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DECODED: A EUROZONE GLOSSARY
Asset bubbles (origin: 17th-century Dutch tulip mania?) in the form of housing market booms, for instance in Spain and Ireland, were fuelled by low borrowing costs. Their bursting has strained banking systems.
Bond yields are the rate at which countries borrow money on the open market. Greek and Irish rates grew too high, so they were forced into a bail-out. Is Portugal next?
Default No advanced country has failed to honour its debts since Germany in 1948. For a eurozone member to do so would undermine the single currency, EU leaders fear. But there are less dramatic ways of relieving countries’ debt burdens.
Devaluation is impossible for eurozone members. Competitiveness has to be restored the hard way, for instance by cutting labour costs.
Economic governance (origin: eurocratese) Budget and fiscal rules that can sanction countries failing to control public finances (see also: stability and growth pact).
Euro Currency whose weakness over the past year has boosted eurozone exports, especially in Germany.
Eurozone (also euro area) comprises the 17 countries that use the euro.
European Central Bank acted quickly in the early stages of the crisis but now thinks it should focus on combating inflation. Jean-Claude Trichet steps down as president in October. Successor yet to be chosen.
European Commission The EU’s executive branch, now charged with coming up with plans for policies and institutions to save the euro.
European Council EU heads of government, who must approve new policies and institutions.
European financial stabilisation mechanism A €60bn bail-out fund backed by guarantees from the EU’s budget. Non-eurozone EU countries – for instance the UK – participate when it is used for bail-outs. Not to be confused with the ...
European financial stability facility Set up in May 2010 alongside the EFSM, as a Luxembourg company with €440bn in guarantees ready for another Greece-style bail-out. To preserve its triple A credit rating, it must keep cash in reserve, meaning it can lend only about €250bn.
European Parliament Given much more power under the Lisbon treaty (qv), it vets many Europe-wide economic and fiscal policies.
European stability mechanism The planned replacement for the EFSF, to be in place from 2013. It will make private investors shoulder more of the burden in a future bail-out.
Fiscal union may be a step too far to eurozone politicians who fret about national sovereignty. But with the EFSF issuing its own bonds, a fiscal union has in effect come closer.
International Monetary Fund is helping alongside the EU in bail-outs for Greece and Ireland. With decades of crisis management experience, it will not want its reputation spoilt by failures in Europe.
Lisbon treaty from last year gives the EU authority to take action in the eurozone (Article 136), on which basis many reforms are being made.
Macroeconomic imbalances Some eurozone countries (Germany) are highly competitive globally while others (Greece, Portugal) are not, straining the ties that bind the euro together (see also: asset bubbles).
‘No bail-out’ clause Article 125 of the Lisbon treaty makes it illegal for one member to assume the debts of another. It has led to fears that Germany’s constitutional court could strike down EU bail-outs.
Rescheduling The big taboo among eurozone leaders, though markets are convinced it will happen at least for Greece. But there could be softer versions – if, for instance, the ESM lent money to Athens to buy back its own bonds at cut-price rates.
Stability and growth pact (origin: Franco-German) was the much- abused fiscal rule book drawn up in the 1990s for eurozone members as an alternative to fiscal union. Now the pact is being rewritten, but will it be any more effective?
Stress tests Attempts to gauge the health of banks by running disaster scenarios and seeing if they survive. A US exercise gave markets a psychological boost. The EU’s tests last year were widely discredited; it will try again this spring.
Transfer union The great fear of Germans, who do not want to subsidise the recklessness of others. But the EU already involves significant financial transfers through regional aid programmes.
Treaty change A move pushed by Germany to have a rescue system legally included in the Lisbon treaty.
Zombie banks (origin: voodoo?), or “addicted” banks. Shunned by markets, thus reliant on ECB loans to fund their operations. Have to be strengthened or closed before ECB can withdraw from the battlefield.
Asset bubbles (origin: 17th-century Dutch tulip mania?) in the form of housing market booms, for instance in Spain and Ireland, were fuelled by low borrowing costs. Their bursting has strained banking systems.
Bond yields are the rate at which countries borrow money on the open market. Greek and Irish rates grew too high, so they were forced into a bail-out. Is Portugal next?
Default No advanced country has failed to honour its debts since Germany in 1948. For a eurozone member to do so would undermine the single currency, EU leaders fear. But there are less dramatic ways of relieving countries’ debt burdens.
Devaluation is impossible for eurozone members. Competitiveness has to be restored the hard way, for instance by cutting labour costs.
Economic governance (origin: eurocratese) Budget and fiscal rules that can sanction countries failing to control public finances (see also: stability and growth pact).
Euro Currency whose weakness over the past year has boosted eurozone exports, especially in Germany.
Eurozone (also euro area) comprises the 17 countries that use the euro.
European Central Bank acted quickly in the early stages of the crisis but now thinks it should focus on combating inflation. Jean-Claude Trichet steps down as president in October. Successor yet to be chosen.
European Commission The EU’s executive branch, now charged with coming up with plans for policies and institutions to save the euro.
European Council EU heads of government, who must approve new policies and institutions.
European financial stabilisation mechanism A €60bn bail-out fund backed by guarantees from the EU’s budget. Non-eurozone EU countries – for instance the UK – participate when it is used for bail-outs. Not to be confused with the ...
European financial stability facility Set up in May 2010 alongside the EFSM, as a Luxembourg company with €440bn in guarantees ready for another Greece-style bail-out. To preserve its triple A credit rating, it must keep cash in reserve, meaning it can lend only about €250bn.
European Parliament Given much more power under the Lisbon treaty (qv), it vets many Europe-wide economic and fiscal policies.
European stability mechanism The planned replacement for the EFSF, to be in place from 2013. It will make private investors shoulder more of the burden in a future bail-out.
Fiscal union may be a step too far to eurozone politicians who fret about national sovereignty. But with the EFSF issuing its own bonds, a fiscal union has in effect come closer.
International Monetary Fund is helping alongside the EU in bail-outs for Greece and Ireland. With decades of crisis management experience, it will not want its reputation spoilt by failures in Europe.
Lisbon treaty from last year gives the EU authority to take action in the eurozone (Article 136), on which basis many reforms are being made.
Macroeconomic imbalances Some eurozone countries (Germany) are highly competitive globally while others (Greece, Portugal) are not, straining the ties that bind the euro together (see also: asset bubbles).
‘No bail-out’ clause Article 125 of the Lisbon treaty makes it illegal for one member to assume the debts of another. It has led to fears that Germany’s constitutional court could strike down EU bail-outs.
Rescheduling The big taboo among eurozone leaders, though markets are convinced it will happen at least for Greece. But there could be softer versions – if, for instance, the ESM lent money to Athens to buy back its own bonds at cut-price rates.
Stability and growth pact (origin: Franco-German) was the much- abused fiscal rule book drawn up in the 1990s for eurozone members as an alternative to fiscal union. Now the pact is being rewritten, but will it be any more effective?
Stress tests Attempts to gauge the health of banks by running disaster scenarios and seeing if they survive. A US exercise gave markets a psychological boost. The EU’s tests last year were widely discredited; it will try again this spring.
Transfer union The great fear of Germans, who do not want to subsidise the recklessness of others. But the EU already involves significant financial transfers through regional aid programmes.
Treaty change A move pushed by Germany to have a rescue system legally included in the Lisbon treaty.
Zombie banks (origin: voodoo?), or “addicted” banks. Shunned by markets, thus reliant on ECB loans to fund their operations. Have to be strengthened or closed before ECB can withdraw from the battlefield.