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Last year was all about debts and bailouts in Europe. This year? More of the same! With the year coming to an end, there’s no better time than now to take a moment to look back on the themes and events that rocked the euro in 2011.

EUR/USD Daily Chart

The euro rallies to start the year

Surprisingly enough, the euro was able to recover nicely from its slide in late 2010 to start 2011 with a strong rally. For a while, the European debt crisis stayed out of the headlines as the markets were calmed by European finance ministers’ agreement to set up a permanent bailout fund dubbed the European Stability Mechanism.

Old ghosts return as Portugal cries for help

In the second quarter of the year, the euro came under attack again as old ghosts returned. This time, it was Portugal that was in need of help. After crying uncle and admitting that it couldn’t deal with its finances on its own, Portugal accepted an EU-IMF bailout. This news, coupled with the surprise omission of the words “strongly vigilant” in the ECB’s interest rate decision, sparked a sharp euro sell-off that saw the shared currency drop from what would turn out to be its intra-year high.

Greek debt in the spotlight

What followed next was a series of events that led to the passing of the second rescue package for Greece in a much-anticipated EU summit. In the meeting, finance ministers agreed to expand the powers of the EFSF while bankers agreed to take a 21% write-down on their Greek bond holdings.

Risk aversion picks up as Europe falls into a deeper hole

Within a matter of weeks, the euro took another big hit as a string of negative reports and concern over the euro zone’s finances made the markets risk averse. In September, Spain and Italy acted to tighten their budgets while Greek protesters took to the streets to oppose Greece’s new austerity measures.

This period also saw Standard and Poor’s downgrade Italy’s debt rating from A+ to A. Similarly, the European Commission revised its euro zone growth forecasts for Q3 2011 down from 0.4% to 0.2% and for Q4 2011 down from 0.4% to just 0.1%.

Germany and France bring hope

The euro chalked up its biggest weekly gain after Germany and France vowed to come up with a new package to shore up the euro zone. With the two economic giants giving their support, investors grew confident that the region would finally be able to come up with a lasting solution to its debt crisis.

The markets grew even more bullish after news broke out that France helped Belgium nationalize Dexia Bank Belgium, a bank with large Greek debt holdings. To cap off the month of October, an EU summit was held and Europe’s financial leaders agreed to increase the 440 billion EUR firepower of the bailout fund by 4 to 5 times through leveraging. The plan also required private bondholders of Greek debt to raise their share of losses to 50%.

Political instability in Greece and Italy

To start the month of November, Greek Prime Minister George Papandreou announced that Greece will put its new debt deal to a vote. The idea was eventually scrapped and Papandreou ended up stepping down as the Prime Minister. Within a few days, Italian Prime Minister Silvio Berlusconi resigned as well after Italian lawmakers passed debt-reduction measures.

During this time, yields for Italian, Spanish, and Belgian bonds rose rapidly, showing the markets’ growing risk aversion.

EU leaders agree to new treaty

In hopes of achieving greater fiscal unity, EU leaders agreed to a new intergovernmental treaty with tighter rules and regulations. All EU countries were on board except for the U.K. and Hungary.

Phew! What a year, right? It’s pretty clear to see that the euro zone had a tough time this 2011. And while we’ve already witnessed countless meetings to solve the crisis, it doesn’t seem like EU leaders are getting any closer to finding a permanent solution to their debt problems.

That being the case, I can’t help but feel that their debt woes will carry over into 2012, just as they did from 2010 to 2011. What do you think, folks? Will we get more of the same next year?