May 7, 2012

Francois Hollande has won the second round of France’s May 6 presidential election. Hollande took just under 52 percent of the vote, compared with President Nicolas Sarkozy’s 48.3 percent. Sarkozy, who campaigned on a promise to reduce France’s large budget deficit, is the first president not to win a second term since Valery Giscard d’Estaing in 1981.

Francois Hollande promised to refocus the response to the eurozone debt crisis on growth and jobs rather than austerity. Austerity in some eurozone countries has involved severe budget cuts, including the elimination of many public jobs, reductions in pensions, and increases in personal taxes. Hollande instead has pledged to raise taxes on big corporations and on people earning more than 1 million euros ($1.4 million) a year. He has also proposed to raise the minimum wage, hire more teachers, and lower the retirement age from 62 to 60 for some workers. Hollande is France’s first socialist president since Francois Mitterrand, who held office between 1981 and 1995.

In parliamentary elections in Greece, also on May 6, voters turned away from the two dominant political parties, instead voting in protest for the far left and neo-Nazi right. The elections were the first public test of the European Union (EU) bailout of Greece’s national debt and the subsequent austerity program that Greece was forced to adopt. Analysts noted that the outcome was clear–a complete rejection of that agreement.

Member nations of the European Union (EU).

The euro is used by 17 member nations of the European Union. European Central Bank

While Mr. Hollande has said that he intends to give “a new direction to Europe”–specifically  instituting measures to stimulate economic growth–German Chancellor Angela Merkel made plain today that she was not open to renegotiating Europe’s current program of austerity. “I may say from my side that Francois Hollande will be welcomed with open arms here in Germany by me,” stated the chancellor at a press conference in Berlin. “We will work together well and intensively.”  However, Merkel insisted that the fiscal pact she negotiated with President  Sarkozy and endorsed by 25 EU member nations is “not negotiable.”

Additional World Book articles:

• Crisis in the Eurozone (a special report)
• Economics 2011 (Back in Time article)
• France 1958 (Back in Time article)
• France 2011 (Back in Time article)
• Greece 2009 (Back in Time article)
• Greece 2010 (Back in Time article)
• Greece 2011 (Back in Time article)

April 30, 2012

The economy of Spain has fallen into its second recession since 2009, the National Statistics Institute in Madrid announced today. The Spanish economy contracted by 0.3 percent in the first quarter of 2012, the same rate of contraction as in the fourth quarter of 2011. Economists generally define a recession as a nation’s gross domestic product contracting for two consecutive quarters. Officials in Spain are attempting to both enact austerity measures to restore government finances and grapple with the highest rate of unemployment in the European Union (EU)–24.4 percent. Last week, the New York-based credit rating agency Standard & Poor’s downgraded the credit rating of 16 Spanish banks as well as Spain’s government bonds.

Countries of the European Union (World Book map)

Economist Ben May with London-based Capital Economics predicted that the recession will “deepen over the remainder of the year,” with an overall contraction of 1.5 percent in 2012 and another 3.0 percent in 2013.

Eight eurozone economies are now officially in recession: Belgium, Cyprus, the Netherlands, and Slovenia as well as the four eurozone countries plagued by massive national debt–Greece, Ireland, Italy, and Portugal. Several EU member nations that use their own currencies have also reported two consecutive quarters of negative growth: the Czech Republic, Denmark, and the United Kingdom.

Additional World Book articles:

• Business cycle
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• Crisis in the Eurozone (a special report)
• Economics 2009 (Back in Time article)
• Economics 2010 (Back in Time article)
• Economics 2011 (Back in Time article)

April 23, 2012

Socialist Francois Hollande received the most votes in France’s presidential election on April 22, forcing a second-round run-off on May 6. Hollande took 28.5 percent of the vote, compared with President Nicolas Sarkozy’s 27.1 percent. Far-right candidate Marine Le Pen won 18.2 percent of the vote, with the rest divided among seven other candidates. French political experts described Le Pen’s vote as “a stunning result for the far right.” (They regard her National Front party as anti-establishment, anti-European Union (EU), and anti-immigrant; critics accuse the party of inciting Islamophobia.) The election was the first in which a French president running for re-election failed to win the first round since the start of the Fifth Republic in 1958.

President Sarkozy campaigned on a promise to reduce France’s large budget deficit and to tax people who leave the country for tax reasons. He has also threatened to pull out of the EU passport-free zone unless other member countries do more to curb immigration from non-European countries. If Sarkozy loses the run-off, he will become the first president not to win a second term since Valery Giscard d’Estaing in 1981.

Nicolas Sarkozy (© Thibault Camus, AFP/Getty Images)

Francois Hollande wishes to refocus the response to the eurozone debt crisis on growth and jobs rather than austerity. He has promised to raise taxes on big corporations and on people earning more than 1 million euros ($1.4 million) a year. He also proposes to raise the minimum wage, hire more teachers, and lower the retirement age from 62 to 60 for some workers. If elected, Hollande would be France’s first left wing president since Francois Mitterrand, who held office between 1981 and 1995.

Additional World Book articles:

• De Gaul, Charles
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• Crisis in the Eurozone (a special report)
• Economics 2011 (Back in Time article)
• France 1958 (Back in Time article)
• France 2011 (Back in Time article)

Feb. 21, 2012

Leaders of European Union (EU) nations, meeting in Brussels, have agreed to a 130-billion-euro ($170-billion) bailout of Greece and a write-down of its national debt by at least 107 billion euros ($145.5 billion). The deal is intended to save Greece from defaulting (failing to pay debts when due). Greece’s national debt currently stands at 160 percent of gross domestic product (GDP). GDP is the market value of all goods and services produced in a country in a given year.

The debt write-down involves private bondholders–primarily banks and other financial institutions–taking losses of as much as 70 percent. They will exchange their current holdings for new Greek bonds of a lower value: 30-year bonds with an interest rate of about 3.75 percent. The incentive behind the bondholders’ acceptance of the write-down is simple–30 percent of value is better than nothing at all.

Coins and bills of the euro, the common European currency, went into circulation on Jan. 1, 2002. The euro has replaced the individual currencies of 17 member nations of the European Union. European Central Bank

In exchange for the loan and write-down, Greece faces yet more austerity measures (strict rationing to conserve resources): steep public-sector wage cuts; the layoff of some 150,000 public employees by 2015; a 20-percent decrease in the minimum wage; and a slashed defense budget. The measures are intended to reduce Greece’s debt to 120.5 percent of GDP by 2020.

In what is seen as a humiliating and unprecedented intrusion into Greece’s sovereignty, permanent monitors from the EU, the European Central Bank, and the International Monetary Fund are to take up residence in Athens to ensure Greek compliance. Greece must also amend its constitution to give priority to repaying the bailout loan over the funding of all government services.

Additional World Book articles

• Crisis in the Eurozone (a special report)
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Dec. 9, 2011

European Union (EU) leaders, meeting in Brussels, Belgium, have agreed to a pact that requires member nations to enforce stricter fiscal (public finance) discipline in their national budgets. In the future, financial officials of member nations will submit tax and spending plans to EU officials for their approval before showing budgets to their government. The accord includes penalties for breaking deficit limits. (A deficit is the amount by which a sum of money falls short.)  The actions were taken in response to the current eurozone debt crisis. (The eurozone consists of the 17 member countries of the European Union that have adopted the euro as their single currency.) Investors worldwide fear that Greece, Ireland, Italy, Portugal, and Spain could default (fail to pay when due) on their national debts–that is, their government bonds. A default by Italy, Europe’s third-largest economy, could throw economies around the world into recession if not depression.

The EU leaders also agreed to provide an additional $200 billion ($268 billion) to the International Monetary Fund to shore up the European bailout fund to cover Italy and Spain through the current debt crisis. A permanent $500-billion ($670-billion) European Stability Mechanism will be put into effect by July 2012, which will run concurrently with the existing $440-billion ($590-billion) European Financial Stability Facility. The new rules on spending and budgets will not be implemented by an EU treaty but by an intergovernmental treaty, which will likely be more easily ratified (approved) by individual countries.

German Chancellor Angela Merkel, along with French President Nicholas Sarkozy, served as architects of the plan to impose fiscal discipline on eurozone countries. © Sean Gallup, Getty Images

Efforts to reach unanimity (complete agreement) among the 27 EU member nations, as desired by German Chancellor Angela Merkel, failed. British Prime Minister David Cameron insisted that the United Kingdom be exempted from certain financial regulations. Analysts see his objections chiefly as a means to protect “the city of London,” that is, Britain’s highly important banking and financial services sector. International affairs experts noted that while Europe is taking a big step towards closer integration, the United Kingdom appears to be isolating itself, limiting its influence on the future course of events.

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Nov. 13, 2011

Mario Monti, a highly respected economist and a former European Union (EU) commissioner, has been nominated to become Italy’s prime minister and form a new government to tackle the acute national debt crisis. (National debt is the total amount that a federal government owes because of money it has borrowed by selling bonds or other securities.) Italy’s former prime minister, Silvio Berlusconi, formally resigned on November 12 after a new austerity package (strict economic measures) were passed by both houses of parliament. The austerity package includes a mixture of tax increases and spending cuts with the aim of saving 59.8 billion euros ($89.6 billion) to balance the budget by 2014. On November 9, the yield, or rate of interest, on 10-year Italian government bonds shot above 7 percent. (A bond is a certificate issued by a government promising to pay back money it has borrowed). Higher-risk bonds must pay a higher interest rate to attract buyers. When the interest rate on the government bonds of Greece and Ireland in 2010 and Portugal in 2011 climbed to 7 percent, the three countries were forced to seek bailouts from the European Union to avoid bankruptcy (the state of being legally unable to pay debts).

The euro has replaced the individual currencies of 17 member nations of the European Union, including Italy and Greece. European Central Bank

On November 10, Greek political leaders named Lucas Papademos as prime minister. Papademos, also a respected economist, is a former vice president of the European Central Bank. The coalition (multiparty) government he will lead has pledged to save Greece from bankruptcy by quickly approving the tough terms of the second bailout package that was approved by European Union leaders on October 26.

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The combined gross domestic products (GDP) of the world’s developed economies (countries with highly developed economies) will expand “at an anemic [slow] pace of 1.5 percent in 2011,” the International Monetary Fund (IMF) announced, pointing to “financial turbulence in the eurozone” and continuing political and economic problems in the United States. (The eurozone is the 17 member countries of the European Union that have adopted the euro as their single currency.) The 187-member IMF conducts economic analysis and lends money to countries in financial distress.

The IMF lowered its outlook for the 17 eurozone countries to 1.6 percent growth in 2011 and 1.1 percent 2012, down from June projections of 2 percent and 1.7 percent, respectively. The IMF expects U.S. economic growth to shrink to 1.5 percent this year and 1.8 percent next, down from June forecasts of 2.5 percent in 2011 and 2.7 percent in 2012. It projects that global growth will shrink to 4 percent in 2012, from 5 percent in 2010. Stronger growth in Brazil, China, India, and other developing countries should offset weaker output in Europe and the United States, suggested the IMF’s chief economist, Olivier Blanchard.

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• Crisis in the Eurozone (special report)
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