GREEK DEBT CRISIS

G R E E K   D E B T   C R I S I S

    

Greece has threatened to default on its debts (AFP)

• Overview of the Greek debt crisis

The Greek financial crisis was a series of debt crises that began with the global financial crisis in 2008. The debt crisis originated from the economic mismanagement and misreporting of economic performance by successive governments together with failure to remedy a growing collection of warning signs by several investors. It became more critical when a possible debt default threatened the European Union. As a result, Greece owed money to a number of countries and organizations for more than €300 billion. Greece was most indebted to Germany, France, Italy, and Spain most of which hasn’t been paid back.

______________________________________________________________

• Cause of the Greek debt crisis  

1. Global financial crisis

The global financial crisis had a particularly large negative impact on GDP growth rates in Greece. Two of the country's largest earners, tourism and shipping were badly affected by the downturn with revenues falling 15% in 2009.  

2. Government deficit

Fiscal imbalances developed from 2004 to 2009. The central government primary expenditures increased by 87% against an increase of only 31% in tax revenues. The main problem of government deficit is that their expenditure didn’t conform to their earnings. Greek governments ran large deficits to finance military expenditures, public sector jobs, pensions and other social benefits.

Greek Real GDP Growth Rates, 1996–2016 (OECD)

3. Government debt

 The debt increased in 2009 due to the higher than expected government deficit and higher debt-service costs. The Greek government assessed that structural economic reforms would be insufficient, as the debt would still increase to an unsustainable level before the positive results of reforms could be achieved. After 1993, the debt-to-GDP ratio remained above 94%. The crisis caused the debt level to exceed the maximum sustainable level (defined by IMF economists to be 120%).

4. Tax Evasion
  The country has struggled to collect taxes from citizens, especially the wealthy, which is a problem when Greece's national debt is 177 according to Eurostat. Greece's far-left government has said it wants to target wealthy tax evaders, but creating a more equitable tax system has been challenging.

5. Membership in the Eurozone
   Becoming a member of the Eurozone was a major economic constraint on Greece. If Greece had not agreed to the single currency, it could have devalued its currency to stimulate exports and its economy and inflate its way out of the crisis. Currency devaluation would have taken the pressure
off interest rates. Greece could not set its own interest rates, however, because for a member of the Eurozone, the role of determining interest rates is assumed by the ECB (European Central Bank). 

______________________________________________________________

• Timeline of the Greek debt crisis  

2001 : Greece Joins the Eurozone

Greece belatedly adopts the euro currency. However, the country misrepresents its finances to join the eurozone, with a budget deficit well over 3 percent and a debt level above 100 percent of GDP. It is subsequently made public that U.S. investment bank Goldman Sachs helped Greece conceal part of its debt in 2001 through complex credit-swap transactions.

2004 :  Greece hosts 2004 Athens Olympic Games

Greece hosts the 2004 summer Olympic Games, which costs the state in excess of 9 billion euros. This results in public borrowing and contributes to a rising deficit (6.1 percent) and debt-to-GDP ratio (110.6 percent) for 2004. Greece’s unsustainable finances prompt the European Commission to place the country under fiscal monitoring in 2005.

2009 : Greece in crisis

Pasok (Socialist) leader George Papandreou wins national elections, becoming prime minister. Within weeks, Papandreou reveals that Greece’s budget deficit will exceed 12 percent of GDP which is more than four times the EU's 3 percent limit. Rating agencies lowered Greece's credit ratings this scared off investors which resulted in Greece didn’t have a good chance of finding the funds to repay its debt.

Leader of the Greek Socialist party (Pasok) George Papandreou delivers a speech to supporters
in Athens on October 4, 2009 (Reuters)

2010 : Greece activates rescue loans

Its economy is on the brink of bankruptcy, Greece officially requests a €45 billion bailout package from the EU and International Monetary Fund. The EU and the International Monetary Fund provided the emergency funds in return for austerity measures. The Greek government introduces its first austerity measures including 30 billion euros in spending cuts and tax increases.

2011 : Violent protests in Greece

Greek borrowing costs start rising sharply again, on fears that its austerity measures are failing to work. Greece is now deep in recession, and the number of people taking to the streets demanding a change of course keeps growing. Private bondholders were required to accept extended maturities, lower interest rates and a 53.5% reduction in the bonds' face value.

2012 : Second bailout

The second bailout programme was approved in February 2012. A total of €240 billion was to be transferred in regular tranches through December 2014. The recession worsened and the government continued to dither over bailout program implementation. In December 2012, the Troika provided Greece with more debt relief, while the IMF extended an extra €8.2bn of loans to be transferred from January 2015 to March 2016.

2013 : New austerity measures

Greece’s Parliament approves new austerity measures, agreed to as a condition of the ongoing EU-IMF bailout. The legislation include layoffs of some twenty-five thousand public servants, as well as wage cuts, tax reforms, and other budget cuts, while labor unions call a general strike in protest.

2015 : The referendum

January - Alexis Tsipras of Syriza becomes prime minister after winning parliamentary elections. In power, Syriza introduces a financial package to alleviate poverty and the effects of previous austerity measures.

Prime Minister Alexis Tsipras exhorts the Greek parliament to approve a sweeping package of
austerity measures in a speech ahead of the vote on July 16, 2015. (Reuters)

June 30th- Greece defaulted on its 1.5 billion euros debt repayment to the IMF making it the first developed country to ever default on an IMF loan.

July 5th - In a referendum held on Greece’s third bailout package, the Greek people reject its terms by 61.3% to 38.7%. Nonetheless, the government pushes ahead with the austerity measures required by the bailout.

2017 : Positive signals

By the middle of 2017, the yield on Greek government bonds began approaching pre-2010 levels, signalling a potential return to economic normalcy for the country. It plans to swap notes issued in the restructuring with the new notes as a move to regain investors' trust.

INFOGRAPHIC FOR THE TIMELINE OF GREEK DEBT CRISIS

______________________________________________________________

• Effects of the Greek debt crisis

>> Effects on Greece's Economy 

- Greek GDP's worst decline to −6.9% in 2011. This fall in GDP dramatically increased the Debt to GDP ratio and severely worsening Greece's debt crisis.

- The seasonally adjusted unemployment rate grew from 7.5% in September 2008 to a then record high of 23.1% in May 2012, while the youth unemployment rate time rose from 22.0% to 54.9%.

- The public debt to GDP ratio in 2014 was 177% of GDP or €317 billion. This ratio was the world's third highest after Japan and Zimbabwe. Public debt peaked at €356 billion in 2011.

-  During the year 2011, 111,000 Greek companies went bankrupt.  

>> Effects on Greece's society

- The social effects of the austerity measures on the Greek population were severe. In February 2012, it was reported that 20,000 Greeks had been made homeless during the year, and an estimated of 44% of Greeks lived below poverty line in 2014.

- By 2015, the Organisation for Economic Co-operation and Development (OECD) reported that nearly twenty percent of Greeks lacked funds to meet daily food expenses. Consequently, because of financial shock, unemployment directly affects debt management, isolation, and unhealthy coping mechanisms such as depression, suicide, and addiction. 

>> Effects on the European countries

- The Greek debt crisis left the EU(European Union) in a difficult situation as the EU can allow Greece to exit or it can accept Greece’s soaring debt.

- Experts suggest that Greece’s exit  could create risk in the global financial system and it can impact the EU’s credibility and also volatility in global markets. 

- Moreover, member countries like Germany, France, Italy, Spain and others have to finance the bailout package apart from the IMF. Financial institutions such as Deutsche Bank, Banco Santander, and Unicredit are impacted by the Greece debt crisis as well.

______________________________________________________________

• Solution to the crisis

After the downturn of Greek debt crisis has effected to Greece itself and also affected to many European countries started in 2009. Therefore, several sectors provide suggestions and some solutions to this issue including the following points.

1. On November, 2009, The president of Greece promised to reduce the budget deficit to 8.7 percent of GDP within 2010 by using the austerity measures such as reducing social security costs by 10%, reforming tax system for paying more tax by the rich including avoiding tax and the rate of wage is fixed in government sector.

2. On March, 2010, Parliament of Greece protected the economy by using the measure of reducing expenditure in government sector. Moreover, the agreement of borrowing between Greece and country in Europe zone also international monetary fund. The agreement includes receiving 45,000 million euro in 2010 also other loan which total value is 110,000 million euro

3. European Financial Stability Facility (EFSF) was established on May, 2010. The target of EFSF is to help strengthen the European financial stability by supporting funds for the member countries. The funds come mainly from the Eurozone members and the International Monetary Fund.

5. On October, 2011 there was meeting among the leaders of Eurozone in Brussels. They agreed to do economic stimulus plan together. The measure is designed to protect the failure of member economies from public debt including having proposal to reduce the value of Greece's bonds by 50 percent and lessen Greece’s debt for 100,000 million euro and generate more funds to save European financial stability to be 1 trillion. It also requires European banks to raise capital to ensure more stability.

______________________________________________________________

• Current situation in Greece

- On January 15, 2018, the Greek parliament agreed on new austerity measures. It needs to qualify for the next round of bailout payments.

- On January 22, the eurozone finance ministers are expected to approve 6 billion to 7 billion euros. It helps banks reduce bad debt, opens up the energy and pharmacy markets, and recalculates child benefits.

- The bailout program is scheduled to end in August, 2018.

- Greece's unemployment rate has fallen to 20 percent from more than 25 percent in 2013. Its economy grew 2.5 percent, compared to an almost 10 percent contraction in 2011. It expects to repay at least 75 percent of its debt by 2060. Until then, European creditors will supervise adherence to austerity measures.

_______________________________________________________________

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

: Citations :

- en.wikipedia.org/wiki/Greek_government-debt_crisis
- en.wikipedia.org/wiki/Corruption_in_Greece
- www.econcrises.org/2017/07/20/the-greek-financial-crisis-2009-2016/
- www.cfr.org/timeline/greeces-debt-crisis-timeline
- www.thebalance.com/what-is-the-greece-debt-crisis-3305525
- www.telegraph.co.uk/finance/economics/11705917/Greece-crisis-What-happens-next-And-how-much-money-does-Greece-owe.html
- www.stou.ac.th/stouonline/lom/data/sec/Lom6/05-03.html
- www.nytimes.com/interactive/2016/business/international/greece-debt-crisis-euro.html
- google.image