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The Eurozone Crisis — 2009 to 2015

Austerity and Unemployment in the Eurozone

Explain why governments cut their budgets in the slump, how high unemployment went, what IMF economists found about the cost of the cuts, and what those who backed the cuts argued.

Before you start

What you'll be able to answer

  1. How high did unemployment go, and how deep were the slumps?
  2. Why did the crisis countries cut their budgets in a slump?
  3. What did the budget cuts cost, and what was the case for them?

Where this sits

The Eurozone Crisis — 2009 to 2015 · this module is lit

  1. 21 Oct 2009Greece revises its 2009 deficit figure sharply upward
  2. May 2010Euro area governments and the IMF agree Greece's first rescue loan, EU governments agree to create rescue funds, and the ECB starts buying government bonds
  3. 28 Nov 2010Ireland agrees a rescue programme
  4. May 2011Portugal agrees a rescue programme
  5. Dec 2011 and Feb 2012The ECB makes two rounds of three-year loans to banks
  6. Mar to Apr 2012Private holders of Greek bonds take a cut of more than half in face value
  7. 20 Jul 2012Euro area ministers approve a loan to rebuild the capital of Spain's banks
  8. 26 Jul and 6 Sep 2012The ECB's president promises "whatever it takes"; the ECB announces a plan to buy struggling governments' bonds
  9. Mar to Apr 2013Cyprus takes rescue loans, while uninsured depositors, shareholders and bondholders meet the capital needs of Cyprus Popular Bank and the Bank of Cyprus
  10. Jun to Jul 2015Greece shuts its banks as savers rush to withdraw money, voters reject the lenders' terms, and euro area leaders agree to move towards a third programme

30 March 2012

On 30 March 2012 Spain's government proposed a budget with 27 billion euros of savings, according to the euro area rescue fund's history. The economy was shrinking; in 2011 over a fifth of those wanting work had none. Luis de Guindos, economy minister, said of the deficit, the gap between what the government spends and what it collects: "Europe did not trust Spain after the deficit mushroomed, and wanted to tighten the screws on us to ensure that we reduced it at a faster pace than we could manage."

Predict first

In 2011 about one in five people in Spain who wanted a job had none. Where do you expect Spain's unemployment rate was in 2013?

A slump widens a government's deficit

Spain's slump began in 2008, when a long housing and credit boom ended, before any budget cuts. That year unemployment, the share of people who want a job and cannot find one, began to climb from 8.2 per cent in 2007.

When an economy shrinks, people and firms earn less, so they pay less tax, and more people claim unemployment benefits. The government's deficit widens even if it changes no policy. These automatic changes, called automatic stabilisers, also soften the slump, because taxes fall and benefits rise just as incomes drop. Spain's deficit was 11.2 per cent of its yearly output, its GDP, in 2009, according to Eurostat, the EU's statistics office.