47. European Debt Crisis, us Fiscal Cliff, and Federal Budget Sequester. Европейский долговой кризис. Фискальный обрыв и секвестр федерального бюджета сша.

Cause: Ireland, Greece, Portugal and so on were in need of money to pay its budgetary expenses (previously, they just print money in this case, but now there is a ECB) and asked ECB to print money for them. ECB refused, so they were forced to borrow by issuing bonds. The speed and value of debt issuance was so enormous that caused investors worry, the bonds unattractive and raised yields very high (Greece, 2010, 25%). That was the cause of the crisis. With pass of time, it became worse.

Actions: In spring, 2010, when the European Union and International Monetary Fund disbursed 110 billion euros (the equivalent of $163 billion) to Greece. Greece required a second bailout in mid-2011, this time worth about $157 billion. On March 9, 2012, Greece and its creditors agreed to a debt restructuring that set the stage for another round of bailout funds. Ireland and Portugal also received bailouts, in November 2010 and May 2011, respectively. The Eurozone member states also created the European Financial Stability Facility (EFSF) to provide emergency lending to countries in financial difficulty. The European Central Bank also has become involved. In December 2011, the ECB made €489 ($639 billion) in credit available to the region’s troubled banks at ultra-low rates, then followed with a second round in February 2012. The name for this program was the Long Term Refinancing Operation, or LTRO. Numerous financial institutions had debt coming due in 2012, causing them to hold on to their reserves rather than extend loans. Slower loan growth, in turn, could weigh on economic growth and make the crisis worse. Although the actions by European policy makers usually helped stabilize the financial markets in the short term, they were widely criticized as merely “kicking the can down the road,” or postponing a true solution to a later date. In addition, a larger issue loomed: while smaller countries such as Greece are small enough to be rescued by the European Central Bank, Italy and Spain are too big to be saved. In 2012, the crisis reached a turning point when European Central Bank President announced that the ECB would do "whatever it takes" to keep the eurozone together. Markets around the world immediately rallied on the news, and yields in the troubled European countries fell sharply during the second half of the year. (Keep in mind, prices and yields move in opposite directions). It made investors more comfortable buying bonds of the region's smaller nations. Lower yields, in turn, have bought time for the high-debt countries to address their broader issues.

What it means for the euro zone: Many experts argue that the E.U.’s model, which concentrated monetary policy in the European Central Bank (ECB) while leaving fiscal policy to individual member states, is inherently unsustainable, as it denies member states monetary policy levers with which to help their recoveries. This also makes deficit-funded fiscal stimulus harder, as monetary policy can be used to keep borrowing costs low. When different countries are hit differently by a recession, as has happened now, the common monetary authority will act in ways that help some countries but not others. The ECB has pursued tight monetary policy that may prevent inflation in high-growth states like Germany but could also be worsening the recession in Greece, Spain, and other struggling states. Most view one of two options going forward as likely. One is that the euro zone will lose members like Greece, Spain and Italy, either by them just leaving or by a default by any one of them, which could unravel the whole monetary union. Another option is closer European fiscal union, so that fiscal policy can be coordinated at the continent level as well as monetary policy, bringing the E.U. closer to being a sovereign state.

“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government faced at the end of 2012, when the terms of the Budget Control Act of 2011 were scheduled to go into effect. Among the changes that were set to take place at midnight on December 31, 2012 were the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, a rollback of the "Bush tax cuts" from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 - a total of $1.2 trillion over ten years - were scheduled to go into effect. Over 1,000 government programs - including the defense budget and Medicare are in line for "deep, automatic cuts." Of the two, the tax increases were seen as the larger burden for the economy. The key elements of the deal are: an increase in the payroll tax by two percentage points to 6.2% for income up to $113,700, and a reversal of the Bush tax cuts for individuals making more than $400,000 and couples making over $450,000 (which entails the top rate reverting from 35% to 39.5%). Investment income is also affected, with an increase in the tax on investment income from 15% to 23.8% for filers in the top income bracket and a 3.8% surtax on investment income for individuals earning more than $200,000 and couples making more than $250,000. The deal also gives U.S. taxpayers greater certainty regarding the alternative minimum tax, and a number of popular tax breaks - such as the exemption for interest on municipal bonds - remain in place. Current plan includes $330.3 in new spending during the next ten years, and it will increase the deficit by $3.9 trillion in that time period despite raising taxes on 77.1% of U.S. households. The two-percentage point increase in the payroll tax is expected to take about $120 billion out of the economy, which should have a negative impact of about seven-tenths of one percent on GDP growth.

In the United States federal budget, the sequester or sequestration refers to budget cuts to particular categories of federal spending that began on March 1, 2013 as an austerity fiscal policy. The spending reductions are approximately $85.4 billion during fiscal year 2013 with similar cuts for years 2014 through 2021. However, total federal outlays will continue to increase by an average of $238.6 billion per year during the next decade, although at a somewhat lesser rate because of the sequester. The cuts are split evenly (by dollar amounts) between the defense and non-defense categories. Some major programs like Social Security, Medicaid, federal pay (including military pay and pensions) and veterans' benefits are exempt. Medicare spending will be reduced by 2% per year versus the planned levels. The Congressional Budget Office estimates that the sequester would reduce 2013 economic growth by about 0.6 percentage points (from 2.0% to 1.4% or about $90B) and affect the creation or retention of about 750,000 jobs by year-end. Over the 2014–2023 period, the sequester would reduce planned spending outlays by $995 billion with interest savings of $228 billion or a total of over $1.2 trillion in debt reduction.