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The Eurozone was dominated by the sovereign debt crisis in 2012. Economic data therefore tended to be correspondingly weak: while economic output in Europe was initially flat, it contracted as the year progressed and ultimately plummeted in the last quarter. The situation deteriorated in almost all Eurozone countries. A payment default by Greece was prevented when supporters of the rigorous austerity measures proposed by the European Union (EU) and International Monetary Fund (IMF) prevailed in new elections. On the other hand, Spain and Italy slipped into a deep recession owing to urgently needed consolidation measures. France also showed clear signs of economic weakness. In Germany economic activity similarly declined appreciably in the year under review, although it is still better than average compared to other member countries of the EU Economic and Monetary Union. According to ECB calculations, GDP in the Eurozone contracted by 0.5% in 2012.

Following a favourable ruling by Germany’s Federal Constitutional Court the European Stability Mechanism (ESM) was able to begin its work in October 2012. With the launch of this permanent bailout fund and the ECB’s new outright monetary transactions (OMT) programme for buying government bonds, significant steps were taken in the year under review to stem the debt crisis. At the same time they signalise a clear commitment to the preservation of monetary union. Another important element for stabilising the financial markets was put in place in December 2012 with the agreement among EU finance ministers on the architecture of common Eurozone bank supervision: in future some 150 financial institutions are to be subject to the automatic control of the ECB. They include up to 30 German banks. Crisis-ridden banks will already be able to receive bailout funds directly from the ESM in the current year. The ECB is not, however, expected to fully assume its new banking supervisory role before March 2014 at the earliest.


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