...Introduction The 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...
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...2012 The European Sovereign-debt Crisis Throughout history, debt has been an issue and a concern for many countries around the world. Nations borrowing money, unnecessarily spending, corruption, inability to pay back loans and a variety of other factors have contributed to the devastating and lasting effects of monetary absolution. In recent years, some of the most significant and devastating economic occurrences that have taken place were released to the general public. One that has received a great deal of attention is known as the European Sovereign- debt Crisis or the Euro zone crisis. The European Sovereign Debt crisis is an ongoing financial crisis that has made it impossible for some countries in the Europe to repay or refinance their government debt without the assistance of third parties (Wikimedia). Countries across the European Continent are struggling to find ways to cope with the crisis and the impact that it has taken on debt stricken nations. Europe’s politicians, regulators, and market players are trying different approaches to deal with the problems at hand (Bloomberg LLP). Due to the number of countries that are involved this financial crisis is not only affecting these countries but the entire world. The Euro zone crisis had a variety of origins that grew their roots over a course of many years, but the situation was not released to the general public until back in late 2009 when the concerns intensified. Fears of a Sovereign Debt Crisis arose among investors...
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...Sharma Guohan.Wang The Debt Crisis of Greece Early October 2009, the Greek government suddenly announced that in 2009 the government budget deficits and public debt as a percentage of GDP was expected to reach 12.7% and 113% respectively, far more than the EU's <stability and growth pact> rules of the upper limit of 3% and 60%. Given the Greek government finances deteriorated significantly, the three major credit rating agencies fitch, standard & poor's and moody's have cut Greece's sovereign credit rating, the debt crisis in Greece officially kicked off. However, when joining the EU, Greece saw himself was far away from the two standards related. This was not a good thing of Greece and the Euro zone. Especially when the euro first came out and then began to depreciate. Greece would then turn to the U.S. investment bank Goldman Sachs for assist. Goldman Sachs then design a set of currency swaps for Greece in order to cover up a sum of up to 1 billion Euros public debt, which made the Greek conform to the standard of Euro members. In addition, Goldman Sachs designed for Greece a variety of ways to accumulate capital and at the same time they did not lead to rising debt. Such as the national lottery and aviation tax income in the future as a mortgage, in exchange for cash. This kind of mortgage now became a sale in statistics instead of debt. In other words, it became the securitization of bank creditor's rights. The root cause of the debt crisis in Greece was that the...
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...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 report of Eurostat in 2004, the...
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...Greece and the fiscal crisis in the EMU Willem H. Buiter Chief Economist, Citigroup Ebrahim Rahbari Economist, Citigroup 07-09-2010 1 Abstract The paper analyses the sovereign debt crisis in Greece and other Euro Area countries and the response of the national authorities, the EU institutions (including the ECB) and the IMF. We use economic and political economy perspectives and consider both positive and normative aspects of the crisis and the policy responses. Authors: Willem H. Buiter Chief Economist Citigroup Citi Investment Research and Analysis Citigroup Centre Canada Square, Canary Wharf London E14 5LB, UK Phone: +44 (0) 20 7986 5944 PA Phone: + 44 (0)20 7986 3213 Fax: +44 (0) 7986 3221 Mob: +44 (0)7540961927 Skype: willemhbuiter Web: http://www.nber.org/~wbuiter Ebrahim Rahbari Economist, Citigroup Citi Investment Research and Analysis Citigroup Centre Canada Square, Canary Wharf London E14 5LB, UK Phone: +44 (20) 7986-6522 Fax: +44 (0) 7986 3221 Key Words: Sovereign default, fiscal sustainability, bail-out, Euro Area JEL Classification: E42, E44, E58, E62, E65, G01, H62 2 1. Introduction The saga of the Greek public finances continues. But this time, Greece is not the only country that suffers from doubts about the sustainability of its fiscal position. Quite the contrary. The public finances of most countries in the Economic and Monetary Union (EMU) are in a worse state today than at any time since the industrial revolution, except for wartime...
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...GREEK ECONOMIC CRISIS: CAUSES & EFFECTS Objective: To study the factors that lead to the Greek Economic Crisis and its effects on other other countries including India. A. IMPORTANCE Greece is normally known for mythology and coliseums, but for the past year, and probably well in to the future, Greece is making headlines for less mythical reasons. Greece has earned the reputation of being that family member who can't seem to get out of money trouble and, in turn, is always asking for a loan. Also, like that same family member, the chances of getting that money back isn't high. Greece is on the brink of bankruptcy and many economists believe that they are already bankrupt. Greece's debt has reached 160% of their gross domestic product. When debt reaches 100% of gross domestic product, it is cause for major concern. What's worse, they don't have the capacity to do much about it. Greece can't artificially change the buying power of their currency because they are part of the eurozone, and they can't easily raise taxes because they don't have an efficient or well-developed system of collecting taxes. If all of that isn't enough, the citizens of Greece are growing increasingly upset with their government, which is causing political turmoil as well as economic. Greece owes so much money to other countries that each citizen owes $40,000! 1. We Live in a Global World The world is no longer a collection of countries, many of which have little effect...
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...contained to the big banks and investment firms based mostly in New York City. By the time bailouts were implemented by the United States government, the effects of the financial crisis were exported to Europe. States similar, but not limited to Portugal, Ireland, Italy, Greece, and Spain (PIIGS) have each been in the media spotlight in recent years as attempts to rescue their respective financial markets are implemented. Unfortunately, many efforts made by Eurozone member states and other international actors have failed in alleviating the financial stresses of the region. Considering this, then, is there really a permanent solution that can not only relieve financial markets but also prevent the crises from spreading? To date, the European Unions’ collective response up to this point has been insufficient in order to curb the further slide into Europe’s second recession. I contend, then, that Europe and the Euro would greatly benefit from following many if not all of Germany’s internal budgetary constraints in order to fix the overall problem of debt and spending. One of original intentions of the euro when it was established in 1992 was to limit the amount of budget deficit a sovereign member state could have. Furthermore, the euro was designed to prevent a “bailout” should a state be unable to meet its debt obligations. Consequently, the euro indirectly served as a scare tactic for member states to “pay their bills” or face a default. However, as the credit boom of 2003 – 2007...
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...The Greek government-debt crisis (also known as the Greek depression)[2][3][4] started in late 2009. It was the first of five sovereign debt crises in the eurozone – later referred to collectively as the European debt crisis. In Greece, triggers included the turmoil of the Great Recession, structural weaknesses in the Greek economy, and a sudden crisis in confidence among lenders. In late 2009 fears developed about Greece's ability to meet its debt obligations, due to revelations that previous data on government debt levels and deficits had been misreported by the Greek government.[5][6][7] This led to a crisis of confidence, indicated by a widening of bond yield spreads and the cost of risk insurance on credit default swaps compared to the other Eurozone countries – Germany in particular.[8][9] In 2012, Greece's government had the largest sovereign debt default in history. On June 30, 2015, Greece became the first developed country to fail to make an IMF loan repayment.[10] At that time, Greece's government had debts of €323bn.[11] The 2001 introduction of the euro as a common currency reduced trade costs among the Eurozone countries, increasing overall trade volume. However, labour costs increased more in peripheral countries such as Greece relative to core countries such as Germany, making Greek exports less competitive. As a result, Greece saw its current account (trade) deficit rise significantly.[12] A trade deficit means that a country is consuming more than it produces...
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...EUROZONE CRISIS The Eurozone in 2012 EUROZONE CRISIS: Eurozone fracture in 2012 This paper outlines a plausible scenario in which the Eurozone fractures in 2012. Events are unlikely to follow the path precisely as described, given the complexity of the problem and the number of variables which are continually changing. That said, we feel 2012 is unlikely to end with all the current members still being part of the Eurozone. Mapping a ‘break-up’ scenario should help readers understand how fragmentation could occur and therefore assist businesses’ contingency planning. To this end the paper highlights some key events and when they are due to take place. It also identifies some key indicators to monitor which are likely to dictate how the crisis will unfold. EXECUTIVE SUMMARY A plausible scenario for Eurozone fragmentation in 2012 would see elections in Greece, France, Finland and probably Italy changing the terms of the debate to reflect frustration with economies in recession, rising unemployment and hostility to proposed or actual austerity measures. In this scenario, Greece receives an irregular rescue from the European Financial Stability Facility (EFSF) and negotiates a rescheduling of its debt in March. But once its April elections are over, the new Greek government is unable to secure bailout funds having missed austerity and reform targets, prompting a formal sovereign default. Greece announces its withdrawal from the Eurozone, closing its banking...
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...The Eurozone crisis (often referred to as the Euro crisis) is an ongoing crisis that has been affecting the countries of the Eurozone since late 2009. It is a combined sovereign debt crisis, a banking crisis and a growth and competitiveness crisis.[8] The crisis made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties. Moreover, banks in the Eurozone are undercapitalized and have faced liquidity problems. Additionally, economic growth is slow in the whole of the Eurozone and is unequally distributed across the member states.[8] In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, in the early 2000s, a number of EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits. Sovereigns sold rights to receive future cash flows, allowing governments to raise funds without violating debt and deficit targets, but sidestepping best practice and ignoring internationally agreed standards.[9] This allowed the sovereigns to mask (or "Enronize") their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions as well as the use of complex currency and credit derivatives structures.[9] From late 2009, fears of...
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...Midterm Examination Xingtian Zhan Early October 2009, the Greek government suddenly announced that the 2009 government budget deficit and public debt to GDP ratio is expected to reach 12.7% and 113%, respectively, far exceeding the EU's "stability and growth pact" provides for 3% and 60 percent limit. In view of the significant deterioration in the financial position of the Greek government, the world's three major credit rating agencies, Fitch, Standard & Poor's and Moody's credit ratings have been lowered Greece's sovereign Greek debt crisis kicked off. With sovereign credit rating was lowered, the Greek government borrowing costs increase sharply. Greek government had to take austerity measures in Greece held another round of strike activity, economic development worse. Until February 2012, Greece, Germany and France and other countries still rely on rescue loans to survive. In addition to Greece, the financial situation of Portugal, Ireland and Spain and other countries also attracted attention from investors, European countries sovereign credit rating was lowered. Greece was just entering the euro zone. According to the provisions of some countries of the European Community signed in 1992 "Maastricht Treaty", the European Economic Monetary Union member states must meet two key standards, namely the budget deficit it can not exceed 3 percent of GDP, the debt ratio below 60% of gross domestic product. However, the accession of Greece just to see yourself far away from...
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...Progression of the European Debt Crisis 5 5.1 Greece 6 5.2 Portugal 6 5.3 Italy 7 5.4 Spain 7 5.5 Ireland 8 5.6 Iceland 9 5.0 Measures Taken (so far) to Combat the Debt Crisis (European Level) 10 6.7 European Financial Stability Facility (EFSF). 10 6.8 European Financial Stabilization Mechanism (EFSM). 10 6.9 ECB interventions. 10 6.10 Brussels Agreement. 11 6.0 Implications of the European Debt Crisis: For the European Union 12 7.0 Implications of the European Debt Crisis: For the Global Economy 13 8.0 Implications of the European Debt Crisis: For Global Politics 14 9.0 Implications of the European Debt Crisis: For Pakistan 15 10.0 Implications of the European Debt Crisis: For the Welfare State 16 11.0 Solutions for the European Debt Crisis 16 12.11 Eurobonds. 16 12.12 Restructuring of Eurozone. 18 1.0 Overview: With a nominal GDP of $16,242 Billion in 2010 (20% of global GDP), the European monetary union is not only the world’s largest economic block, but also the foremost integrated economic and political association of nations in history. The economic crisis the Euro Zone currently faces is unique in all of its aspects. While, like all financial disasters, it cannot be traced back to just one precipitating event or factor, the spread and evolution of this crisis has charted an unprecedented...
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...The root-causes of the Greek sovereign debt crisis Basil Manessiotis paper presented at the 2nd Bank of Greece workshop on the economies of Eastern European and Mediterranean countries Athens, 6 May 2011 1 Introduction To better understand the current sovereign debt crisis in Greece, a longer view is warranted The 20 year period 1989-2009 is bounded by two major fiscal crises in Greece: the 1989-1993 crisis, and the ongoing crisis. In both crises deficits exceeded 15,0% of GDP. In between, Greece entered the Economic and Monetary Union and adopted the Euro To facilitate discussion the 20 year period will be divided into two parts: the 1989-1999 period, and the 2000-2009 period. 2 1989-1999: securing EMU membership The 1989-1993 sub-period: Macroeconomic developments Weak economic activity (1.2% average growth) Very high inflation (16.8% annual average) Very high real and nominal interest rates Low fixed investment (1.5% annual average) Fiscal developments Very high general government deficits (13.6% of GDP average) The 1990 deficit reached 15.9% of GDP Primary deficit averaged 4.3% of GDP Fast accumulation of debt Debt ratio increased from 69.0% of GDP in 1989 to 110.1% of GDP in 1993 Other reasons for debt accumulation Very high interest payments From 6.8% of GDP in 1989 to 11.4% of GDP in 1993 3 TABLE 1 Selected Macroeconomic Indicators (annual average rate) 1989-1993 Real GDP growth Fixed investment growth Inflation (CPI) General Government...
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...Introduction The International Monetary Fund (IMF) is mainly known as the global association that provides financing to member countries which are either developing countries that are in extreme poverty or countries that are faced with severe economic crisis who are no longer able to seek financing from other sources. Along with these loans, training and technical assistance on bettering economic management is offered. The IMF also provides policy advice to governments and central banks based on analysis of economic trends and cross-country experiences as well as research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets. (About the IMF, n.d.) Currently there are 188 member countries of the IMF which makes the organization extremely important to virtually the whole world. Upon its creation at the Bretton Woods Conference there were 29 member countries who signed the Articles of Agreement in 1945. Between its creation and present day the IMF has helped countries deal with economic crises, and funded growth for many poverty stricken countries. As the IMF has grown into a major global economic body the role of the IMF has shifted from its first purpose of ensuring currency exchange rate stabilization and overseeing of the international monetary system to a major global lending organization and global economic stabilization force. (About IMF, n.d.) “Two years ago the world’s main international economic institution...
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...The debt crisis of Nigeria and Greece Introduction National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the availability of huge oil earnings deposited by OPEC member countries and were eager to lend at very low rates. Moreover, it is misleading to view the effects of government debt in isolation. Government debt can be divided into two categories namely domestic debt and international debt. The International debt is facilitated by the formation of such institutions like the International Monetary Funds (IMF) the International Bank for Construction and Development (World Bank). Governments borrow money from the private sector and foreign governments if they can't pay for all their spending with taxes and government revenues. A government will issue bonds at bond auctions every so often and market participants will come in and bid for them. Market participants...
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