...Policy Paper, spring 2012 ------------------------------------------------- Is a Greek exit from the European Union inevitable? 0909512 Table of Contents Pg. List of Illustrations 3 Executive Summary 4 1.0 Introduction 5 2.0 The Economic Cost and Benefit for State Membership of the EMU 5 2.1 Benefits of EMU Membership & Mechanisms 5 2.2 Costs of EMU Membership 7 3.0 Contextual Factors: The Profusion of Dept 10 3.1 The Eurozone Crisis 10 3.3 Greece- The Forefront of the Euro Area Crisis 13 4.0 Alternate Policies and the Effective Consequences 15 4.1 Predicament 15 4.2 Abetting Dependent on Austerity 16 4.3 Creditor-Led Default 17 4.4 Debtor-led Default and Greek Haircuts 19 4.5 Greek Exit 20 5.0 Recommendation 21 Appendices: Appendix 1: Preferential liberalization References List of Illustrations Pg. Illustration 1: The cost of EMU- Diminishing Domestic Flexibility to Asymmetric Macro Shocks 7 Illustration 2: Cost and benefit of Monetary Unions 9 Illustration 3: Evolution of Nominal Unit Labor Costs in the Eurozone Pre to the US Credit Crunch 9 Illustration 4: Current Account Balances in Percentage GDP 10 Illustration 5: Core Bank Exposure to the Weaker Eurozone Member States 12 Illustration 5: Holders of Greek Government Bonds and Dept (in billion Euro) 16 Executive Summary The standing...
Words: 6430 - Pages: 26
...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...
Words: 7912 - Pages: 32
...Table of Contens Introduction 2 1. Foundation of Euro Zone 2 1.1. Background 2 1.2. Optimum Currency Area 3 1.3. Is Europe an Optimum Currency Area? 5 2. Account imbalance in Eurozone 6 2.1. Captial inflow from outside of eurozone 7 2.2. Bond interest rate convergence after eurozone introduction, it increase raising capital of periphery countries. 10 2.3. Price and unit labor cost increase in periphery countries -> competitiveness loss 11 3. Lehman Brothers 14 3.1. Reasons for Bankruptcy 14 3.2. LEVERAGE 15 3.3. LIQUIDITY 15 3.4. LOSSES 15 3.5. Final words 16 4. Greece Financial Crisis 16 4.1. Current Greece Financial Crisis 16 4.2. Greece before Financial Crisis 18 4.3. Industry 19 4.4. Tax Evasion 20 4.5. Populism and Corruption 22 5. Conclusion 23 5.1. Fundamental defect in the euro area – The impossible of independent monetary policy worsen the Economic Crisis of Europe. 23 5.2 Fundamental defect in the euro area – The Eurozone, which was established without financial alliance makes the financial crisis to the banking crisis. 26 REFERNECES 28 Introduction In June, whole world paid attention to Greek economic crisis. Greece, had undergone crisis because of financial crisis from United States since 2008, has evaded a default with two times of relief loans from European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF). But Greece announced that they couldn’t pay back the loan to IMF...
Words: 9430 - Pages: 38
...the euro-zone crisis – causes, the crisis and reformation policies (with special reference to greece) the euro-zone ‘The Eurozone’ is the nickname commonly used to describe the member states that use the EU’s single currency, the Euro. The idea of creating a single currency for the European Community was first mentioned in the 1970 Werner report, which led to the establishing of the European Monetary System (EMS), the forerunner of the Economic and Monetary Union (EMU). The Maastricht Treaty (1992) made EMU a part of EU law and set out a plan to introduce the single currency (the Euro) by 1999. The Maastricht Treaty also established certain budgetary and monetary rules for countries wishing to join the EMU (known as the convergence criteria). In 1998, 11 member states (Germany, France, Italy, Belgium, Luxembourg, the Netherlands, Spain, Portugal, Ireland, Austria and Finland) undertook the final stage of EMU when they adopted a single exchange rate, which was set by the European Central Bank (Britain, Sweden and Denmark negotiated an opt-out from this final states of EMU). The new Euro notes and coins were launched on 1 January 2002. There are currently 16 EU states in the Eurozone. Greece joined the initial 11 members in 2001, Slovenia joined in 2007, Cyprus and Malta in 2008, and Slovakia joined in 2009. Estonia is due to join the Eurozone in 2011. All future members of the EU must adopt the Euro when they fulfil the convergence criteria. Economic and Monetary Union...
Words: 13043 - Pages: 53
...Introduction Since the 1980s, Greek political battles forced Greece to endure constant transformation of their economic structures. These fluctuations created economic instability due to rapid changes in devaluation and inflation cycles. After successfully joining the Eurozone in 2001, Greece’s economy progressed enormously. However, the Greek government acted irresponsibly with its fiscal policy and debt accumulation. Consequently, the created economic weaknesses became apparent during the 2008 global financial crisis. The Greek sovereign debt crisis has required multiple controversial bailouts. The bailouts that prevented Greece from defaulting, led to two opposing opinions from leaders of the members of the European Union (EU), (1) to support Greece to remain member of the Eurozone and, (2) to pressure Greece to exit the Eurozone. Greek constant economic restructuring Introducing the “populist policies” during election seasons were the core of Greek political parties strategy. Political parties were forced to craft and innovate new economic structures to gain support from the voters. In 1980s, for example, the notion of public protection and equal income redistribution strengthened confidence in Greek’s voters. The massive increase of the public spending (10% increase of the GDP from 1980 to 1990) caused turmoil in Greek economic structures. The newly elected government’s acquisition of Bank of Greece resulted in the Greek government having direct control of the country’s...
Words: 1585 - Pages: 7
...Greek Sovereign Debt Crisis CONTENTS 1. INTRODUCTION................................................................................................................... 2 2. THE CRISIS ........................................................................................................................... 2 3. THE WAY TO THE CRISIS...................................................................................................... 3 4. HOW DOES THE CRISIS AFFECT THE GLOBAL FINANCIAL SYSTEM? .................................... 4 5. WHAT IF GREECE LEFT THE EURO ZONE? ........................................................................... 5 6. IF GREECE HAS RECEIVED BILLIONS IN BAILOUTS, WHY IS THERE STILL A CRISIS? ............. 6 7. CONCLUSION....................................................................................................................... 7 8. BIBLIOGRAPHY .................................................................................................................... 8 1|Page Greek Sovereign Debt Crisis 1. Introduction The economy of Greece is the 45th largest in the world with a nominal gross domestic product (GDP) of $238 billion per annum. It is also the 51st largest in the world by purchasing power parity at $286 billion per annum. As of 2013, Greece is the thirteenth-largest economy in the 28-member European Union. Greece is classified as an advanced, high-income economy, and...
Words: 2375 - Pages: 10
...budget crisis so severe that the country may lose its footing in the European Union. Athens is reporting a deficit that is four times the EU limit, which means that Greece could be in danger of losing the euro as its national currency. The government has promised tough austerity measures, but many Greeks say they are in no mood for sacrifice. Farmers are blocking border crossings, highways and major ports to demonstrate their frustration. They say they're desperate. Cheap imports and middlemen's charges are apparently pushing Greek produce out of major markets. Pavlos Issaris grows potatoes, wheat and corn. He says the cost of doing business is putting him out of business. He and other farmers want the government to provide subsidies to reduce the price of diesel and other necessities. And Issaris says he also wants the government to more aggressively control imports. Greece and its Economy Problem The new government of Socialist Prime Minister George Papandreou is resisting subsidies. Athens is trying to reassure its EU partners with a plan that includes tax hikes and sharp cutbacks in the country's enormous public sector. Nearly 1 in 10 Greeks is employed by the government as a civil servant; that's almost 1 million people. But Papandreou's pledge to trim that number has already triggered protests. Civil servants are planning nationwide strikes this month. People have a hard time believing that we're actually going to do what we say we are going to do. - Greek Finance...
Words: 1698 - Pages: 7
...Concordia University – School of Management MBA – 506 The Euro in Crisis: Decision Time at the European Central Bank LaRisha Baker Professor: Tom DiCorcia November 30th, 2014 Introduction The European Central Bank (ECB) is the central bank for Europe's single currency, the euro. Its main task is to maintain the euro's purchasing power and maintain price stability in the euro area. The euro area comprises of 18 European Union (EU) countries, of which Greece is included (European Central Bank, n.d.). As the EBC holds extraordinary decision-making power, this will in effect have an impact on the financial economy of Greece. From this case analysis, the ECB must decide whether to purchase or to not purchase Greek sovereign debt (Trumbull, Roscini & Choi, 2011). The Problem After the sub-prime mortgage burst in the United States, this sent reverberating shock waves throughout world economies. As the US economy tightened, economies around the world were also affected; adversely affected highly leveraged banks in the Eurozone. Though providing financial bailouts were against the Eurozone philosophy, with fear looming that Greece would default on its debt, this put pressure on Eurozone members to intervene (Trumbull, Roscini & Choi, 2011). For the euro to maintain stability, a bailout for Greece was imminent. If no Greek bailout were made available, this could potentially upset the stability of the entire EU and the euro. The ECB had been slow to act, in part...
Words: 855 - Pages: 4
...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...
Words: 1771 - Pages: 8
...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...
Words: 30568 - Pages: 123
...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:...
Words: 2290 - Pages: 10
...MAster’s in Global Management 2012/13 | EUROZONE CRISIS | Prof. Ricardo Lima | | Anar husseynov, Girish Medh, Shakeb Assri. | 1/2/2013 | Hochschule Bremen University of Applied Sciences | Contents 1.Introduction 3 2. History 3 2.1. The Werner Report — EMU in three stages 3 2.2. Snake in the tunnel 4 3. Purpose of single currency 5 4. Gross Domestic Product 5 5. Inflation 7 6. SWOT ANALYSIS 8 6.1. Strength 9 6.2. Weakness 9 6.3. Opportunities 9 6.4. Threats 10 7. Eurozone Crisis. 10 8. Greece’s Debt Crisis: Background 12 8.1. Build-Up to the Current Crisis 12 8.2. Financial Assistance from the Eurozone Member States and IMF 14 8.3 Why didn’t Greece leave the Euro? 15 9.Recommendations 17 10. References 18 1.Introduction The euro (symbol: €; banking code: EUR) is the currency of 17 EU member states. It was launched on 01.01.1999 virtually, but physically launched from 01.01.2002. The currency is the second most traded currency after the US dollar. The currency is used by around 332 million people daily. €915 million in circulation, highest combined value of Bank notes in circulation in world. The countries that use the euro are Finland, Austria, Belgium, Cyprus, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. If you are planning a trip to Europe then the euro is the currency you will need for most of the locations you visit. There are additional countries...
Words: 4984 - Pages: 20
...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...
Words: 557 - Pages: 3
...its financial crisis. At the end of 2009, the problems for Greece started emerging when the newly-elected government realised that the country was heavily in debt. In the meantime, both Greek banks and the government were graded by rating agencies as dramatically low, as the country's debt had peaked (Tseronis 2014). Furthermore, in 2010, reports concerning accounting irregularities for the statistics which the Greek government delivered to Brussels caused the media to put Greece on the spot and raised concerns about the sustainability of the Greek debt and the country's credibility (Tseronis 2014). Thus, Greece became the first EU member to activate a bailout package from the newly set up European Financial Stability Facility (EFSF) and representatives of the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF), commonly referred to as the ‘troika’, in May 2010 (Gemenis & Nezi 2015; Tseronis 2014). Afterwards, Greece required a second bailout programme in February 2012 and an agreement that led to a third bailout after marathon negotiations, on 13th July 2015. The aim of this essay is not only to describe and analyse how Greece reached a third bailout but also to investigate if this programme could be the end of the Greek and euro crisis. It is divided into three main sectors: the first one is about the previous bailout programmes as well as the reasons for their failure. The second one analyses the present crisis, the new bailout...
Words: 3251 - Pages: 14
...www.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 ...
Words: 2286 - Pages: 10
