Click through the timeline below to see how Europe's debt crisis began and evolved.
Spain and Portugal launch austerity measures
In 2009, Spain's budget deficit totaled 11.2 percent of GDP.
By May 2010, the country's economic problems came fully to light and Spain's Prime Minister Jose Luis Rodriguez Zapatero announced cuts to the salaries of public employees and slashed pension and government funding, the BBC reported in 2010.
Next door, in Portugal, the government announced plans to cut the budget deficit in March and in November passed an austerity budget that cut public spending and raised taxes, the BBC reported in November 2010.
Greece asks for a loan
On April 23, 2010, then Greek Prime Minister George Papandreou announced that Greece would take a 45 billion euro loan from eurozone countries and the International Monetary Fund to avoid default.
The announcement that Greece needed financial assistance followed three attempts at fiscal austerity measures unveiled between 2009 and March 2010. The third was passed in March 2010 and included a plan to raise taxes and cut spending. State pensions were frozen, civil service bonuses were cut and public sector payrolls were slashed.
The ECB begins buying bonds under the Securities Markets Program
On May 10, 2010, the ECB announced the beginning of the Securities Markets Program. The plan was that the central bank would buy sovereign debt to "ensure depth and liquidity in those market segments which are dysfunctional." For instance, when Italian bond yields would spike beyond sustainability and no investors would buy them, the ECB would step in. The bond purchases were also sterilized, which means that for every investment purchased by the central bank, an equivalent amount of money would be taken out of circulation.
EU takes action and creates special funds to preserve financial stability
In May 2010, the European Financial Stability Facility, or EFSF, was created to provide loans to cash-strapped countries. The EFSF issues bonds that are guaranteed by the euro-area countries. The EFSF also props up floundering banks or financial institutions through loans to governments.
The EFSF is considered a special-purpose vehicle or, in other words, a company designed specifically for a very narrow set of objectives -- in this case, lending money to struggling countries.
Established at the same time, the European Financial Stabilisation Mechanism, or EFSM, would also lend to struggling countries. According to the European Commission's website, the EFSM "allows the Commission to borrow on financial markets on behalf of the EU under an EU budget guarantee. The Commission then lends the proceeds on to the beneficiary member state."
European banks perform poorly in stress tests, revealing major weaknesses
Banks across the European Union were tested for their ability to weather adverse events in July 2010. Out of 91 tested, seven failed. Some critics noted that the tests did not include the possibility of a sovereign default, which called into question the credibility of the tests.
Ireland applies for and receives a bailout
In November 2010, Ireland reluctantly took a bailout from the IMF, the European Commission and the bailout fund, the EFSF, in the amount of about 85 billion euros.