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This editorial in the Economist says Britain's economic recovery will not be complete until interest rates are well above zero and productivity growth is established. Without productivity growth and growth in wages, both lacking in the economic recovery since 2009, tax revenues will not be enough to reduce the deficit, requiring more spending cuts. That means the Bank of England will not raise interest rates, keeping a situation of no rate changes prevailing since March 2009 when the central bank cut rates by 0.5%. In the current situation the Bank of England is not expected to raise rates till 2016, only after the U.S. Federal Reserve increases rates to avoid appreciation in the pound and further deflationary pressure, according to Goldman Sachs. With inflation currently at zero, following the drop in oil prices, and 10% appreciation in the pound since mid 2013 making imports cheaper, there is little pressure to increase interest rates. In 2011 inflation with rising food and energy prices reached 5.2% , but the Bank of England did not raise rates because of the eurozone economic crisis affecting growth. Only since 2013 has economic growth picked up with 1.2 million jobs created since the beginning of 2013, bringing unemployment down from a high of 8.5% in 2011 to 5.6% in May 2015. Throughout the recovery productivity growth is falling behind- 2014 productivity measured by output per hour worked was 1.3% lower than in 2011, and 14% below the pre-crisis trend, according to the Economist....

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With 57% of Italy's sovereign debt owned by Italians, a lot depends on Italians continuing to invest in Italian government bonds. With the higher interest rates on the bonds Italians have one more reason to continue to do so.

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A detailed account of the developments that unfolded for Bankia bank during and after the initial public offering of its shares, after it was put together from seven failing cajas savings banks with bad real estate loans made during the housing bubble. The procrastination and small steps taken to paper over the problems by the Spanish government and regulators during the last year of the Zapatero administration and into the first year of the Rajoy administration.

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Prime minister Mario Monti responded with humor to the remark of former prime minister Berlusconi before the June 2012 summit of European leaders that he could unplug the Monti government, by saying that his government was not a home appliance. In August Monti's long intervew with the Wall Street Journal is published in which he says the Italian bond spreads with German bonds would be 1200 or something if Berlusconi was still running the government. Angelinia Alfano, of Berlusconi's party, the People of Freedom party, calls this "nonsensical" and the parliamentary whip calls this a "stupid provocation." WSJ's Alessandra Galloni intervewed the Italian premier. Monti's office says he called Berlusconi saying he regretted the "banal and abstract extrapolation of a trend in spread values, which was included in a wide ranging interview with the WSJ, was taken as a political consideration, which was not at all the intention."

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Britain's banks still owe the government 100 billion pounds ($158 billion) from the bailouts that followed the 2008 financial crisis. The incentivizing of risk by pay structures and bonuses was seen as a big part of the problem. LIBOR manipulation abuses by banks are still on regulators minds. The Financial Conduct Authority and the Bank of England's Prudential Regulation Authority, have set new rules to correct the problem. Earlier EU rules limited bonuses to 100% of salary. The new FCA rules require a 3 year period for traders and risk managers have to wait 5 years for performance awards in full. Top executives have a ten year wait to be certain claw back provisions do not go into effect. Andrey Bailey at the PRA says the rule is designed so "that people in positions of responsibility are rewarded for behaviour which fosters a culture of effective risk management and thus promotes the safety and soundness of individual institutions. "

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All sides had to make concessions to reach a new agreement on a restructuring of Greece's debt, and new terms for loans to Ireland and Portugal. The agreement was reached after negotiations between France, Germany, the ECB, and eurozone countries with a declaration issued on July 21, 2011. The powers and financing of the European Financial Stability Facility (EFSF) were expanded to be the main mechanism for channeling EU funding to reduce the burden of Greece's debt. Germany will provide new funding and be open to additional commitments, something German chancellor Angela Merkel had resisted since the beginning of the crisis in 2010. Earlier funding had come with high interest rates and only when the situation had reached a crisis, with Germany insisting on the punitive rates and conditions as a way to discourage countries from taking advantage of cheap borrowing. In exchange for commitment of German funds Ms Merkel had insisted that banks and private creditors share in the losses. Private bondholders resisted but finally agreed to take a loss of 20% of principal on a small portion of the bonds. Their larger concession was to take lower interest rates and extend the maturities to 15 years and 30 years on new bonds which are guaranteed by the EU. The specific terms of the agreement are as follows: The EFSF and the IMF will lend Greece 109 billion euros over 3 years at 3.5%. Private creditors including German and French banks will "voluntarily" turn in their old bonds for new ones that mature over 15-30 year periods. These new bonds include 15 and 30 year Greek bonds with varying coupons. Some of the bonds would have a 20% discount on principal. EU leaders say the private sector contribution amounts to 37 billion euros through 2014 and 106 billion euros through 2019. Another part of the program is for the EFSF to buy back some of the Greek bonds on the secondary markets, which would mean Greece would now owe a smaller amount to the EFSF on these bonds. The EFSF will now have additional financial support from Germany and other EU countries and be authorized to provide aid to countries before a crisis situation arises. It would also have power to buy Greek bonds at prices on secondary markets to reduce the Greek debt burden. Ireland and Portugal are also assisted in the agreement. The interest rate for EU aid to Ireland and Portugal is taken down to 3.5%. Ireland is paying about 6% on the EU portion of its 67.5 billon euros bailout and efforts to reduce the rate were resisted earlier. The main theme behind these concessions and provisions is to give Greece, (and Ireland and Portugal) a chance to grow. High interest rates came under strong criticism because it only increased the size of the debt burden of these countries with a shrinking economy and high unemployment. The failure to come together behind a broad and sensible agreement with all parties making serious concessions, the EU, the ECB and the political leadership in these countries especially Greece, was undermining confidence in the euro and the eurozone itself. By mid-July Italy and Spain were feeling the effects of contagion in the financial markets, U.S. debt ceiling negotiations were unsettling global financial markets, the pressure was intense to come up with the workable agreement achieved on July 21, 2011. ...

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Greece defaulted on a loan payment to the IMF for 1.55 billion euros ($1.73 billion) on June 30, 2015.

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With the U.S. Federal Reserve pulling back from its monetary easing policy and the ECB holding steady with a low interest rate policy, bond investors are finding attractive buys for government bonds of Italy and Spain. 10 year government bonds of Italy yielded 4.2%, and Spain's government bonds yielded 4.3% on Aug. 22, 2013. By comparison German government bonds yielded 1.88%, narrowing the gap between the bonds of southern European countries and German bonds as the eurozone economies recover in 2013-2014.

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Public sector layoffs in Spain in 2012-2013 under the governments deficit reduction plan- as mandated under fiscal compact rules agreed to in the December 2012 eurozone meetings- will worsen Spain's severe unemployment rate of 25%. These public sector layoffs are only now taking place. Upto now local governments had helped offset rising layoffs in the private sector by preserving employment. The result will be a further increase in unemployment in Spain, creating a crisis of large proportions.

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This Wall Street Journal editorial calls for more transparency in disclosing bad debt problems at Spanish and other European banks. It faults recent and upcoming stress tests of EU banks for not being stringent enough and taking into account adverse scenarios. While Spain's central bank says only 20 billion euros are needed to recapitalize the cajas savings banks, other estimates are much higher. Moody's country report says Spain could need upto 120 billion euros to recapitalize its banks. A big problem is European banks exposure in Spain which is over 700 billion euros as of September 2010- Spanish banks have high exposure in Portugal and German banks have high exposure to Spain.

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Macroprudential policies of central banks in S. Korea, Indonesia, China, Canada, and other countries, as concerns grow about a housing and credit bubble.