Click through the timeline below to see how Europe's debt crisis began and evolved.
Portugal requests and receives bailout
On April 7, 2011, Portugal requested a bailout and reached a deal on the bailout package in mid-May. The deal gave them a three-year loan of up to 78 billion euros from the European Financial Stabilisation Mechanism, the European Financial Stability Facility and the IMF.
European Central Bank raises interest rates in April and July
To fight inflation, the European Central Bank raised interest rates April 7 and again in July. In April, the Governing Council raised the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 1.25 percent. On July 7, the ECB again raised interest rates by 25 basis points to 1.5 percent.
In March 2011, inflation in the eurozone was 2.6 percent, Eurostat estimated. The ECB has a target inflation rate of below 2 percent.
Plans for the permanent rescue fund, the European Stability Mechanism, are launched
July 11, 2011, brought the first signing of the treaty establishing the European Stability Mechanism, or the permanent bailout fund designed to replace the European Financial Stability Facility and the European Financial Stabilisation Mechanism. The new bailout fund would be able to lend up to 500 billion euros and would be funded by euro-area countries. The original launch date was July 2013 , but that was later moved to summer 2012 and then pushed back to launch in late 2012.
EU countries ask Greek bond holders to take a 50 percent haircut. European banks are shored up and lending capacity of the EFSF is jacked up to 1 trillion euros
On Oct. 27, leaders from the 17 euro-area countries met in Brussels and agreed to write down Greek debt by 50 percent. (In February 2012, the Germans register their opposition to the plan but it's too late -- by March, Greek debt is sliced by slightly more than half.)
At the same meeting in Brussels, it was agreed that European banks needed more cash or cash equivalents on hand to guard against shocks from the sovereign debt exposure. Leaders at the Brussels meeting also agreed to increase the lending capacity of the bailout fund, the European Financial Stability Facility, a move that was later finalized by finance ministers in late November.
Hungary requests bailout
In November, Hungary made an official request for assistance from the IMF. Hungary is one of the countries that is a noneuro-area member, defined as countries that have not yet adopted the euro.
(As of October 2012 , negotiations between Hungary and the International Monetary Fund have not been resolved due to the economic conditions attached to the loan.)
U.S. Federal Reserve adjusts dollar liquidity swap arrangement
On Nov. 30, 2011, the U.S. Federal Reserve joined up with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank to make dollar liquidity swaps less expensive for the European Central Bank and arranged for them to be in place until February 2013.
The central bank also established foreign currency liquidity swap arrangements with the five other central banks in case the Federal Reserve needed to offer liquidity in foreign currency to American banks. So far the lines have not been activated .
During the financial crisis, the Federal Reserve authorized swaps with central banks around the world. The swaps make it easier for central banks to provide U.S. dollars to financial institutions in their countries when they can't get loans from anyone else.
Technically, it is a swap: The Federal Reserve gets euros in exchange for dollars. In May 2010, the swap lines were re-established as things got murky in the euro area.
ECB cuts interest rates in November and December to 1 percent
On Nov. 1, 2011, Mario Draghi took over for Jean-Claude Trichet as the president of the European Central Bank. Right after he took over the post, the Governing Council of the ECB voted to lower interest rates two months in a row on fears that the euro area was being pulled back into a recession.
In December the central bank also embarked on two longer-term refinancing operations, or LTROs, in order to keep banks flush with cash. The terms of the LTROs allowed the ECB to make low-interest loans to banks, maturing in three years, for which the banks could use their country's sovereign bonds as collateral. Before the debt crisis the maturity of LTROs was three months.
The first LTRO in late December gave 489 billion euros to 523 banks. In March 2012, the second 36-month LTRO allotted 530 billion euros to 800 banks.