The EU action also aims to encourage structural reforms and to support growth-enhancing investments; to strengthen the single market especially for services, energy and e-commerce; and to tackle unemployment, especially youth unemployment. The aim is to create the conditions for smarter, more sustainable growth.

Key elements

  • The EU's long-term growth strategy is called Europe 2020. It was proposed by the Commission and was endorsed by the European Council two years ago. Based on the principles of smart, sustainable and inclusive growth, Europe 2020 sets out five key targets in the areas of employment, research and innovation, education, poverty reduction and climate/energy. This strategy remains valid and should help Member States to pull in the same direction. Its implementation is crucial to boosting our growth potential.
  • Completing the single market in services and building the EU digital single market have significant growth potential. The December 2011 European Council agreed to fast-track a list proposed by the Commission of important proposals in this area, especially those in the Single Market Act: a series of 12 key measures proposed by the Commission in April 2011 with the aim of tapping fully the potential of the EU single market. Others form part of efforts to create a Digital Single Market  by 2015.
  • The Commission put forward a proposal, subsequently endorsed by the EU Council and European Parliament, to increase to 95% Choose translations of the previous link  the EU contribution to co-funded projects in countries benefitting from financial assistance programmes. The Commission has also been taking action to re-programme EU structural funding where appropriate, for example to guarantee funding for SMEs in Greece.
  • The Commission also put forward a proposal to use EU project bonds to stimulate private financing of key infrastructure projects. Looking beyond the immediate term, the Commission wants the 2014-2020 Multiannual Financial Framework  to be closely tied to the Europe 2020 growth agenda and to that end has proposed allocating €80 billion to research and innovation Choose translations of the previous link  , €50 billion to strategic transport and energy links and digital networks Choose translations of the previous link  and €2.5 billion to support the launch of new companies Choose translations of the previous link  . The Commission has also tabled proposals to ensure that EU social and regional development funding Choose translations of the previous link  in 2014-2020 similarly reflects the growth and jobs agenda.
  • To give further impetus to the governance reforms, 23 Member States, including six outside the euro-area (Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania), signed the Euro Plus Pactpdf  in March 2011. The Pact commits signatories to even stronger economic coordination for competitiveness and convergence, also in areas of national competence, with concrete goals agreed on and reviewed on a yearly basis by Heads of State or Government. The Euro Plus Pact is integrated into the European semester  and the Commission monitors implementation of the commitments.

Supporting EU countries in difficulty

The EU’s economic governance system allows for an appropriate steer and follow-up at EU level. Each year, the Commission carefully analyses the National Reform Programme  of each Member State and checks whether the policies are in line with the orientation set out above. Its findings are subsequently reflected in the Country-Specific Recommendations  that the Commission adopts in May and presents for approval to the European Council in June. The newly introduced Macroeconomic Imbalance Procedure guarantees enhanced monitoring of macroeconomic imbalances with the possibility of sanctions for euro area Member States that do not address these when they become excessive.

Support for countries in difficulty

European Stabilisation Actions provide financial assistance which is capable of supporting EU Member States in difficulty and thereby preserving the financial stability of the EU. Financial assistance is linked to strict macroeconomic conditionality and aims to support the country's efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy, thereby laying the foundations for sustainable economic growth and job creation.

  • Cyprus: In December 2012, the Council discussed the draft memorandum of understanding for financial assistance to Cyprus which outlines the main elements for the macroeconomic adjustment programme for the country, agreed by Cyprus and the Troika (European Commission, European Central Bank and the International Monetary Fund). In March 2013, euro area finance ministers reached an agreement with the Cypriot authorities for a future economic adjustment programme.
  • Greece: Greece was the first euro area Member State to find itself frozen out of international bond markets. This led to the launch in May 2010 of a financial assistance programme worth €110 billion, with €80 billion coming from bilateral loans from euro area Member States and €30 billion via the IMF.
    In March 2012, euro area finance ministers approved financing of the Second Economic Adjustment Programme for Greece. The euro-area Member States and the IMF committed the undisbursed amounts of the first programme plus an additional €130 billion for the years 2012-14. Whereas the financing of the first programme was based on bilateral loans, it was agreed that - on the side of euro-area Member States - the second programme would be financed by the European Financial Stability Facility (EFSF).
    In total, the second programme foresees financial assistance of €164.5 billion until the end of 2014. Of this amount, the euro-area commitment amounts to €144.7 billion to be provided via the EFSF, while the IMF contributes €19.8 billion.
    On 20 July 2011, a Task Force  was launched to provide technical assistance to Greece.
    The purpose of the Task Force is to identify and coordinate the technical assistance that Greece needs to deliver of the EU/IMF adjustment programme and to accelerate the absorption of EU funds.
  • Ireland: The Economic Adjustment Programme for Ireland was formally agreed in December 2010. It includes a joint financing package of €85 billion and covers the period 2010-2013.
  • Portugal: The Economic Adjustment Programme for Portugal was agreed in May 2011. It covers the period 2011 to mid-2014 and includes a joint financing package of €78 billion (EU/EFSM – €26 billion, euro area/EFSF – €26 billion, IMF – about €26 billion).
  • Spain: In July 2012 the Eurogroup agreed to provide up to €100 billion to Spain for the recapitalisation and restructuring of its financial sector. This funding is provided by the EFSF and is aimed at supporting the emergence of a reformed, responsible banking sector for Spain capable of supporting growth and employment.
  • Balance of Payments assistance: During the crisis, assistance under the EU’s Balance of Payments facility was also provided to Latvia and Hungary, and a precautionary programme is still underway for Romania.

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