The threat of an unceremonious exit from the Euro Zone might have receded for the beleaguered Greece, at least for now. However, there is no guarantee the present bailout deal is enough to ensure the European economy’s return to normalcy. Given, the billion euro question is: Has it done enough to avoid exiting the Euro Zone? Whatever, one thing is for sure, the collapse of Greek economy could also mean collateral zone for one of the oldest and strongest trade block – Eurozone.
Eurozone Crisis : A case study on GreeceAniket Pant
Our group was required to do a presentation for Financial Management on the Euro Zone Crisis. We took the example of Greece and did the study. Here are our slides.
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arra...FactaMedia
The IMF conducted an ex post evaluation of Greece's 2010 Stand-By Arrangement (SBA), which provided exceptional access of €30 billion to support Greece amid its debt crisis. While the SBA achieved strong fiscal consolidation and pension reform, it failed to restore market confidence or curb high unemployment. Debt remained too high and had to be restructured. The evaluation found that rapid fiscal adjustment was necessary but the program overestimated Greece's ability to implement structural reforms. The SBA highlighted lessons for the IMF in accommodating currency unions and ensuring sufficient program ownership.
The Greek debt crisis began in late 2009 when it was revealed that Greek government debt was much higher than previously estimated. This led to higher borrowing costs for Greece and concerns about its ability to repay debts. Multiple bailouts were provided by other European countries and the IMF between 2010-2015 but required severe austerity measures that hurt the Greek economy. While bailouts helped stabilize the crisis, disagreements over austerity reignited concerns in late 2014 about Greece potentially exiting the Eurozone.
Greece experienced a debt crisis due to high government spending and budget deficits over many years. This was exacerbated by the 2008 global financial crisis making it difficult for Greece to borrow money. Greece's deficit increased to 13.6% of GDP and its credit rating declined, raising borrowing costs. A joint EU and IMF bailout package was approved to provide loans to Greece in return for strict austerity measures and reforms to cut spending and stimulate the economy. However, the crisis raised questions about the long-term stability of the Eurozone and possibility of future bailouts.
Greece has been experiencing a debt crisis as its budget deficit and debt levels have risen significantly. This was caused by falling tax revenues, increased spending, misreporting of economic statistics, and the effects of the global financial crisis which hurt Greece's major industries of tourism and shipping. To address the crisis, Greece has implemented austerity measures like spending cuts and tax increases, and the EU/IMF have agreed to a bailout package of up to €110 billion in loans to help Greece pay its debts and restore market confidence. However, the crisis has highlighted issues with fiscal policy and oversight in the eurozone.
This document outlines a study on the impact of the Euro-zone crisis on India's current account deficit. The study has three objectives: 1) examine the impact of the crisis on the current account deficit, 2) analyze the European zone as a major trading partner of India, and 3) analyze the correlation between the Indian rupee and Euro exchange rates to evaluate the crisis's effect. The document provides background on the Euro-zone, crisis, current account deficit, and reviews literature on factors influencing current account balances. It describes the study's methodology, expected outcomes to indicate how the crisis impacted Indian exports and currencies, and lists references.
Project on Greece Crisis and Impact for Economic Environment of Business Renzil D'cruz
: Project on Greece Crisis and Impact for Economic Environment of Business
• financial crisis of 2007–2008
• Greek government-debt crisis
• Causes for deteriorated economic
• Tax evasion and corruption
• Unsustainable and accelerating debt-to-GDP ratios
• Impact of the Greece Economic Crisis on India
India’s Crisis Responses and Challenges
Eurozone Crisis : A case study on GreeceAniket Pant
Our group was required to do a presentation for Financial Management on the Euro Zone Crisis. We took the example of Greece and did the study. Here are our slides.
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arra...FactaMedia
The IMF conducted an ex post evaluation of Greece's 2010 Stand-By Arrangement (SBA), which provided exceptional access of €30 billion to support Greece amid its debt crisis. While the SBA achieved strong fiscal consolidation and pension reform, it failed to restore market confidence or curb high unemployment. Debt remained too high and had to be restructured. The evaluation found that rapid fiscal adjustment was necessary but the program overestimated Greece's ability to implement structural reforms. The SBA highlighted lessons for the IMF in accommodating currency unions and ensuring sufficient program ownership.
The Greek debt crisis began in late 2009 when it was revealed that Greek government debt was much higher than previously estimated. This led to higher borrowing costs for Greece and concerns about its ability to repay debts. Multiple bailouts were provided by other European countries and the IMF between 2010-2015 but required severe austerity measures that hurt the Greek economy. While bailouts helped stabilize the crisis, disagreements over austerity reignited concerns in late 2014 about Greece potentially exiting the Eurozone.
Greece experienced a debt crisis due to high government spending and budget deficits over many years. This was exacerbated by the 2008 global financial crisis making it difficult for Greece to borrow money. Greece's deficit increased to 13.6% of GDP and its credit rating declined, raising borrowing costs. A joint EU and IMF bailout package was approved to provide loans to Greece in return for strict austerity measures and reforms to cut spending and stimulate the economy. However, the crisis raised questions about the long-term stability of the Eurozone and possibility of future bailouts.
Greece has been experiencing a debt crisis as its budget deficit and debt levels have risen significantly. This was caused by falling tax revenues, increased spending, misreporting of economic statistics, and the effects of the global financial crisis which hurt Greece's major industries of tourism and shipping. To address the crisis, Greece has implemented austerity measures like spending cuts and tax increases, and the EU/IMF have agreed to a bailout package of up to €110 billion in loans to help Greece pay its debts and restore market confidence. However, the crisis has highlighted issues with fiscal policy and oversight in the eurozone.
This document outlines a study on the impact of the Euro-zone crisis on India's current account deficit. The study has three objectives: 1) examine the impact of the crisis on the current account deficit, 2) analyze the European zone as a major trading partner of India, and 3) analyze the correlation between the Indian rupee and Euro exchange rates to evaluate the crisis's effect. The document provides background on the Euro-zone, crisis, current account deficit, and reviews literature on factors influencing current account balances. It describes the study's methodology, expected outcomes to indicate how the crisis impacted Indian exports and currencies, and lists references.
Project on Greece Crisis and Impact for Economic Environment of Business Renzil D'cruz
: Project on Greece Crisis and Impact for Economic Environment of Business
• financial crisis of 2007–2008
• Greek government-debt crisis
• Causes for deteriorated economic
• Tax evasion and corruption
• Unsustainable and accelerating debt-to-GDP ratios
• Impact of the Greece Economic Crisis on India
India’s Crisis Responses and Challenges
The document summarizes Greece's economic crisis. It describes how Greece accumulated high government deficits and debt levels in the decades before the global financial crisis. This left Greece vulnerable when the crisis hit. Greece was bailed out in two packages totaling over $300 billion but had to accept austerity measures. The crisis impacted Greece through high unemployment, declining industrial production, banking troubles, and spillovers to other European and global economies. Reforms have focused on reducing government spending, opening markets, cutting wages and pensions.
Eurozone debt and impact on Indian economyManpreet Singh
This document discusses the European debt crisis, its causes, and impact on the Indian economy. It notes that the crisis began when some European countries like Greece accumulated large debts through overspending that they could not repay, leading to higher interest rates. This was caused by violations of rules limiting deficit spending and debt levels. The crisis affected weaker economies in the Eurozone and led to austerity measures, bailouts, and lower economic growth and confidence, negatively impacting India through reduced trade, foreign investment, and global market sentiment.
The Eurozone financial crisis began as a transmission of the US subprime mortgage crisis and housing bubble collapse due to securitized subprime debt held globally. This caused a freeze in interbank lending markets. Affected countries implemented monetary policies, bank bailouts, and fiscal stimulus packages with varying degrees of success. The euro prevented competitive devaluations but also limited Greece's ability to address its rising debt through its own currency, leading to an international bailout package.
An attempt to cover different facets of ESD Crisis . Following ppt enumerate how it all got started and draws out rationale behind the formation of EU.
The public debt crisis is not limited to Greece or to the Euro area. In fact, several developed economies face rapidly growing debt-to-GDP ratios, which raise doubts about their long-term solvency. Thus, suggesting that the Eurozone is undergoing a currency crisis or is in danger of disintegration is not the right diagnosis (or at least premature). However, if prudent fiscal policies, fiscal discipline and far-reaching structural reforms are not undertaken soon, both the EU and EMU may face serious internal tensions and obstacles to future economic growth.
Authored by: Marek Dąbrowski
Published in 2010
The document discusses several factors that contributed to Greece's debt crisis following 2008:
1) Structural problems in Greece's taxation system led to significant lost government revenue.
2) The Eurozone's structure disadvantaged peripheral states like Greece and benefited core countries like Germany.
3) Greece had a large current account deficit and was vulnerable to the effects of the global financial crisis, requiring bank bailouts.
While the Greek government was not solely responsible, issues with tax collection and long-term debt exposure increased Greece's vulnerability when economic shocks occurred.
Greek crisis & its impact on world economyTanmoy Roy
Greece's budget deficit exceeded the EU's limit of 3% of GDP in 2009, reaching 12.9% of GDP. In 2010, Greece announced austerity measures to lower the deficit to 3% in two years. However, Greece continued to struggle with high debt levels due to excessive borrowing costs and an inability to devalue its currency after adopting the euro. In 2011, the European Financial Stability Facility added €190 billion to Greece's bailout package in an attempt to stabilize the economy, but Greece ultimately closed its banks in 2015 due to a loss of depositor confidence and concerns over its debt crisis.
The document discusses the Eurozone crisis. It provides background on the formation of the eurozone and explains how countries like Greece, Portugal, Italy, Ireland and Spain (PIIGS) accumulated large debts and deficits after joining the euro. The crisis emerged as investors lost confidence in sovereign debt from these peripheral economies. Several factors contributed to the crisis, including low interest rates fueling overspending, unsustainable growth models, and banking losses. The EU and ECB have taken steps to address the crisis through monetary easing, bailout funds, and austerity policies.
The document discusses the EU crisis, which goes beyond just being a Euro crisis. It summarizes that the intergovernmental constitution established to deal with financial issues has faced limitations. Measures taken to manage the crisis have exacerbated relations between peripheral and central EU members and lacked legitimacy. The crisis also highlights broader issues of political stagnation in the EU since rejection of the proposed constitution. It aims to analyze the EU response to the crisis and structural causes of EU problems beyond just the global financial crisis influences.
The EMU debt crisis occurred due to lenient criteria for countries joining the eurozone and a lack of fiscal policy coordination once in the union. When the global financial crisis hit, weaknesses in some eurozone countries' fiscal positions were exposed. As governments bailed out failing banks, investors began demanding higher risk premiums from weaker countries like Greece, exacerbating their debt problems. While stricter admission standards and sanctions for breaking fiscal rules may have prevented this, it is now nearly impossible for a country to exit the eurozone without causing further economic and political crises. Reforms are needed to stabilize the currency union.
The document provides background on the creation of the euro zone and the euro currency. It summarizes the factors that led to convergence initially but then divergence during the global financial crisis, exposing weaknesses in some euro zone economies. The crisis is described as stemming from high sovereign debt, fiscal deficits, and structural economic problems. Rescue efforts like the EFSF and ESM were created but have so far failed to fully reassure markets. Specific issues facing Ireland, Portugal, Spain, Italy, and Greece are also outlined.
Project on Greece Crisis and Impact for Economic Environment of Business Renzil D'cruz
: Project on Greece Crisis and Impact for Economic Environment of Business
• financial crisis of 2007–2008
• Greek government-debt crisis
• Causes for deteriorated economic
• Tax evasion and corruption
• Unsustainable and accelerating debt-to-GDP ratios
• Impact of the Greece Economic Crisis on India
India’s Crisis Responses and Challenges
The document discusses the role of the International Monetary Fund (IMF) in Greece's 2015 bailout. It provides background on Greece's economic troubles since 2008 and details the multiple bailout packages provided by the IMF and European institutions between 2010-2015. The bailouts aimed to support Greece's austerity reforms but impacted citizens through wage freezes and tax increases. The IMF wanted to see debt relief for Greece and sustainable reforms before committing further funds, as Greece struggled with unsustainable debt levels over 175% of GDP.
The Greek economy is the 27th largest in the world by GDP. It has transitioned from an agricultural to a service-based economy, with services contributing 75.8% of GDP. However, Greece faced severe economic crisis in 2009-2010 due to a high budget deficit of 13.6% of GDP and rising debt levels of 115% of GDP, leading to higher borrowing costs. This prompted Greece to request a bailout package from the EU and IMF in April 2010 worth €45 billion to avoid defaulting on debts. A series of austerity measures were implemented to cut the deficit and restore fiscal health.
1. The document discusses the impact of the debt crisis in European countries that use the euro. It led to higher growth initially but also rising current account imbalances.
2. Two potential solutions are discussed: further integrating policies and governments in the EU, and reducing peripheral debt through tools like Eurobonds or other mechanisms.
3. The methodology section outlines that the research will use both primary and secondary data sources to examine the issues and develop understanding of the impacts in different eurozone countries. A deductive or inductive approach may be taken.
Sample university project on economics and politics. No guarantee against inaccuracy or misstatements. The slide deck offers an example of how a group of undergraduate students tackled an open-ended question and structured a deliverable.
Adjustments in Latvia and Greece: Lessons for EuropeLatvijas Banka
Statement by Gabriele Giudice, Head of Unit, ECFIN.G3: Greece, European Commission at the Conference "Have We Learnt Anything from the Crisis?" in Riga, Latvia. 17.10.2014
Greece experienced an economic crisis due to overspending on the 2004 Olympics and infrastructure, high labor costs reducing competitiveness, an inefficient pension system, early retirements, and tax evasion. This debt crisis impacted other European countries financially as they loaned money to Greece. If Greece exited the Eurozone, European countries would lose hundreds of billions loaned, and countries like Italy and Spain may face increased borrowing costs, though ECB intervention aims to prevent this. Overall the crisis cast uncertainty over Europe and weakened the euro.
- Estonia weathered the recent economic crisis well due to fiscal adjustments introduced during the recession that allowed it to avoid a fiscal collapse. This included running budget surpluses in previous years that provided reserves.
- The economic recovery has been faster than expected, leading to higher than planned budget revenues in 2010. This means the budget deficit will be lower than targeted at 1.3% of GDP rather than 2.8%.
- For 2011, budget revenues are expected to increase 2% while expenditures rise 5%. This would result in a budget deficit of 1.6% of GDP, still below the 2% limit set in Estonia's budget strategy. Estonia is in a strong fiscal position compared to
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
The document summarizes Greece's economic crisis. It describes how Greece accumulated high government deficits and debt levels in the decades before the global financial crisis. This left Greece vulnerable when the crisis hit. Greece was bailed out in two packages totaling over $300 billion but had to accept austerity measures. The crisis impacted Greece through high unemployment, declining industrial production, banking troubles, and spillovers to other European and global economies. Reforms have focused on reducing government spending, opening markets, cutting wages and pensions.
Eurozone debt and impact on Indian economyManpreet Singh
This document discusses the European debt crisis, its causes, and impact on the Indian economy. It notes that the crisis began when some European countries like Greece accumulated large debts through overspending that they could not repay, leading to higher interest rates. This was caused by violations of rules limiting deficit spending and debt levels. The crisis affected weaker economies in the Eurozone and led to austerity measures, bailouts, and lower economic growth and confidence, negatively impacting India through reduced trade, foreign investment, and global market sentiment.
The Eurozone financial crisis began as a transmission of the US subprime mortgage crisis and housing bubble collapse due to securitized subprime debt held globally. This caused a freeze in interbank lending markets. Affected countries implemented monetary policies, bank bailouts, and fiscal stimulus packages with varying degrees of success. The euro prevented competitive devaluations but also limited Greece's ability to address its rising debt through its own currency, leading to an international bailout package.
An attempt to cover different facets of ESD Crisis . Following ppt enumerate how it all got started and draws out rationale behind the formation of EU.
The public debt crisis is not limited to Greece or to the Euro area. In fact, several developed economies face rapidly growing debt-to-GDP ratios, which raise doubts about their long-term solvency. Thus, suggesting that the Eurozone is undergoing a currency crisis or is in danger of disintegration is not the right diagnosis (or at least premature). However, if prudent fiscal policies, fiscal discipline and far-reaching structural reforms are not undertaken soon, both the EU and EMU may face serious internal tensions and obstacles to future economic growth.
Authored by: Marek Dąbrowski
Published in 2010
The document discusses several factors that contributed to Greece's debt crisis following 2008:
1) Structural problems in Greece's taxation system led to significant lost government revenue.
2) The Eurozone's structure disadvantaged peripheral states like Greece and benefited core countries like Germany.
3) Greece had a large current account deficit and was vulnerable to the effects of the global financial crisis, requiring bank bailouts.
While the Greek government was not solely responsible, issues with tax collection and long-term debt exposure increased Greece's vulnerability when economic shocks occurred.
Greek crisis & its impact on world economyTanmoy Roy
Greece's budget deficit exceeded the EU's limit of 3% of GDP in 2009, reaching 12.9% of GDP. In 2010, Greece announced austerity measures to lower the deficit to 3% in two years. However, Greece continued to struggle with high debt levels due to excessive borrowing costs and an inability to devalue its currency after adopting the euro. In 2011, the European Financial Stability Facility added €190 billion to Greece's bailout package in an attempt to stabilize the economy, but Greece ultimately closed its banks in 2015 due to a loss of depositor confidence and concerns over its debt crisis.
The document discusses the Eurozone crisis. It provides background on the formation of the eurozone and explains how countries like Greece, Portugal, Italy, Ireland and Spain (PIIGS) accumulated large debts and deficits after joining the euro. The crisis emerged as investors lost confidence in sovereign debt from these peripheral economies. Several factors contributed to the crisis, including low interest rates fueling overspending, unsustainable growth models, and banking losses. The EU and ECB have taken steps to address the crisis through monetary easing, bailout funds, and austerity policies.
The document discusses the EU crisis, which goes beyond just being a Euro crisis. It summarizes that the intergovernmental constitution established to deal with financial issues has faced limitations. Measures taken to manage the crisis have exacerbated relations between peripheral and central EU members and lacked legitimacy. The crisis also highlights broader issues of political stagnation in the EU since rejection of the proposed constitution. It aims to analyze the EU response to the crisis and structural causes of EU problems beyond just the global financial crisis influences.
The EMU debt crisis occurred due to lenient criteria for countries joining the eurozone and a lack of fiscal policy coordination once in the union. When the global financial crisis hit, weaknesses in some eurozone countries' fiscal positions were exposed. As governments bailed out failing banks, investors began demanding higher risk premiums from weaker countries like Greece, exacerbating their debt problems. While stricter admission standards and sanctions for breaking fiscal rules may have prevented this, it is now nearly impossible for a country to exit the eurozone without causing further economic and political crises. Reforms are needed to stabilize the currency union.
The document provides background on the creation of the euro zone and the euro currency. It summarizes the factors that led to convergence initially but then divergence during the global financial crisis, exposing weaknesses in some euro zone economies. The crisis is described as stemming from high sovereign debt, fiscal deficits, and structural economic problems. Rescue efforts like the EFSF and ESM were created but have so far failed to fully reassure markets. Specific issues facing Ireland, Portugal, Spain, Italy, and Greece are also outlined.
Project on Greece Crisis and Impact for Economic Environment of Business Renzil D'cruz
: Project on Greece Crisis and Impact for Economic Environment of Business
• financial crisis of 2007–2008
• Greek government-debt crisis
• Causes for deteriorated economic
• Tax evasion and corruption
• Unsustainable and accelerating debt-to-GDP ratios
• Impact of the Greece Economic Crisis on India
India’s Crisis Responses and Challenges
The document discusses the role of the International Monetary Fund (IMF) in Greece's 2015 bailout. It provides background on Greece's economic troubles since 2008 and details the multiple bailout packages provided by the IMF and European institutions between 2010-2015. The bailouts aimed to support Greece's austerity reforms but impacted citizens through wage freezes and tax increases. The IMF wanted to see debt relief for Greece and sustainable reforms before committing further funds, as Greece struggled with unsustainable debt levels over 175% of GDP.
The Greek economy is the 27th largest in the world by GDP. It has transitioned from an agricultural to a service-based economy, with services contributing 75.8% of GDP. However, Greece faced severe economic crisis in 2009-2010 due to a high budget deficit of 13.6% of GDP and rising debt levels of 115% of GDP, leading to higher borrowing costs. This prompted Greece to request a bailout package from the EU and IMF in April 2010 worth €45 billion to avoid defaulting on debts. A series of austerity measures were implemented to cut the deficit and restore fiscal health.
1. The document discusses the impact of the debt crisis in European countries that use the euro. It led to higher growth initially but also rising current account imbalances.
2. Two potential solutions are discussed: further integrating policies and governments in the EU, and reducing peripheral debt through tools like Eurobonds or other mechanisms.
3. The methodology section outlines that the research will use both primary and secondary data sources to examine the issues and develop understanding of the impacts in different eurozone countries. A deductive or inductive approach may be taken.
Sample university project on economics and politics. No guarantee against inaccuracy or misstatements. The slide deck offers an example of how a group of undergraduate students tackled an open-ended question and structured a deliverable.
Adjustments in Latvia and Greece: Lessons for EuropeLatvijas Banka
Statement by Gabriele Giudice, Head of Unit, ECFIN.G3: Greece, European Commission at the Conference "Have We Learnt Anything from the Crisis?" in Riga, Latvia. 17.10.2014
Greece experienced an economic crisis due to overspending on the 2004 Olympics and infrastructure, high labor costs reducing competitiveness, an inefficient pension system, early retirements, and tax evasion. This debt crisis impacted other European countries financially as they loaned money to Greece. If Greece exited the Eurozone, European countries would lose hundreds of billions loaned, and countries like Italy and Spain may face increased borrowing costs, though ECB intervention aims to prevent this. Overall the crisis cast uncertainty over Europe and weakened the euro.
- Estonia weathered the recent economic crisis well due to fiscal adjustments introduced during the recession that allowed it to avoid a fiscal collapse. This included running budget surpluses in previous years that provided reserves.
- The economic recovery has been faster than expected, leading to higher than planned budget revenues in 2010. This means the budget deficit will be lower than targeted at 1.3% of GDP rather than 2.8%.
- For 2011, budget revenues are expected to increase 2% while expenditures rise 5%. This would result in a budget deficit of 1.6% of GDP, still below the 2% limit set in Estonia's budget strategy. Estonia is in a strong fiscal position compared to
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
Olivier desbarres asks are greece in the last chance saloon?Olivier Desbarres
1) Greece has been negotiating with the IMF/ECB/European Commission Troika for two months to renegotiate its debt and end austerity measures, but the negotiations have achieved little and the range of outcomes has narrowed.
2) While Greece has avoided exiting the eurozone so far, its finances are deteriorating and it faces large debt payments in April and May that will be difficult to pay without more funds from its international creditors.
3) The Troika has denied most of Greece's requests for financing and bailout funds are conditional on Greece implementing reforms, so the government has scaled back promises and is implementing new tax and privatization measures, but it remains uncertain if this will satisfy the Troika.
This document discusses the potential economic impacts if Greece were to exit the Eurozone. It outlines two potential triggers that could lead to a Greek exit, including a credit crunch in Greek banks and risks in implementing economic reforms. It then describes three main channels through which a Greek exit could affect the wider Eurozone economy: exposure of European banks, holders of Greek government debt, and potential unexpected contagion. The document projects that a Greek exit could plunge the Greek economy into recession due to high inflation and currency depreciation, but the impacts on the overall Eurozone economy would be more muted and short-lived.
Epsilon capital management’s first quarter european economic roundepsiloncapmgt
The document summarizes Epsilon Capital Management's quarterly report on the European economy in Q1 2012. Several positive developments occurred, including Greece securing its second bailout, the ECB providing banks with cheap loans of €529.5 billion, and increasing the Eurozone rescue fund to €700 billion. However, concerns grew toward the end of the quarter about heavily indebted countries like Spain as its harsh austerity measures raised worries about slowing growth.
Epsilon capital management’s first quarter european economic roundepsiloncapmgt
The document summarizes Epsilon Capital Management's quarterly report on the European economy in Q1 2012. Several positive developments occurred, including Greece securing its second bailout, the ECB providing banks with cheap loans of €529.5 billion, and increasing the Eurozone rescue fund to €700 billion. However, concerns grew toward the end of the quarter about heavily indebted countries like Spain as its harsh austerity measures raised worries about slowing growth.
Epsilon capital management’s first quarter european economic roundepsiloncapmgt
The document summarizes Epsilon Capital Management's quarterly report on the European economy in Q1 2012. Several positive developments occurred, including Greece securing its second bailout, the ECB providing banks with cheap loans of €529.5 billion, and increasing the Eurozone rescue fund to €700 billion. However, concerns grew toward the end of the quarter about heavily indebted countries like Spain as its harsh austerity measures raised worries about slowing growth.
Greece-crisis is an article explains about the major crisis which hit the Greece during July- 2015 which is still surviving.The reasons why still Greece crisis is surviving.
The Impact of the current Greek financial woes on the global econo.docxcherry686017
The Impact of the current Greek financial woes on the global economy
Introduction
Soon after the implosion of Wall Street in 2008, Greece became the focal point of Europe’s debt crisis. In 2009, Greece announced its deficit figures have been understated for years. This raised concerns across the globe regarding the financial state of Greece and eventually resulted in shutting Greece out of borrowing funds from the financial markets.
By the spring of 2010, Greece was veering toward bankruptcy, which threatened to set off a new financial crisis. The European Central Bank, The European Commission and the International Monetary Fund (IMF) issued a bailout of about 240 billion Euros to Greece.
The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business.
The bailout funds were meant to buy some time to help Greece stabilize its finances and allay fears of the European Union breaking up. Though the funds helped to a certain extent, the Greek economy had shrunk by a quarter and unemployment had risen above 25 percent.
Many Greeks and economists, blame the austerity measures for much of the Greece’s continuing problems. While creditors such as Germany, blame Athens for failing to conduct the economic overhauls required under its bailout agreement. They do not want to change the rules for Greece
If Greece defaults, what will happen to the economy?
In the wake of becoming one of the first developed nations to default on their international financial obligations, Greek citizens are hoping that their government strikes a deal to help save them. What exactly is going on in Greece that would cause the country to default, one may ask? Over the past few years, Greece has not been performing well economically. They have experienced increasing levels of the unemployment rate, and their banks simply have not been able to endure the financial crisis. An already high national debt has continued to build up, to the point that the payments due by Greece are almost un-payable. At the very least, the inability to repay debt is a bad signal to all countries and business relationships that the Greeks were a part of. If a deal is not met to help the Greek economy with their creditors on actions to help prevent the debt from growing, as well as repayment, there can be serious consequences.
Greece could default without exiting the Euro. In this scenario, the European Central bank would have to decide on whether or not they want to continue bailing out Greek banks, or put a complete end to aiding the Greek economy. Greece could leave the Euro, and form its own currency. This undoubtedly would have even more adverse effects on the Greek economy. If leaving the Euro-zone is imminent, citizens would begin taking their Euros out of banks. ...
This document summarizes a research paper that investigates the antecedents and consequences of Greece's debt crisis as well as reforms to address it. 1) Weak fiscal management, misreported statistics, corruption, and inflexible policies made Greece vulnerable to the crisis. 2) The crisis had twin constraints - large budget and current account deficits - and its consequences included high unemployment and loss of investor confidence. 3) Greece undertook austerity measures to meet deficit targets under the Stability and Growth Pact but faced challenges due to its large external debt.
Please provide a summary of the current economic crises existing in .pdfmampbellzumberge517
Please provide a summary of the current economic crises existing in Greece.
Include:
A Background of causal factors for the problems
B. Programs initiated by Greek Government to correct the problems
C. Reaction of Greek citizens
D. What effect Greece\'s problems are having on the rest of the EU?
Solution
Greece Debt Crisis:
The crisis in Greece started decades ago when when government increased the size of country\'s
payroll. As a result every one in five Greek person ended up having a government job.
At one point of time, politicians stopped offering new job opportunities to citizens, rather started
raising pay for the people already working for the government. This cupled with a poor tax
collection regime, had greece scrambling to keep money flowing.
As a result, greece started borrowing from the foriegn countries, which was easier for it being a
Europian union member. But at the same time, being a EU member, it was to require to adhere to
strict financial restrictions which did not allow it to have a national budget deficit of more than
3% of the GDP.
Greece\'s debt increased but no one care because it continued to show a deficit of 3.4% for a long
time. The final blow stuct with a formation of new government in the country which discovered
that the budget deficit of 3.4% was a lie , but the debt has soared beyond 15% of the GDP. The
relevation led the Greece\'s lenders to apply stricter rules of payback. the Greece\'s debt
skyrocketed post it and it became impossible got it repay its loans without taking furthur loads.
IMF and EU came up to its support with the ailout program od 110 billion euro. The money was
given with strict condtions of Greece takng austerity measues of lowering wages and proper tax
collection. The second bailout was of 130 billion dollars, but experts say that greece will not be
able to recover out of its debt before 2020.
Greece crisis might have an spillover effect on other Greece countries, which might punge the
Euro down compared to other countries. Greece\'s exit from EU was was also at one point of
time the point of discussion..
The document discusses Greece's budget assumptions and projections, noting that the baseline scenario is overly optimistic. It analyzes the execution of Greece's Stability and Growth Program, finding that progress relies too heavily on reducing public investment and that debt levels will continue rising. Two scenarios project Greece's additional debt and financing needs, finding default is likely by mid-2011 unless more aid is provided. The conclusion is that any rescue package will only delay default temporarily and Greece and its creditors should prepare for negotiated debt restructuring and haircuts of around 50%.
Greek officials together with IMF and EU ones are touring Europe investors to convince them to buy Greek long dated bonds: I remain unconvinced about the chance of success due to a continued depressed economic environment and the time frame required to modernize the Greek economy that goes well beyond the 3 years rescue plan.
The ink has barely dried on the ECB’s shock-and-awe QE program that the market’s attention has already shifted back to Greece. The election over the weekend of a new government, led by Prime Minister Tsipras, has reignited the seemingly annual debate about whether/when Greece will default on its debt and leave the eurozone.
The Greek Sovereign Debt Crisis When the euro was established, som.pdfalankartraders
The Greek Sovereign Debt Crisis
When the euro was established, some critics worried that free-spending countries in the euro
zone (such as Italy and Greece) might borrow excessively, running up large public- sector
deficits that they could not finance. This would then rock the value of the euro, requiring their
more sober brethren, such as Germany or France, to step in and bail out the profligate nation. In
2010, this worry became a reality as a financial crisis in Greece hit the value of the euro.
The financial crisis had its roots in a decade of free spending by the Greek government, which
ran up a high level of debt to finance extensive spending in the public sector. Much of the
spending increase could be characterized as an attempt by the government to buy off powerful
interest groups in Greek society, from teachers and farmers to public-sector employees,
rewarding them with high pay and extensive benefits. To make matters worse, the government
misled the international community about the level of its indebtedness. In October 2009, a new
government took power and quickly announced that the 2009 public-sector deficit, which had
been projected to be around 5 percent, would actually be 12.7 percent. The previous government
had apparently been cooking the books.
This shattered any faith that international investors might have had in the Greek economy.
Interest rates on Greek government debt quickly surged to 7.1 percent, about 4 percentage points
higher than the rate on German bonds. Two of the three international rating agencies also cut
their ratings on Greek bonds and warned that further downgrades were likely. The main concern
now was that the Greek government might not be able to refinance some 20 billion of debt that
would mature in April or May 2010. A further concern was that the Greek government might
lack the political willpower to make the large cuts in public spending necessary to bring down
the deficit and restore investor confidence.
Nor was Greece alone in having large public-sector deficits. Three other euro zone
countriesSpain, Portugal, and Irelandalso had large debt loads, and interest rates on their bonds
surged as investors sold out. This raised the specter of financial contagion, with large-scale
defaults among the weaker members of the euro zone. If this did occur, the EU and IMF would
most certainly have to step in and rescue the troubled nations. With this possibility, once
considered very remote, investors started to move money out of euros, and the value of the euro
started to fall on the foreign exchange market.
Recognizing that the unthinkable might happenand that without external help, Greece might
default on its government debt, pushing the EU and the euro into a major crisisin May 2010, the
euro zone countries, led by Germany, along with the IMF agreed to lend Greece up to 110
billion. These loans were judged sufficient to cover Greeces financing needs for three years. In
exchange, the Greek government agreed t.
The document summarizes the Greek sovereign debt crisis, providing background on the European Union and Eurozone, the timeline of events leading up to the crisis, causative factors, and current actions being taken. It describes Greece joining the Eurozone in 2001 and later admitting it had falsified deficit numbers. The global financial crisis exacerbated Greece's high deficit, debt, and structural economic issues. A series of austerity packages and bailouts from the EU and IMF have aimed to reduce Greece's deficit since 2010, though the deep recession has made targets difficult to achieve. Current actions include further austerity measures and privatization in exchange for release of additional bailout funds to avoid default.
The document summarizes Greece's ongoing economic crisis and debt problems. It discusses:
1) Greece has €323 billion in total debt owed to European countries and banks.
2) Greece has relied on two EU-IMF bailouts totaling €240 billion since 2010 but failed to make a key €1.5 billion IMF debt repayment in June 2015.
3) Greece's problems stem from overspending before adopting the euro, then an inability to repay loans when borrowing costs rose in 2008.
For the last 6 years, Greece has been a country burdened with bad debt and the threat of default on loans that will take more than a few generations to pay back. During that time, the economy has failed to improve, and again Greece is potentially on the verge of defaulting on its loan obligations, and leaving the European Union.
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Ivo Pezzuto - "GREXIT": AVOIDED FOR NOW! (The Global Analyst Magazine August 2015 Issue)
1. The Global Analyst | AUGUST 201530 |
INTERNATIONAL ECONOMY
The threat of an unceremonious exit from the Euro Zone might have receded
for the beleaguered Greece, at least for now. However, there is no guarantee
the present bailout deal is enough to ensure the European economy’s return
to normalcy. Given, the billion euro question is: Has it done enough to avoid
exiting the Euro Zone? Whatever, one thing is for sure, the collapse of Greek
economy could also mean collateral zone for one of the oldest and strongest
trade block – Eurozone.
‘GREXIT’
Avoided for Now!
- Dr. IVO PEZZUTO, Global Markets Analyst, Management Consultant,
Economics and Management Professor
Author of the Book “Predictable and Avoidable” ISTUD Business School and
Catholic University of the Sacred Heart. Milan, Italy
2. 31The Global Analyst | AUGUST 2015 |
I
t seems Eurozone can breathe
easy, for now, at least, cour-
tesy, factors such as lower oil
prices, low interest rates, a
weaker euro, and above all, the
bailout deal which it sealed on July
13th. Just a quick recap for those who
have not kept abreast of the develop-
ment in this tiny European economy:
the Greek debt crisis originated in
2010 and sparked off the Eurozone
debt crisis in all peripheral countries
in the subsequent two years. The cri-
sis in the Euro Zone was reined after
in the Summer of 2012 the ECB Presi-
dent, Mario Draghi, declared that the
euro is “irreversible” and promised
a potentially unlimited purchase of
bonds of the Eurozone to discourage
speculation on the peripheral Euro-
pean sovereign bonds and to help
improve the regular flow of liquidity
and affordable funding in the euro
area.
However, the situation in Greece
refused to improve - notwithstand-
ing two successive bailout packages
it received post-2010 (first in 2010, a
bailout loan of €110 billion, followed
by the second bailout in 2012 which
comprised a loan of €130 billion,
which also included a bank recapi-
talization package worth €48 billion).
The reason is not far to seek - Greece
has not been able to solve its struc-
tural problems in the following five
years and put its economy back on
the path to sustainable growth. In
fact, the Greek crisis has abruptly
resurged after the Prime Minister
Alexis Tsipras’s party swept the
polls in January this year, receiving
a clear mandate to reach a new and
more mutually acceptable agree-
ment with the creditors to complete
the economic adjustment program
(i.e., to stop austerity, soften reforms,
and some kind of debt relief) in ex-
change for the second harsh bailout
program.
According to the new political lead-
ers, the adjustment program of the
previous five years “has only al-
lowed to keep the country afloat, but
at the cost of major sacrifices and dis-
locations for the Greek people, and
without a clear path to real long-term
sustainability for the economy.”
With the second bailout package of
2012, private creditors holding Greek
government bonds (Private Sector
Involvement) were required to ac-
cept extended maturities, lower in-
terest rates, and approximately a 75
per cent overall face value loss.
More pains!
One of the most acute phases of the
Greek crisis occurred at the end of
June 2015 when Greece failed to
make its €1.6 billion payment to the
IMF. With this event, Greece has be-
come the first developed country to
go into arrears with the International
Monetary Fund. Just before the dead-
line of the IMF payment, the Greek
Prime Minister rejected a five-month
bailout funds extension of €15.5 bil-
lion ($17.3 billion) from the country’s
international creditors, instead of the
previous offer of €7.2 billion bailout
funds, claiming that “the creditors’
proposal would require introduc-
ing deeply recessionary reforms as
a condition for the funding, which
was perceived to be totally inade-
quate over the five months period.”
Afterwards, the protracted negotia-
tions have stalled over what reforms
Greece should undertake with dis-
putes emerging on cuts to pension
payments and low-income pension-
ers, public sector wages, increasing
Value Added Tax, and the Greek
Government’s request for a concrete
commitment to debt relief.
After a series of ultimatums, five
months of hard negotiations, and
growing mutual distrust, at the end of
June 2015, PM Tsipras unexpectedly
called a referendum on the country’s
latest bailout offer that international
creditors have proposed to keep the
debt-stricken country afloat. Un-
doubtedly, Tsipras’ shock announce-
ment of the referendum has exasper-
ated Greece’s creditors. Furthermore,
he also stated that “the reforms were
blackmail for the acceptance on our
part of severe and humiliating aus-
terity without end and without the
prospect of ever prospering socially
and economically”. Banks were shut
since June 29th, 2015, causing panic
among depositors and near run over
the state-owned banks as the former
‘GREXIT’
Greek debt in comparison to Eurozone average
3. The Global Analyst | AUGUST 201532 |
rushed to the ATMs to withdraw sav-
ings which have been limited to €60
euros a day due to capital controls.
Nearly 61 per cent of Greek citizens
voted “No” to the referendum of July
5th, thus rejecting creditors’ proposal
for further austerity in exchange for
the bailout funds extension.
However, the referendum result
came after the bailout extension offer
had already expired. After the refer-
endum, the ECB has left intact its life-
line (roughly €89 billion), but it has
tightened conditions on emergency
liquidity assistance (ELA) to Greek
banks. In a last-ditch effort to save
Greece from a disorderly default
and the so-called “Grexit” scenario,
the creditors agreed to evaluate the
government’s last economic reform
proposal submitted on July 9th for a
potential third bailout program.
The new Greek proposal aims to
achieve a reform of public adminis-
tration, fiscal sustainability, financial
stability, long-term economic growth
and sustainable development. A
number of Eurozone countries still
seem to have limited confidence in
the ability and willingness of the
Greek government to repay its huge
new proposed loans. In fact, due to
the rapidly deteriorating economic
conditions of the country and its dif-
ficult debt sustainability problem,
the creditors (European Commis-
sion, the European Central Bank and
the International Monetary Fund) es-
timated that a new bailout for Greece
would cost €82 billion-€86billion
instead of Tsipras’ estimated financ-
ing needs at €53.5 billion. €25 billion
G
reece is a small peripheral European country of 11 million people, accounting for only about 2 per
cent of Eurozone GDP. Greece’s sovereign debt to GDP ratio is about 180 per cent that is €340 billion
($375 billion) and more than 3 per cent of euro-zone GDP, the highest in the Eurozone and a sharp
increase from the 2009 debt to GDP ratio (123 per cent).The unemployment rate is at 27 per cent with youth
unemployment at 50 per cent in 2015. Greece GDP has slumped by 27 per cent in the period 2008 – 2014. An
estimated 44 per cent of Greeks lived below the poverty line in 2014. Public expenditures have been reduced
by more than 30 per cent since the start of the crisis through cuts to salaries and pensions and redundancies
for one third of the public employees. The annual budget deficit (expenses over revenues) was 3.4 per cent
of GDP in 2014, much improved versus the 15 per cent of GDP of 2009.
Greece has achieved a primary budget surplus, meaning it had more revenue than expenses excluding
interest payments in 2013 and 2014. Interest rates on Greek long-term debt rose from around 6 per cent in
2014 to above 10 per cent in 2015. The country’s output is expected to remain in contraction in 2015 due
also to the disruption of capital controls. Greece scores low on Transparency International’s Corruption
Perception Index and it is well known for its widespread tax evasion, corruption, clientelism, and abnormal
debt increase. Standard & Poor’s has recently downgraded Greece rating from CCC to CCC-. With the current
framework of the European Monetary Union (EMU), that is a currency union without a fiscal and political
union, in spite of the numerous ring-fencing tools and new governance structure available now to the union
(i.e., ESM, OMT, QE program, Fiscal Compact, banking union, new financial regulation, governance, and
banking supervision, ), following to the aftermath of the global financial crisis and Euro zone debt crisis,
member states have to rely primarily on internal adjustments and accommodative monetary policies of the
ECB to cope with macroeconomic shocks and structural weaknesses (No mutualization of debt is allowed in
the Eurozone. A “classic haircut” would violate European law). The member states that are either not fully
committed or capable to undertake effective structural reforms for a prolonged period of time to bolster
their productivity and competitiveness, sooner or later, are either doomed to exit the union or to remain
“trapped” in a competitive environment (the currency union) in which they cannot compete.
The Eurozone should have probably considered launching the quantitative easing program a few years
earlier (perhaps after the global financial crisis or the euro area debt crisis), in conjunction with a more
aggressive fiscal policy (productive investments), while undertaking spending cuts of non-productive
expenditures, and structural reforms to bolster growth and competitiveness. It should have also imposed
sooner a stronger monitoring on the use of the bailout funds by the debt-stricken countries and tighter
controls on the actual implementation of their structural reforms.
It is quite understandable that the Eurozone countries do not want a single small member state to unilaterally
change the Eurozone rules and treaties, or to create a sizable economic damage to the other member states
with its defaults, or requests of debt relief. Yet, it might be also necessary to consider the opportunity to
revise the existing Eurozone rules and treaties in order to allow for a closer political and fiscal integration,
a strengthened financial, capital markets, and banking union, adequate solidarity mechanisms, permanent
or at least temporary fiscal transfers, co-funded public mechanisms to support job flexibility in countries
with high unemployment, and timely and effective “burden sharing” (fiscal backstop) crisis resolution
mechanisms . (Pezzuto, 2014; Zingales, 2014).
of Greece, Eurozone and the Crisis
‘GREXIT’
4. 33The Global Analyst | AUGUST 2015 |
out of the total €82 billion to €86 bil-
lion bailout funds would be used for
bank recapitalization.
One alternative to the debt relief op-
tion (debt restructuring) recently
proposed by the IMF is to accept ex-
tended debt maturities with average
maturity of Greece’s bailout from
the current 30 years to 60 years (an
additional extension of the “grace
period”) in order to make the debt
burden more manageable.
Creditors – Talking tough
Creditors are taking a tough stance
on structural reforms for Greece with
the new economic program. The new
potential deal would probably con-
sist of much stricter measures such
as, overhauling the value-added tax
system, pension reform, budget cuts,
layoffs and job reductions, raising
the retirement age, primary budget
surplus target of 3.5 per cent of gross
domestic product by 2018 (and 1 per
cent in 2015) , privatizations and
market liberalizations, the creation
of a bad bank to manage the huge
amount of NPLs (non-performing
loans), banks recapitalizations and
banking sector consolidation, and
plans to fight the traditional high
level of tax evasion. These measures
are simply just the opposite of what
Greek people expected after the out-
come of the referendum, although
their expectations might be perceived
by the creditors as totally unrealistic.
If a new bailout agreement will be
reached with creditors, it is quite
likely that Greece will have to accept
a high level of external economic su-
pervision (i.e. an independent insti-
tution to tackle fiscal reforms) in re-
turn for a huge rescue package (€82
billion-€86billion). The proposed
adjustment plan, although urgent
and necessary, seems to be very am-
bitious (or probably too ambitious)
and unlikely to fully deliver the ex-
pected results, given the current eco-
nomic conditions of the country. Ex-
pected GDP growth projections and
budget surplus targets might be very
challenging to be achieved while
imposing Draconian austerity mea-
sures and structural reforms, given
Greece’s highly fragile and uncertain
financial, banking, and economic
environment. Yet, the plan might
be a move in the right direction, if
well implemented and monitored;
if privatizations are timely and ef-
fectively used to finance productive
investment projects that can assure
a long-term economic growth; and
if a substantial debt relief or a pro-
longed “grace period” is granted to
the country.
The German finance minister, Wolf-
gang Schäuble, has also explored the
possibility to draft a plan that would
require Greece to transfer state assets
(for future privatization) into a trust
fund to pay down its debt in order
to stay in the Eurozone. There have
been also rumors about a potential
temporary Greek exit from the Euro-
zone (i.e. five years) in exchange for a
debt relief deal, but this proposal has
raised a lot of concerns.
By now, however, everybody knows
that Greece will have a very hard
time to completely pay off its huge
debt unless it is going to have a sig-
nificant debt relief, a perpetual bond
scheme, or debt maturities extended
for over 50/60 years. It is also im-
portant to remember, however, that
Greece has made a lot of reforms (al-
though perhaps not fully compliant
with creditors’ expectations) in its
five years of austerity and is running
budget surpluses. The Greek crisis is
a very serious one and it is about to
reach a point of no return (July 2015)
but a potential last minute agree-
ment could be reached to avert the
collapse if the EU, IMF, and ECB de-
cide to keep the country in the Euro-
zone and to provide to the country a
sustainable adjustment program that
can help its economy start growing
again.
Crisis subsided, but the risk re-
mains
At this point, it seems that Greece
is not given any alternative by its
creditors but to enact the new eco-
nomic reforms and austerity mea-
sures through its parliament in or-
der to have a fair chance of staying
in the euro. But unless Greece finds
a solution to its liquidity crisis (i.e.,
a bridge loan and later on a third
bailout or some other kind of deal), it
could drift toward a euro exit. With-
out funds to pay salaries and goods,
the government could eventually
be forced to issue IOUs/promissory
notes (perhaps denominated in eu-
ros) in order to alleviate its short-
age of cash and to pay salaries and
pensions. This medium of exchange
might gradually evolve into a paral-
lel currency.
Blames and responsibilities for the
failure to solve so far the Greek fiscal
and humanitarian crisis earlier and
better, according to many observers
‘GREXIT’
Could this happen in the US?
5. The Global Analyst | AUGUST 201534 |
and analysts, are on both sides of
the negotiation. Nevertheless, there
seem to be several clues of an im-
proper management of the crisis by
the Greek governments over the past
five years, and most likely even in
the previous decades. The final deci-
sion on a potential “Grexit” scenario
will be a political decision. However,
it is quite sure that whatever the fi-
nal decision will be on the potential
third bailout or on the “Grexit” sce-
nario, the outcome will leave a lot of
the participants of the negotiation
frustrated and distrustful. After all,
a new tough austerity program, if it
will be granted by creditors, might
even potentially worsen the current
recessionary trend of Greece if the
structural reforms are delayed in
their implementation, no adequate
productive investments are guaran-
teed, and the huge debt still remains
unsustainable.
In case the euro area political leaders
opt for the approval of a new loan
program to keep Greece in the com-
mon currency and to preserve the
integrity of the monetary union, they
might also generate some kind of
widespread discontent of the taxpay-
ers in their own countries accusing
their leaders of taking reckless risks.
On the contrary, a Grexit scenario
would leave EU leaders to face the
potential criticism of a major failure
in the history of the European Union
(EU) and European Monetary Union
(EMU) and the blame for the unpre-
dictable geopolitical, social, and eco-
nomic consequences of a potential
disorderly default, banking crisis,
and “Grexit” event on the currency
union and on the rest of the world.
Thus, the decision to save Greece
one more time with a third bailout,
in a worst case scenario, might bring
the immediate benefit of avoiding a
shock to the currency union integrity
in a moment of still-fragile recovery
and to help stabilizing the country
inside the Eurozone, but it could also
spark internal political fragmenta-
tion and social tensions (frustration
and resentment of citizens) triggered
by parties who are not in favor of the
potential compromise, as well as, by
Greek citizens who voted “NO” to
the referendum. Tsipras could face
stiff resistance at home and perhaps
the need for a change in the politi-
cal coalition. Perhaps Greece in the
worst case scenario may be heading
for a national unity government of
some sort. The country will probably
receive a last chance to avoid the de-
fault and a financial, economic, and
humanitarian crisis but probably at
a very high social, economic, and
political cost. In the face of such a
complex and unpredictable scenario,
a legitimate doubt one may have is:
will the Greek people ever accept
such bailout conditions? And what
would be the potential consequences
of a rejection of the deal by the Greek
people? Or what would be the conse-
quences of a disorderly default and
Grexit scenario on the Eurozone and
global economy?
In July 2015 The Guardian reported
that under the baseline scenario:
“Greece would face an unsustain-
able level of debt by 2030 even if it
signs up to the full package of tax
and spending reforms demanded of
it,” according to unpublished docu-
ments compiled by its three main
creditors. Based on documents of
the so-called Troika it seems that
“Greece needs substantial debt relief
for a lasting economic recovery”. In
fact, they show that, even after 15
years of sustained strong growth,
the country would face a level of
debt that the International Monetary
Fund deems unsustainable. (Nardel-
li, 2015) The International Monetary
Fund has also reported that “Greece
would need up to €60 billion of ex-
tra funds over the next three years
and large-scale debt relief to create
‘a breathing space’ and stabilize the
economy”. (IMF, 2015)
Options before the embattled
economy
As previously stated, the Greek crisis
sparked off the Eurozone crisis in
2010 when it revised its early deficit
prediction from 3.7 per cent and
estimated to be 13.6 per cent. This
shocking news generated a panic in
the markets and the fear of a bank
run. Rumors spread of solvency
fears on Greece and its potential exit
from the Eurozone (‘Grexit’), thus
it became very difficult for banks
(wholesale banking panic) of all the
peripheral European countries (fear
of potential contagion) to access
funding in the capital markets.
After all, at that time the painful
memory of Lehman’s collapse and
the panic effect it triggered in the
markets was still very present in
people’s minds. Besides, when
Greek debt crisis began (2010), the
Eurozone did not have the multiple
tools, governance frameworks, and
general economic conditions they
have today (July 2015) which might
‘GREXIT’
US per person Debt to increase 7 times faster
than Italian debt
6. 35The Global Analyst | AUGUST 2015 |
significantly reduce the impact of a
potential systemic risk or spillover
effects (Pezzuto, 2013). Among these
tools (and the general economic
condition), relevant ones are the
following:
• Availability of a permanent
crisis resolution fund (ESM)
for both banks and countries’
rescue programs with the
application of the memorandum
of understanding (MOU) and
subject to conditional measures
• The European QE program
• The OMT program option
• The Fiscal Compact
• TLTROs
• A strong governance of the bank-
ing and financial system (i.e.,
Banking Union, Single Super-
visory Mechanism, Basel III;
Capital Requirements Directive
- CRD IV; Capital Requirements
Regulation – CRR; European
Market Infrastructure Regula-
tion – EMIR; Mortgage Credit
Directive 2014/17/EU; Markets in
Financial Instruments Directive -
MIFID II and the Markets in Fi-
nancial Instruments Regulation
- MiFIR; Financial Transaction
Tax – FTT; the European General
Data Protection Regulation; and
Target 2-Securities – T2-S, etc.
• A more capitalized banking sys-
tem
• A gradual economic recovery in
the Eurozone
• Low sovereign bonds yields and
spreads
• Work-in-process implementation
of structural reforms in a num-
ber of countries
The Eurozone governance has
always been based on compromise.
Thus, in order to avoid unpredictable
consequences for the union, and
beyond, in the global markets,
Greece’s creditors should take a more
realistic approach to the country
and consider some debt relief as
part of a future agreement. As
stated by French economist Thomas
Piketty,”creditors’ expectations
of a future Greek budget surplus
are unrealistic. Most analysts and
investment firms at this point have
predicted a 60 per cent to 70 per cent
probability of a “Grexit” at the end of
July 2015.”
I believe that a more realistic and a
less ideological approach, coupled
with an adequate assessment of po-
tential geopolitical risks, would be
to keep Greece in the Eurozone and
to work out a sustainable long-term
solution to revamp its economy and
to make its debt more sustainable. It
might be a victory for the European
Union and its democracy. Most of
all, I hope Greek banks will receive
immediate financial support for re-
capitalization in order avoid severe
liquidity and solvency crises and
to ensure the regular flow of credit
to the real economy. A new deal,
however, might also cause collateral
damage.
In case of a Grexit scenario it
is important to clarify the legal
uncertainties, to stabilize the
economy, to avoid high inflation,
assure humanitarian aids, and the
availability of essential goods such
as medicines and energy imports.
Issues may arise regarding the bail-
in regime for bank failures since
it might represent a potential risk
for creditors, shareholders, and
unsecured creditors, including
depositors. Banks could be
nationalized. There could be
probably some financial contagion
as financial investors wake up to
the fact that euro membership is no
longer irreversible. There might be
issues related to the restructuring
of derivatives contacts. There could
be a “flight to safety” as depositors
pull euros out of other potentially
vulnerable Eurozone members
to avoid taking a hit. European
companies’ share prices could also
fall sharply if investors panic and
divert their cash into the government
bonds of safer states. There might be
also serious issues related to social
unrest.
Furthermore, there could also be
complex litigations procedures relat-
ed to the debt since, as a consequence
of the previous debt restructuring
arrangement (2012), substantial bor-
rowings have been explicitly gov-
erned by English law, which would
presumably not recognize the rede-
nomination passed under Greek law.
Similarly, it is unlikely that Greece’s
European partners will simply ac-
cept repayment of their official debt
in the new Greek currency on a one-
to-one basis.
The introduction of the new currency
would mean an instant drop in living
standards for Greeks as import
prices spike. Greeks’ foreign debts,
which have to be paid back in euros,
will also be instantly penalized thus
causing a cascade of defaults.
One of the most serious potential
consequences of a ‘Grexit’ scenario
could be the fact that investors real-
ize that euro membership is not irre-
versible and they may request a risk
premium for the additional risk!
‘GREXIT’
Greece: Pubic External Debt Service in bn Euros
TGA