Greece in 2015

Should Greece be forgiven of its debt?
Ng Chen Xuan (Luke) | Andeline Lim Shu Hui | Tham Zhi Yang
Xavier Ng Jing Xiang | Tay Wen Hao | Bach Hoang Dang

Presentation Outline
Agenda for today
2
Introduction to the Topic
Scenario 1: Existing State of Affairs
Scenario 2: Greece exits the Eurozone
Scenario 3: Greece is Forgiven of Its Debts
Conclusion to the Topic

Status Quo Grexit ConclusionDebt ReliefIntroduction
Greek Crisis In 4 Charts
End of the road for Greece?
4
0%
5%
10%
15%
20%
25%
30%
AUT
BEL
CZE
DEU
DNK
ESP
EST
FIN
FRA
GBR
GRC
HUN
IRL
ITA
LUX
NLD
POL
PRT
SVK
SVN
SWE
Unemployment Rate
(1.5)%
(1.0)%
(0.5)%
0.0%
0.5%
1.0%
1.5%
2.0%
AUT
BEL
CZE
DEU
DNK
ESP
EST
FIN
FRA
GBR
GRC
HUN
IRL
ITA
LUX
NLD
POL
PRT
SVK
SVN
SWE
Annual GDP Growth
0%
50%
100%
150%
200%
AUT
BEL
CZE
DEU
DNK
ESP
EST
FIN
FRA
GBR
GRC
HUN
IRL
ITA
LUX
NLD
POL
PRT
SVK
SVN
SWE
Debt to GDP
Unemployment Rate of 26.5%... coupled with negative GDP Growth of 1.3%...
Debt to GDP of 178.2%... Leading to massive debt repayments
Average
10.2%
Average
0.3%
Average
93.8%
0
5
10
15
20
25
30
35
EURbn
Debt Repayment Schedule
T-Bills Other Bonds
Bonds Held by ECB 1st Bailout
IMF 2nd BailoutSources (all): OECD

Root Causes Of Greek Financial Crisis (GFC)
How Greece fell into this crisis
5
4 Main Issues
Entry into EU at
unfavorable rate
Excessive
Borrowing Pre-GFC
Lack of external
financing Post-GFC
Bad Governance
Compounded by:
Lower productivity
Higher wage increases
Higher inflation
Borrowing costs decreased
substantially upon entry into EU
Resulted in excessive borrowings
Sudden withdrawal of external
financing
Resulted in maturity and currency
mismatch
Fudged finances
Profligacy
High bureaucracy
Inefficient tax collection

0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15
Greece 10Y Govt.
Bond Yield
2 May 10 –
1st bailout
(€110bn )
21 Feb 12 –2nd bailout (€130bn )
5 Jun 15 – Defer IMF
Repayment
5 Jul 15 – Tsipras hold anti-
austerity referendum
20 Jul 15 –
Receive €7bn
temporary loan
and started
repaying debts
Unravelling Of The GFC
Timeline of key events
6
1 Jan 01 8 Dec 09
Entered
Eurozone
Confesses to
fudging
figures
Massive
downgrades after
warnings that
deficit could
climb to 12.5% of
GDP
First Bailout
finalised
(€110bn)
Second
bailout
finalised
(€130bn )
2 May 10
21 Feb 12
26 Jan 15
5 Jun 15
Anti-austerity
party win
election
Defer IMF
Repayment
5 Jul 15
20 Jul 15
Tsipras hold shock
referendum to advice
against austerity
Started repaying
debts after
receiving €7bn
temporary loan
15 Nov 04 14 Aug 15
Where is Greece’s 10 Year Bond Yield headed?
Secures third
bailout (€86bn)
14 Aug 15
– 3rd
Bailout
(€86bn )

Solving The Greek Conundrum
Examining the possible scenarios
7
Evaluation Criteria
Existing state of
affairs
Greece is forgiven
of its debts
Executability Long term viability European stability
How easily can the
solution be
executed?
Political
Economic
Social
Feasible for Greece
in the Long Run?
Greece exits the
Eurozone

Scenario 1: Existing State of Affairs

Grexit ConclusionDebt ReliefIntroduction Status Quo
Status Quo: Executable Proposal
What is the status quo?
9
What happened during the current state?
Definition of “the status quo”
Greece May 2010
bailout program (Stand-
by Arrangement)
EUR 110bn over 3 years
2010 2012
Second bailout program
with revised terms
(Extended Fund Facility)
2015
Greece third bailout
program
Restructuring of Greek debt through extension of debt maturity and lowering of interest rates
Debt write-off of <30%

Status Quo: Executable Proposal
What lies ahead for Greece?
10
Greek debt was restructured first in 2010
and then again in 2012
Precedence and procedure in place through
extension of debt maturity and lowering of
interest rates
Bailout involves harsh conditions that are
unpopular with Greek voters
IMF will not participate in further bailouts
until Greece receives significant debt relief
from creditors
Source: Greek Interior Ministry
Restructuring of Greek debt is
relatively easy to execute
Further bailout may be
more difficult to execute
38.7%
61.3%
Yes No
63%
Greek Referendum Result: Whether Greek voters
accept the terms of an international bailout
submitted by the EU, ECB and the IMF (2015)
Turnout rate0 5 10 15 20 25 30 35 40 45 50 55
France
Germany
USA
UK
Nertherlands
Portugal
Ireland
Italy
Austria
Belgium
Spain
Dec-14 Dec-09
Exposure of private creditors to Greece by country
at the end of the year
EUR bn
Source: Bank of International Settlements

0%
10%
20%
30%
40%
50%
60%
70%
2010 2011 2012 2013 2014
Unemployment Rate
(% of economically
active population)
Youth
Unemployment Rate
(% of economically
active population
aged 15-24)
Long Term Effects Of Status Quo On Greece
Austerity is not desirable for Greece
11
Current solution only worsens the problem as austerity measures hurt the Greece economy
Source: Euromonitor International
0
20
40
60
80
100
120
140
160
180
200
2010 2011 2012 2013 2014
Debt-to-GDP ratio
Austerity did not substantially reduce
Greece’s debt-to-GDP ratio
Source: World Bank
Unemployment skyrocketed from 2010 to
2014

Long Term Effects Of Status Quo On Greece
Existing solutions are limited in effectiveness
12
Bailout money goes to paying off
Greece’s international loans
Marginal benefit from further
restructuring of debt
State Operating Needs, 27
Recapitalisation
of Greek Banks,
48.2
Interest Payments,
40.6Maturing Debt
Obligations, 81.3
Debt
Reductions,
45.9
Repayments to IMF, 9.1
Contribution to
European Stability
Mechanism, 2.3
Use of troika loans from 2010-14
(254.4b Euro Billion)
Source: Financial Times
Greek debt was restructured twice, with
already low interest rate of 2.4%
Long maturity of debt: over 20 years on
average

Impacts On European Stability From Status Quo
Implications on pension and taxes
13
Pensions
VAT and other taxes
More items are likely to be
covered by the top VAT rate
of 23% (e.g. private
education)
Phasing out of VAT discounts
on Greek islands by 2016
Decreases competitiveness
Potential source of social
instability as pensioners lose
their social net
Exacerbated with high youth
unemployment
Onus on Greece to increase
revenue
Through stream lining the
VAT system and broadening
tax base
Improve the long-term
sustainability of the pension
system
Start phasing out early
retirement – statutory
retirement age of 67 by 2022
Conditions Details Feasibility/ Effectiveness
Assessing the ability of Greece to produce a budget surplus of 1% of GDP, rising to 3.5% in 2018

Impacts On European Stability From Status Quo
Implications on asset transfer and reforms
14
Greek asset transfer
Up to EUR 50bn worth of
Greek assets to be
transferred to an Athens-
based new fund
Monetization of assets
through privatization and
other means
To contribute to the
recapitalization of Greek
banks
Analysts are skeptical about
how much money there will
be to work with
Targets appear overtly
optimistic given past
privatization outcomes
Deregulation & other
reforms
Overhaul social welfare to
achieve annual savings of
0.5% of GDP
Open up restricted
professions
Deregulate natural gas
market
Increases competition from
other European markets
Decreases the number of
jobs available, worsening
unemployment
Assessing the ability of Greece to produce a budget surplus of 1% of GDP, rising to 3.5% in 2018
Conditions Details Feasibility/ Effectiveness

IMF worsened the AFC situation in Indonesia due to the stringent concessions
imposed on Indonesia in exchange for the US$43b bailout
Asian Financial Crisis – Indonesia (1998)
Indonesia accepting the conditions imposed by IMF
15
Conditions Results
Tough and onerous conditions imposed by
IMF worsened the recession in Indonesia
0%
5%
10%
15%
20%
25%
30%
1993 1996 1998 1999 2000
Poverty Rate in Indonesia
-15%
-10%
-5%
0%
5%
10%
15%
1996 1997 1998 1999 2000
GDP Growth (%) Indonesia Malaysia
Singapore
Source: World Bank
Source: Statistics Indonesia
IMF instructed Indonesia to cut
government expenditure and guarantee
private debts owed to foreign lenders
Obligated the Indonesian government to
privatize all state enterprises and run them
commercially
Forced Indonesia to reduce or abolish
subsidies for basic commodities used by
citizens

Scenario 2: Greece Exits the Eurozone

Status Quo ConclusionDebt ReliefIntroduction Grexit
Grexit: Executable Proposal
Can the Grexit be a viable alternative?
17
How a Greece exit would be engineered
Greece defaults on
its debt obligations
and engineers Euro
exit
Enacts capital
controls to stem an
anticipated capital
outflow
Introduces a new
currency – the
Drachma
Devaluation of drachma
improves competitiveness
The ideal Grexit resolution
Grexit means an end to
stifling austerity measures
Fiscal efforts orientated
towards growth not interest

Grexit: Executable Proposal
Wider economic effects expected from Grexit
18
Skyrocketing
Inflation
Ramifications of a Grexit on the Greek economy
A 40% decline in
purchasing power
is anticipated
Real GDP will
decline between
20-30%
Wider
economic
effects
Unemployment
will surge past
29%
Structural
problems remain
rooted
Political upheaval
and social unrest
Realisticimplications
ofaGrexit
Bankruptcies as
devaluation
increases
obligation of euro-
denominated debt
Limited impact
of currency fall
Structure of
Greece’s economy
threatens to
nullify the impact
of devaluation
Debt obligations
likely to persist
Restructuring of
debt obligations
necessary to gain
access to funds in
future
Corporates &
banks collapse

7,976 7,455 8,238 8,599 10,317 11,317
7,472 8,088 7,630 7,341
7,543
8,553
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
2009 2010 2011 2012 2013 2014
EUR mn
Long Term Effects Of Grexit On Greece
Is there a demand for Drachma?
19
A persistent net importer of goods and services
Source: Bank of Greece
Key Exports by Greece
Can tourism save Drachma?
Bal. of Service excl. Travel & Sea Transport
Sea Transport
Travel
Oil balance
Ships’ balance
Bal. of Goods excl. oil and ships
Net impact on Trade Balance
3.2%
2.0% 1.9%
1.5%
0%
2%
4%
40%
Refined
Petr.
Packaged
Med.
Olive
Oil
Alum.
Plating
Raw
Cotton
36%
14.9 15.0
16.4
15.5
17.9
0
5
10
15
20
2009 2010 2011 2012 2013
Tourists
(mn)
International Tourism Arrivals
Manufacturing is only 10%
of Greece economic output
Source: Bank of Greece
Source: OECD

Long Term Effects Of Grexit On Greece
Bringing manufacturing back to Greece?
20
Case study: Reindustrialization in S. Carolina EU - industrial sector to contribute 20% by 2020
An industrial renaissance through
Can Greece outcompete a coordinated EU?
EU 2020 Target: Increase industrial sector’s share
of economy from 16% to 20%
Investment in new technologies
Improved single market for goods
Improved access to finance for SMEs
More investments in human capital
Source: Deutsche Bank
US Automotive industry crisis
(2008 - 2010)
Actively encourage OEM, Tier 1 and Tier
2 companies to set up base
Promote education in the region:
Clemson University International Centre
for Automotive Research
BMW Infotech Research Centre
S Carolina Technical College (readySCTM)

Impacts On European Stability From Grexit
Geo-politics or economics first?
21
NATO & EU - Entwined Relationship
Traditionally, EU is politically aligned with US
NATO Quint - US + Big 4 in EU (France,
Germany, Italy, UK)
EU & NATO
NATO Only
EU Only
Russia is recruiting allies within Europe
Cyprus
Mar 2013 -- Restructured EUR 2.5bn
Russian loan to Cyprus to extend payback
deadline to 2016
Feb 2015 -- Cyprus & Russia signed a deal
to give Russian navy access to Cypriot
ports
Greece
Jan 2015 -- Greece voiced opposition to
further European sanctions on Russia
Jun 2015 -- Preliminary USD 2.27bn deal
to build gas pipeline through Greece

Other European countries are likely affected
22
Triggering a contagion effect Depreciating value of Euro
0
2
4
6
8
10
12
14
16
18
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15
Germany Spain Portugal Italy
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15
Value of Euro will plummet drastically from
the current levels
Possibility of a rate hike to stem the outflow
in the nascent stages of recovery
Uncertainty and panic will send flight of
capital out of Eurozone
Solvency issues for Europe’s periphery as
bond yields soar to new highs
Source: Bloomberg
Bond yields / %
Source: Bloomberg
EUR/USD

Identifying the financial implications on the Eurozone
23
Effect expected to be less pronounced With debt manageable in GDP terms
Losses largely borne by official creditors, not
private sector creditors
Direct exposure of German banking system
is 0.1% of GDP, while France, Italy and
Spain have exposures of < 0.1% of GDP
Euro
Governments
64%
IMF
10%
ECB
8%
Private
Sector
18%
3.06% 3.03%
2.78%
2.60%
2.38% 2.37%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Slovenia Malta Spain Italy France Germany
The largest Greek debt holders only have
exposure of around 3% of GDP
Large nominal amounts held by Germany
(EUR 65bn), France (EUR 49bn) and Italy
(EUR 43bn), but exposure by % of GDP is
small
Source: Bloomberg
Source: Bloomberg

Scenario 3: Greece is Forgiven of Its Debt

Status Quo Grexit ConclusionIntroduction Debt Relief
Debt Relief: Executable Proposal
Debt forgiveness does not mean a 100% write-off
25
Debt Forgiveness is a necessary but not a sufficient condition for Greece’s recovery
Definition of “Debt Forgiveness”
Debt forgiveness does not necessarily mean a 100% write off
A significant reduction compared to the existing state of affairs (Scenario 1) will suffice
Greek PM Tsiparas wants a EUR 125bn (~30%) write off
That is, that debt forgiveness alone will not solve the problem. However, the problem
cannot be solved without debt forgiveness

Debt Relief: Executable Proposal
How difficult will it be from a practical standpoint?
26
How will it be done practically? Relatively few parties involved
Most of the debt has been consolidated into
the hands of the Troika
Greek banks hold most of the Private Sector
debt  self-defeating if considered
Source: Bloomberg
Reduction of interest rates and the maturity
of its debt to reduce present value of bonds
Direct EUR 125bn (~30%) write-off to the
debt principle
Lagarde’s Idea
Tsiparas’ Idea
Greek interest rates will need to be 1.4% and
debt maturity 30 years
Direct write-off more feasible (Tsiparas’s)
Euro
Governments
64%
IMF
10%
ECB
8%
Private
Sector
18%

Long Term Effects Of Debt Relief On Greece
Greece desperately needs investment
27
6.1
3.0
0.7
0.7
0.0
-0.3
-1.6
-2.1
6.5
Social benefits
Compensation of employees
Intermediate consumption
Other current expenditure
Subsidies
Capital investments
Capital transfers payable
Interest
Total
Change in p.p. of GDP 2000-09
15%
27%
17%
17%
20%
Greece
Southern Europe
Northern Europe
Continental Europe
EU-15
% of cumulative 2000-08 GDP attributed to Investments
Greece has been neglecting investment In fact the government cut its investment
Greek capital spending’s share of GDP has
been reduced from 2000-09
Greece has been neglecting capital
investments for most of the past decade
Source: McKinsey
Despite being able to sell bonds easily in
Euros, Greece has spent little of it on
investment
Greece’s investment levels have been lower
than it’s European peers – even Southern
Europe
Source: McKinsey

Statistical discrepancies
Unemployment rate
Participation rate
Share of working age population
Hours/Employee
Productivity
Total GDP/Capita Gap
Neglecting investment has caused productivity to suffer
28
… makes up the wealth gap with the USGreece’ low productivity…
Greek productivity is one of the lowest in the
world using the Elteto-Koves-Szulc method
40% less than the USA, 29% less than EU-
15, 17% less than Southern Europe
More than the entire GDP (wealth) per capita
gap with the USA can be explained by the
low productivity levels
Greece will need extensive investment to
increase productivity in order to be
competitive
2009 PPP, USD ’000 per capita
58
55
49
48
42
35
USA
Continental Europe
EU-15
Northern Europe
Southern Europe
Greece
GDP/hour, EK$
15.0
19.0
-7.3
0.6
4.1
0.1
-1.5
Source: McKinseySource: McKinsey

The Greek government will have to provide the capital
29
But no bailout money went to investment
Only EUR 27bn used for State Operating
Needs. If you include recapitalization of
banks, only ~30% used internally
Greece needs debt forgiveness to free up
money to plough into capital investment
FDI and Private Sector is not an option
Inward FDI has been very low for the past
decade despite joining the European
community
Greece’s private, domestic capital formation
mainly gone into unproductive small
businesses due to overregulation
16% 11% 12% 11% 11%
80% 72% 79% 70% 65%
4% 17% 9% 18% 25%
0%
20%
40%
60%
80%
100%
Greece EU-15 Southern
Europe
Continental
Europe
Northern
Europe
Public Private Inward FDI
Gross Capital Formation EUR bn
Source: McKinsey
365 18,611 5,534 8,805 4,273
Source: Macropolis
State Operating Needs
11%
Recapitalisation
of Banks
19%
Payments to
International
Parties
(Mostly
Creditors)
70%

Impacts On European Stability From Debt Relief
Europe should be able to take the hit
30
…are growing decently well
The suggested 30% write-off is equivalent to
1.1% of Eurozone GDP & Greece’s top 4
creditors are growing strongly
They should recover the loss within 1-2
years and there will be little long term effect
Greece’s Top 4 Creditors…
Greece’s top 4 creditors are Germany,
France, Italy and Spain
In absolute terms, they will have the most to
lose in the even of any Greek debt
forgiveness
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
EU Average Germany Spain France Italy
QoQ Real GDP Growth
0
5
10
15
20
25
30
35
Germany France Italy Spain
EURbn
Source: EurostatSource: Eurostat

Debt Forgiveness will anger far left/right parties
31
But extremist parties will
Far right/left parties from debtor countries
will be emboldened with political
ammunititon
Prominent parties are Podemos, Bloco de
Esquerda, Front National, Alternative für
Deutschland and MoVimento Cinque Stelle
The Greeks wouldn’t mind
Even at the height of anti-austerity protests
in mid-April 2015 most Greeks still did not
want to leave the Eurozone
Debt forgiveness will give Greeks the best of
both worlds – the end of austerity and
remaining in the Eurozone
Yes
57%
No
25%
Undecided
18%
Opinion Poll by the Proto Thema Sunday: Should Greece
leave the Eurozone?
Source: Proto Thema Sunday

There is a window of opportunity for implementation
32
2015 2016 2017
Portugal Parliamentary
Elections
4 Oct 15
Spain General Elections
20 Dec 15
Germany Parliamentary
Elections
by 22 Oct 17
French Presidential
Elections
by 31 May 17
2018
Italy General Elections
by 23 May 18
No major European
elections in 2016
Hopefully there will be enough time for the situation to improve before the next elections

But there are speed bumps in Europe
33
Potential moral hazard
Some countries who are more exposed to
Greek debt are complaining less
Those countries are also fairly heavily
indebted to the Eurozone (Greece =
dangerous precedence)
The Baltic States will protest
The Baltic States are the newest and fastest
growing Eurozone members. They are also
some of the most vocal critics of the bailout
We think it is alright to ignore them. They
are very close to Russia and need Europe
more than Europe needs them
Source: Bloomberg
0
10
20
30
40
50
60
70
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Slovenia
Malta
Spain
Italy
Estonia
Slovakia
France
Germany
Finland
Belgium
Netherlands
Austria
Luxembourg
Portugal
Cyprus
Ireland
Latvia
EURbn
%ofNominalGDP
% of Nominal GDP
EUR bn

London Debt Agreement (1953)
Main principles of the agreement
34
The amount Germany owed was
ostensibly reduced
The time Germany had to pay back
was longer than before
The amount due in any given year
was tied to Germany’s ability to
make transfer
Upon ReunificationGeneral Principles
of London Debt Agreement (LDA)
Some terms and conditions
automatically took effect
General principles extended
to private debtors in East
Germany
Any loss of property in East
Germany would be
accounted for

Four classes of German loans covered under LDA
35
Ordinary commercial loans
and deferred repatriation
Loans made under Dawes Plan
(1924) and Young Plan (1929)
Liabilities of cities and
sub-federal units
Marshall Plan and
US GARIOA Program
Dawes Plan: 800 mil
Marks raised by US to
stabilize Germany
Economy, put Reichbank
under foreign supervision
to prevent second
hyperinflation
Young Plan: 1.2 bil Marks
loan and short-term
reduction in reparation
payments
1931 banking crisis,
foreign creditors did not
repatriate, thereby
extending loans past due
dates, 6 mil Marks
German firms needed raw
materials and new
equipment
States had liberty to issue
debts
Federal reparation liabilities,
post-war support, state’s
own debt liabilities
Unlike the other three
classes, which mostly
incurred pre-WWII, this
was to recover post-WWII
West Germany
Special terms for Germany
Source: Guinne (2015)

The terms of the agreement
36
0
5
10
15
20
25
30
German Debt, Pre-LDA LDA cut German Debt, Post-LDA
(by type)
German Debt, Post-LDA
(by debtor)
Pre-WWII Post-WWII
Paid by public sector Paid by private sector
In German Marks bn
Composites of reduction in German debt reduction covered in LDA
Timeline of payments
1953-1958
Interest payments only
1958 – Future date (1970s in reality)
Principal + interest payments owed by West
Germany
Upon Unification (1990s – 2000s in reality)
The remaining of the debt owed by East Germany
Effective rate of pre-WWII
debt’s due interest was lower
than what it should have been
Debt amount was no longer
pegged to gold (but instead to
USD and CHF), which devalued
of non-USD and non-CHF
denominated debts by 40%
Other benefits to debtor under LDA
Source: Guinne (2015)

Reduced Polish Debt to the Paris Club (1991)
Net outflow of financial resources for a long time
37
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
Transfer of financial resources, Poland 1979-1990
Source: Antowska-Bartosiewicz and Malecki (1993)
Transfer of financial resources include loan principals and interests granted to (positive sign)
and paid by (negative sign) Poland
From 1982-1989, increase in debt was due to past-due interest and penalty interest
Historical context: the fall of Soviet Union
Over 8 years, Poland paid in total
USD 12.2 trillion in interest and
USD 6 trillion in principal
End of 1981:
USD 26 trillion
End of 1989:
USD 41.3 trillion
1.6x
Poland’s Debt in convertible currency
In USD mn

Reduced Polish Debt to the Paris Club (1991)
Summary of the debt relief to Poland
38
Poland: 80%
USA: 60%
France: 33%
German: low
Japan: none
Debtor
Creditors
Agreed to forgive 50% of USD 33 billion (annual
interest payments reduced by 80%, from USD 3.3
billion to USD 660 million)
2nd stage:
Thereafter, 20%
more of debt cut
1st stage:
3 years, NPV of debt cut
by 30%
Negotiation OutcomesDesired debt write-off
Creditor’s choice of instruments to reduce bilateral debts for Poland
Convert existing interests to principal, then offer low interest rates
Offer below-market interest rates to existing debts
Forgive principal (and hence all subsequent interests)

Contrasting Greece And The Case Studies
Different economic contexts have implications
39
Executability
Long term
viability
European
stability
Fully supports Fully opposes
Germany’s previous debt amount (pre-
WWII) was somewhat arbitrarily
determined, unlike Greece’s current debt
Germany was a major economy in
European community, even before WWI
Germany had most of the
macroeconomic tools (exchange rate)
Germany and Poland allowed strict
international supervision
Debt overhang was a consideration for
writing down debt

Status Quo Grexit ConclusionIntroduction Debt Relief 40
Executability
Long term
viability
European
stability
Extraordinary historical circumstances of
the debt reliefs (post-WWII and the
beginning of the fall of communism)
USA looked for allies in debtors and
applied political pressure on creditors
Taxpayers of lead creditors were willing
to bear the burden of relief
The cause of WWII was partly because of
the heavy burden of debt on Germany
Different political contexts have implications
Contrasting Greece And The Case Studies

Status Quo Grexit Debt ReliefIntroduction Conclusion 42
Key Takeaways
Summary of arguments presented
Executability Long Term Viability European Stability
Status Quo
Further austerity
likely to face strong
opposition from
voters
Not viable based on
precedent debt
restructuring
Political and social
instability might
ensue from further
reforms
Grexit
Many short-term
repercussions which
send weak economy
into doldrums
De-industrialised,
service-based
economy unlikely to
benefit from
devaluation
Economic instability
due to contagion
Significant political
instability due to
potential alliance
with Russia
Debt Relief
Likely to face
difficulties convincing
all the EU members
to agree
Bailout would provide
much needed
stimulus and provide
assistance in
improving
productivity
Political instability
due to increased
voice from far
right/left parties
Potential moral
hazard from other
indebted countries

Status Quo Grexit Debt ReliefIntroduction Conclusion
Executability
Long Term
Viability
European
Stability
43
Final Evaluation
Debt forgiveness is the least bad solution
Existing state of
affairs
Greece is forgiven
of its debts
Greece exits the
Eurozone

Status Quo Grexit Debt ReliefIntroduction Conclusion 44
Concluding Remarks
Integration of the Eurozone is still the key
ECB to have full regulatory oversight
on all banks in Eurozone
ECB takes on lender of last resort role
Increased financial stability which
would prevent large scale capital
outflow from distressed nations like
Greece
Full fiscal union entailing political
integration
Sufficiently large budget to bail out
individual states that are in trouble
Federal government for EU
ECB takes care of bank regulation and
support while the federal government
help distressed nations
ECB: Regular Central Bank Fiscal, financial and political union
We need more Europe. We don’t need monetary union, we
also need a so-called fiscal union. And most of all, we
need a political union – which means we need to gradually
cede powers to Europe and give Europe control.

Ng Chen Xuan (Luke) | Andeline Lim Shu Hui | Tham Zhi Yang
Xavier Ng Jing Xiang | Tay Wen Hao | Bach Hoang Dang

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