...of euro zone member, Greece. Once considered as a financially stable country, Greece is now on the edge of having a financial default. With a debt total amounting to an estimated $420 billion, experts say that this debt would have been bigger that the country’s economy itself and this debt is predicted to increase as time goes by because Greece spends 12% more than it gets revenues. So what’s exactly went wrong with Greece and how did they get themselves in deep trouble? One main cause for this is the country going on an uncontrolled spending binge which relies on debt to be sustained. One prestigious project they paid for over its budget limit is the 2004 Athens Olympics. Add that up to the failure of implementing consistent economic reforms and lending with despicable returns eventually led Greece vulnerable to a debt crisis. In result of this, Fitch ratings agency cuts Greece’s credit rating from an A- to a BBB+, first time in 10 years that the country has seen its ratings below an A grade. This will prove to be a big blow to the country as it now pushes up the cost of borrowing money. It will also be viewed by their foreign investors as a financial void as they would be given lower interest payments for their investments. To try and cope up with this downfall, the government stated its plans on making some harsh cuts on their budget. As this debt crisis develops, thousands of Greek workers went on a strike to protest these austerity measures Greece is willing to go for...
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...CHAPTER 3 : The global financial and economic crisis 3.1. The global financial and economic crisis has revealed the macroeconomic imbalances and structural weaknesses of the Greek economy. The global economy is in the midst of its most severe financial and economic crisis since the 1930s. The strong turbulence that started in the United States in August 2007 and spilled over to the rest of the world is continuing for the second year running, with occasional episodes of intensification. The persistence of the financial turmoil has caused the global outlook for output, employment and trade to deteriorate rapidly, especially during the last few months. At the current phase, developments in the financial and the real sectors of the global economy form a negative feedback loop, whereby the dysfunctioning of financial markets squeeze activity and, in turn, the fall in economic activity further undermines the capital position of the financial sector and its ability to finance enterprises and households. Exit from this vicious circle will not be easy or fast. The global crisis has negatively affected the Greek economy, especially since the intensification of the crisis in September 2008. The growth rate of the Greek economy, which had been steadily high since the second half of the 1990s, decelerated markedly in 2008, while economic activity is projected to stagnate in 2009. The financial crisis is affecting economic activity in Greece in two ways: on the one hand, the tightening...
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...Introduction The financial crisis of 2007–08, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity". Many causes for the financial crisis have been suggested, with varying weight assigned by experts.The U.S. Senate's Levin–Coburn Report concluded that the crisis was the result of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street." The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable and was caused by "widespread failures...
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...FINANCIAL CRISIS IN GREECE Enter the economy of euro zone member, Greece. Once considered as a financially stable country, Greece is now on the edge of having a financial default. With a debt total amounting to an estimated $420 billion, experts say that this debt would have been bigger that the country’s economy itself and this debt is predicted to increase as time goes by because Greece spends 12% more than it gets revenues. So what’s exactly went wrong with Greece and how did they get themselves in deep trouble? One main cause for this is the country going on an uncontrolled spending binge which relies on debt to be sustained. One prestigious project they paid for over its budget limit is the 2004 Athens Olympics. Add that up to the failure of implementing consistent economic reforms and lending with despicable returns eventually led Greece vulnerable to a debt crisis. In result of this, Fitch ratings agency cuts Greece’s credit rating from an A- to a BBB+, first time in 10 years that the country has seen its ratings below an A grade. This will prove to be a big blow to the country as it now pushes up the cost of borrowing money. It will also be viewed by their foreign investors as a financial void as they would be given lower interest payments for their investments. To try and cope up with this downfall, the government stated its plans on making some harsh cuts on their budget. As this debt crisis develops, thousands of Greek workers went on a strike to protest these...
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...been relying heavily on foreign aid and the reliance on financing from international capital markets resulted to an accumulation in national debt. The interference of fiscal policy by the injection of money in the economy and the increase of money supply and the encouragement of consumption has been a huge factor in contributing to the overall outcome. I. Introduction According to many economists, the financial crisis of the late 2000s is considered to be the most severe financial crisis since the great depression of the 1930s. A downfall in the United States banking system was the trigger behind the formation of the crisis, which resulted in the breakdown of large financial institutions. The government was forced to bailout banks as a result and similarly the stock market faced a huge blow, not only in the United States but all around the entire globe. Well into 2006, the United States housing bubble flopped, resulting in the decrease in the values of securities causing the real estate pricing to vastly decline, which similarly resulted in the collapse of huge financial institutions all around the world. Foreign direct investment suffered a huge blow as damaged investor confidence and the decline in credit and security availability have contributed to the major collapse of the stock market. The United States is considered to have an economy that acts as a liaison in the global market, which as a result affects all economies around the world. Investors and credit related...
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...Financial Crisis in the European Union: The Cases of Greece and Ireland Sara F. Taylor Thesis submitted to the faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Master of Arts in Political Science Scott G. Nelson, Chair Karen M. Hult Deborah J. Milly September 7, 2011 Blacksburg, Virginia Keywords: EUROPEAN UNION, EUROZONE, GREECE FINANCIAL CRISIS, IRELAND BANKING CRISIS, EUROPEAN CENTRAL BANK Copyright 2011 Sara F. Taylor Financial Crisis in the European Union: The Cases of Greece and Ireland Sara Frances Taylor ABSTRACT The 2008 eurozone financial crisis has only worsened as of summer 2011 raising questions about the economic future of the eurozone and sending shock waves through economies around the world. Greece was the first state to receive a bailout from the European Union and the International Monetary Fund, surprisingly followed only six months later by Ireland. The goal of this thesis is to analyze the challenges posed to smaller, weaker economies within the eurozone, specifically Greece and Ireland, since the recent eurozone financial crisis. This study is based on the experiences of both Greece and Ireland as very different members of the single currency. How and why did these states meet the criteria for euro convergence? To what extent was there support for the euro in both countries in the past? To what extent is there support today after the near collapse...
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...Background: As the consequence of the 2008 U.S. banking crisis, Europe was hit by one of the worst debt crisis. Starting from Greece in autumn 2009, the crisis spread to other European countries, especially Spain, Italy, Ireland and Portugal and forced European policy makers to take many actions to limit its consequences (BOG, 2014, p.42). While others European economies such as Spain, Portugal avoided the severe crisis by following advisory strategy like austerity, reducing public spending…, Greece situation did not improved. To help Greece improve its situation, the IMF and Eurozone governments sealed a deal for two bailouts in 2010 and 2012, totalling €240 billion. On July 5, 2015 the majority of Greek citizens voted to reject the Europe’s plan to bail out the country’s economy, which caused the fear about the potential exit from the European Union, Greece’s future and world economy as well. Despite that fact, Eurozone leaders still reached an agreement on a third bailout programme to save Greece from bankruptcy on July 13. Although Greece overcame the severe situation, there is no indicator that the crisis will stop. This essay will discuss Greek situation involving 3 main issues, which are mistakes leading to crisis, financial regulation and the role of banks, potential financial contagion and moral hazard. Discussion: 1. Mistakes leading to crisis: One of mistakes leading to crisis was supposed to involve economic statistical data fraud. According to a comprehensive...
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...capitalvia.com G lobal Research Limited I MPACT of G REECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis G lobal Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP 68.6% UK 13% 112.6% Greece 12.5% 54.3% Spain 11.25% 65.8% Ireland 10.75% 114.6% Italy 5.3% 74.3% ...
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...Greek debt crisis in 2009 occurred as a result of an understated financial deficit and extreme spending. The stagnation of the Greek economy and the demotion in their debt rating did not aid their financial situation. Greece was then faced with the possibility of sovereign debt default. The failure of Greece to pay their debts required bailouts from the European Union (EU) and the International Monetary Fund (IMF). While the loan bailouts have eased short term liquidity problems, Greece still remained in financial turmoil which may even deteriorate. This research paper aims to explore the history behind the Greek debt crisis, the implications it has globally and on South Africa as well as the lessons that can be learnt from the crisis. Origins of the Greek debt crisis 2.1 Historical development: 2001-2008/09 In 2001 Greece became the twelfth member to join the Euro zone and was permitted to use the Euro (€) as its currency. Greece joined the Euro zone because of the benefits associated with being part of the Euro area. These benefits were essential to the economy of Greece who had a record of unpredictable inflation (Gibson, Hall & Tavlas, 2012). In addition, after Greece changed to the Euro they had the freedom to borrow money from foreign capital markets. During 2003-2007 government records showed Greece to be growing at 4% a year which gave investors’ confidence and made Greek bonds a popular investment. However, Greece falsified...
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...www.capitalvia.com Global Research Limited IMPACT of GREECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis Global Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP UK 13% Greece 12.5% Spain 11.25% Ireland 54.3% 68.6% 112.6% 65.8% 10.75% 114.6% 5.3% Italy Germany 3.5% 74.3% Source:...
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...THE FACULTY OF ECONOMICS LJUBLJANA THE CRISIS IN GREECE subject: TAXES MAY 2013 TAXES THE CRISIS IN GREECE author: P.Fux Contents INTRODUCTION ...................................................................................................................... 3 GENESIS OF THE FINANCIAL CRISIS (USA) ................................................................. 3 THE TIPPING POINT ........................................................................................................... 3 IMPACT OF BANKING CRISIS ON EU - DEVELOPMENT OF FISCAL CRISIS .............. 4 WHAT HAPPENED IN GREECE............................................................................................. 4 DEBT IS HER OLDEST COMPANION ............................................................................... 5 CRISIS HAS SHOWN FIRST EFFECTS.............................................................................. 5 HOW MARKETS SAW GREECE ........................................................................................ 6 GREECE'S PROBLEMS SINCE THE CRISIS HAS ARISEN and BAILOUTS ..................... 7 The huge numbers of Greece's debt in pictures (2012) ...................................................... 9 A FEW WORDS ABOUT GREECE'S RATIOS ..................................................................... 10 THE GOVERNMENT SPENDINGS ..............................................................
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...Will Greece survive the debt crisis once again? Problem Description Greece was on the verge of bankruptcy in 2010 due to the understatement of their deficit figure for years. They managed to survive this financial crisis with international bailout of 240 billion euros. Although bailouts did manage to provide some time to Greece to improve their financial position, but it came at huge expense. In order to improve the economy, it became necessary for Greece to reduce government spending and increase taxes. Consequences The international bailouts managed to delay Greece economic problem for few years but could not get rid of it completely. Moreover, the unemployment rate in Greece rose to above 25 percent during that time period. The bailouts money that supposed to improve Greece financial position was actually used to pay off debt. As a result, Greece economic situation never recovered and government still have to pay huge amount of debt to its creditors. Greece failure to reach an agreement with Europe to arrange money to pay off its debt could result in huge financial crisis and political changes in Greece as they may have to leave Eurozone and seek help from other countries. Some people believe that if Greece go bankrupt it would not have major economic impact on the Europe as it is just a small part of the euro economy and it would be better off to cut it loose. While, other argue that financial problem in Greece would have a major impact on the world and Europe specifically...
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...EUROPEAN DEBT CRISIS – ORIGIN, CONSEQUENCES AND POTENTIAL SOLUTIONS F RA N TI Š E K N E M E T H Abstract What is the European debt crisis? As the head of the Bank of England referred to it in October 2011, it is “the most serious financial crisis at least since the 1930s, if not ever.”1 In fact, the European debt crisis is the shorthand term for the region’s struggle to pay the debts it has built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it’s intended to be. Although these five were seen as being the countries in immediate danger of a possible default, the crisis has far-reaching consequences that extend beyond their borders to the world as a whole. Introduction The global economy has experienced slow growth since the U.S. financial crisis of 2008-2009, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe. Greece, which spent heartily for years and failed to undertake fiscal reforms, was one of the first to feel the pinch of weaker growth. When growth slows, so do tax revenues – making high budget deficits unsustainable. Greece's economy has struggled since the country joined the euro in 2001. In 2004, it admitted its budget deficit was higher than allowed under rules of entry. By 2008 the government had narrowly passed a belt-tightening budget...
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...Introduction Historically, financial crises have been followed by a wave of governments defaulting on their debt obligations. Financial crises tend to lead to, or exacerbate, sharp economic downturns, low government revenues, widening government deficits, and high levels of debt, pushing many governments into default. As recovery from the global financial crisis begins, but the global recession endures, some point to the threat of a second wave of the crisis: sovereign debt crises. Greece is currently facing a classic sovereign debt crisis. Greece accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded, and capital markets have become more illiquid, Greece may no longer be able to roll over its maturing debt obligations. Some analysts have discussed the possibility of a Greek default. To avoid such a default, however, the Greek government has introduced a variety of austerity measures and, on April 23, 2010, formally requested financial assistance from the other 15 European Union (EU) member states that use the euro as their national currency (the Euro zone) and the International Monetary Fund (IMF).Greece’s debt crisis has raised a host of questions about the merits of the euro and the prospects for future European integration, with some calling for more integration and others less. Some have also pointed to possible problems associated with a common monetary policy but diverse national fiscal policies...
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...Euro Crisis: Greece’s Reform to Uphold the Euro Greece has been a significant trading partner within the EU as well with the global community at large. Public spending has been at its highest since the financial crisis in 2008 and with irrational investing behind banks and the private sectors; it only worsened their economy. The complicated areas of the European economy mostly have been due to countries spending vast amounts of borrowed finances than they have fluctuating within their own nation. Countries deficits are still increasing after the US financial crisis and it has led to continuous austerity agreements and negotiations to prevent these issues from relapsing. Greece is in a classic sovereign debt crisis and while struggling to fix their deficit, (currently the largest in the Eurozone) this turned to controversial debates whether or not to let Greece free of the euro, or continue to keep them in. The problem of the matter relies heavily on the political sector of the union as well as the economic foundation represented in Greece’s past, showing that releasing the nation from the euro will only cause more harm than actually stabilizing them in. The US financial crisis of 2008 grew strongly towards the inefficiency between the banks and investors, who failed to act rational in accordance with the economy (Heath 401). In an efficient market, one person’s gains are another person’s loss but one cannot strategize placement in the market through someone making continuous...
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