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The Greek Crisis

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Greece has been struggling for more five years to overcome 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 framework and its current effects in Greece. The last one illustrates the future for both Greece and the Eurozone, provided that the programme is implemented by the Greek government, and the dangers, which still exist, of torpedoing this new programme.

Although the new bailout comprises immensely tough austerity measures, it could constitute the beginning of a long-term economic recovery for both Greece and the Eurozone. Even if the country is heavily in debt, this does not represent the root of the problem, rather it is the lack of trust between Greece and the other Eurozone countries. If the Greek government implements diligently what it has agreed and therefore rebuilds trust and restores certainty, then the Eurozone’s institutions could deal with the Greek debt in a sustainable way.

In October 2009 the socialist party ‘PASOK’ was elected to form the government by a significant percentage of the Greek people. A few days later, the ECOFIN was informed by the new Minister of Finance that the value of Greece’s budget deficit was 12.7% of its GDP, whereas the previous government’s planning was 6% of its GDP (Kosmidou, Kousenidis and Negakis 2014). This figure was unquestionably unacceptable for Eurozone countries, hence the government could not borrow money from the international money markets as usual, in order to cover its deficits. On May 10th 2010 the EU Finance Ministers agreed on a €750 billion bailout programme through the EFSF stabilization mechanism (€500 billion from the Eurozone and €250 billion from the IMF). The optimum aim of the above programme was to give Greece an opportunity to re-enter the markets by December 2012 (Kosmidou, Kousenidis and Negakis 2014).

Nevertheless, Greece did not manage to achieve this aim, because of being unable to overcome its fiscal imbalance and the fact that the 2010 targets were never met. These led to the conclusion that the recession would be harsher and longer than initially expected. Moreover, the unwillingness of the markets to rebuild confidence was strengthened by the European Council’s decision to form a long-term European Stability Mechanism (ESM), which would implicate the Private Sector Involvement (PSI), in order to cope with future sovereign debt crises in the Eurozone (Kosmidou, Kousenidis and Negakis 2014). Thus, on July 21th 2011 the EU Council made the decision to activate a second bailout programme, giving an extra 109 billion euros to Greece with a significant involvement from private sector bondholders. Although the contribution of the PSI resulted in a gentle improvement of the debt-to-GDP ratio, the economic loss for private sector bondholders was huge (Kosmidou, Kousenidis and Negakis 2014).

This first period of the Greek crisis (2009-2012), was undoubtedly an unprecedented phase not only for Greece but the whole of Europe. At that stage, the EU revealed its basic problem of not being a genuine union but an assortment of different states which operate by conflicting national objectives (Cohen 2015). In particular, the crisis-suffering countries which are members of the Eurozone can significantly affect the overall financial stability, and especially the countries such as Germany and France, which have more superiority than other states, and do not want to jeopardize the stability of the regional powers’ own currency (Krapohl 2015). Therefore, it is obvious that the EU institutions delayed dealing with the first years of the Greek crisis, when they realised that the stability of the whole currency union was in jeopardy. Until 2010, when the European Monetary Union (EMU) established a special-purpose vehicle called EFSF, there was no European financial mechanism which could be activated in an emergency financial crisis. Moreover, one year later the EMU replaced the EFSF with a permanent financial mechanism called ESM so as to protect the financial stability of Europe and cope with crises (Maris & Sklias 2015). This led to the fact that Eurozone was not organised enough to confront the dimension of the Greek crisis, as Greece was the first country which had encountered the danger of bankruptcy. Until then, the Eurozone institutions had not had the experience to manage it. In stark contrast, the IMF had the expertise to handle these issues, thus its involvement was substantial.

In addition, regarding the first bailout programmes, the Greek politicians implemented the reforms slowly, reluctantly and in some cases uncompleted, therefore the markets which expected growth-enhancing reforms put the financial system of the country under remarkable stress (Mitsopoulos & Pelagidis 2015). Furthermore, this situation combined with the changeable rules of policy-makers had a negative repercussion on Greek entrepreneurship. This was a serious obstacle emerging from the crisis, as entrepreneurship is a valuable contributor to economic growth (Williams & Vorley 2015).

Greece endeavoured truly to restore its broken economy by implementing a considerable number of severe reforms from 2012 until the end of 2014. However, at the following general elections on 25 January 2015, Greeks voted for the Coalition of Radical Left ‘SYRIZA’, which promised to press Greece's creditors for changing the terms of the second bailout. The new Minister of Finance Yanis Varoufakis started a sequence of negotiations and deliberations for better bailout terms preserving the ‘red lines’ of his party. During that period, the Athens Stock Market (ASM) bounced dangerously up and down susceptible to the outcome of the negotiations, whereas the real economy was squeezed from the lack of liquidity. As the negotiations continued fruitlessly, the uncertainty about Greece’s future was exaggerated, while the Greek depositors had already started withdrawing their savings. Consequently, the systemic Greek banks have been forced to rely on the Emergency Liquidity Assistance (ELA) provided by the ECB.

On 27th June 2015, the Prime Minister (PM) of Greece announced a referendum regarding whether or not Greeks approved the last proposal made to the country by the EC, the IMF and the ECB. The referendum was translated by the media, as ‘Yes’ or ‘No’ to Europe, while a considerable number of EU leaders warned that a ‘No’ vote on the referendum could lead to Greece's exit from the monetary block known as 'Grexit'. The banks closed as expected, the ECB froze the ELA and capital controls were imposed so as to protect the bank system from an unregulated bankruptcy. The ASM also closed and Greece did not pay the owed tranche to the IMF. The SYRIZA-led Greek government campaigned strongly for ‘No’ clarifying that a loud ‘No’ would strengthen the Greek position at the negotiations. Eventually, the Greeks voted over 61% for ‘No’ and the following day the government returned to the negotiating table, while the economic situation in the country had been dramatically aggravated. Under unprecedented conditions for the Greek economy the PM was determined to close a deal, whereas the Minister of Finance Yanis Varoufakis resigned, as he did not agree with the PM’s plan. On July 13th 2015 after marathon talks, Eurozone leaders agreed to offer Greece a third adjustment programme and on August 14th the European finance ministers approved a €86-billion bailout, while the IMF involvement will be decided in October.

The following graphs are characteristic in exemplifying how the economic outlook of Greece was influenced when there was uncertainty regarding the country’s future. The first graph, Markit's Purchasing Managers' Index (PMI), demonstrates the knock on effect on the Greek manufacturing sector after capital controls were imposed, as the businesses could not buy raw materials (O'Brien and Bensasson 2015).

The second graph (Chrysoloras and Ziotis 2015) illustrates the downward trend for Greek deposits. It is obvious that the downward trend stopped when the second bailout was implemented between 2012 and the end of 2014, whereas it sharply dropped when the negotiations started in 2015.

The last graph (Chrysoloras and Gridneff 2015) parallels the banking withdrawals with the impact on the ECB. Thus, although the Greek banks had steadily decreased their influence on the ECB, when ‘SYRIZA’ took over in 2015 and the withdrawals peaked, the ECB’s fund outflows towards the Greek banks soared. Nevertheless, the third bailout for Greece halted the previous precarious economic conditions and restored apparent stability. Moreover, it is commonly accepted that the government drained its negotiating ability for better terms. Although this programme includes severe reforms and painful measures, it also illustrates some significant implications and positive clues for the future of Greece.

First and foremost, it defused the country’s vulnerability from the single currency bloc. In particular, when the programme was ratified the Commission’s president Jean-Claude Juncker pointed out that Greece is now irreversibly part of the euro area (The Economist 2015). In addition, the PM seems to be rebuilding trust with the other Eurozone leaders and specifically with Germany an important factor for the successful implementation of the programme. The bailout was ratified quickly, Germany did not have any objections and the collaboration between Greece and the Eurozone’s institutions was efficient. As Jean-Claude Juncker stated “Together, we have looked into the abyss. But today, I am glad to say that all sides have respected their commitments” (Steinhauser and Walker 2015). Furthermore, Eurozone’s finance ministers agreed to give 10 billion euros immediately to the Greek banks which are essential for their recapitalisation. There will be another 15 billion euros available for the following months (Christie and Ruhe 2015). These funds are important for the stabilization of the Greek systemic banks as well as shielding the depositors from a bail-in.

Another major implication is that the Eurozone authorities and especially the Finance Minister of Germany, for first time, consented to discuss the Greek debt in the following October or early November 2015. In particular, when the IMF published, on July 14th 2015, the Preliminary Public Debt Sustainability Analysis for Greece demonstrated that “Greece’s public debt has become highly unsustainable” (International Monetary Fund 2015). As a consequence, the IMF was not involved in the new bailout; however it will re-examine its position only if there is debt relief. However, according to professors Consiglio and Zenios the debt’s sustainability in Greece can be rehabilitated by “an upfront nominal value haircut of 50%, or interest rate concessions of 70%, or maturity extension by about 10 years” (Consiglio and Zenios 2015). Provided that the rules of Eurozone do not permit a 'haircut' at the debt, the IMF and Eurozone seems to have found a solution by lengthening the maturities of interest rates (Tartar and O'Brien 2015; The Economist 2015). This fact combined with the statement of the ECB’s vice president, Vitor Constancio, on July 16th 2015, that if Greece is in a new programme and responsibly carrying out it, then the ECB might start buying Greece’s debt (Dixon 2015) indicating that the Eurozone institutions have decided to deal effectively with the Greek debt. This is immensely meaningful for Greece because it could boost confidence which would contribute to counteracting the austerity measures (Dixon 2015).

Nonetheless, the manipulations of the Greek government while following directly and diligently its commitments, will prejudge the future of Greece. The country has destroyed the trust with its creditors, and therefore it should reverse this attitude by genuinely implementing the reforms based on the last agreement. The IMF was not involved in the new bailout, not only because the debt is unsustainable as it announced, but also because it thinks that Greece will not fully carry out the new adjustment programme (Monastiriotis 2015).

A serious obstacle which threatens to torpedo the new bailout is the hard-line Left Platform of ‘SYRIZA’ government. This group, which strongly disagrees with the bailout, contends that Greece should leave the Eurozone, restore its original currency ‘drachma’ and create closer affiliations with Russia (Hore and Wagstyl 2015). Thus, the PM is pressed to announce premature general elections and the whole political turmoil inhibits the country’s economic recovery. In addition, the former Energy Minister, who is the head of the radical Left, started collecting signatures to shape a new antibailout movement (Alderman and Kitsantonis 2015). However, the current PM’s parliamentary group is still popular, therefore it appears to outweigh its other counterparts.

To sum up, this essay has shown that Greece has been suffering for years from its financial crisis. The first and second bailout failures led Greece to a third programme under extremely difficult circumstances. The importance of a third bailout for restoring certainty in Greece, the dissenters of this programme, as well as the probabilities of this adjustment programme to mark a financial stabilization, have been discussed. Despite the fact that the new bailout involves harsh austerity reforms, this essay proves that it could be the cornerstone for long-term economic recovery. It is demonstrated that trust between Greece and its creditors is the crucial determinant for rebuilding confidence and stability. Greece could restore trust by honouring its commitments, indicating that it is a safe country for investments which would be the stimulus for counteracting the austerity. The Eurozone and Greece appear to have learnt from the previous bailout mistakes and above all both of them seem to be determined to deal radically with the crisis. Moreover, if the Eurozone was not able to cope with the Greek crisis, it would constitute a major political failure.

Bibliography:

Alderman, L. and Kitsantonis, N. (2015). As Greek Bailout Deal Passes, Alexis Tsipras Faces Rebellion [Online]. The New York Times. Available from: http://www.nytimes.com/2015/08/15/world/europe/greece-bailout-vote.html [Accessed 19 August 2015].
Christie, R. and Ruhe, C. (2015). EU Aims to Lure Greek Deposits Back to Banks With Bail-in Shield [Online]. Bloomberg. Available from: http://www.bloomberg.com/news/articles/2015-08-14/eu-aims-to-lure-greek-deposits-back-to-banks-with-bail-in-shield [Accessed 18 August 2015].
Chrysoloras, N. and Gridneff, I. (2015). Currency Has Already Arrived. It's the Euro [Online]. Bloomberg. Available from: http://www.bloomberg.com/news/articles/2015-07-03/the-devalued-greek-currency-has-already-arrived-it-s-the-euro?discipline_codediving2012-07-30.html%3fdiscipline_codetable_tennis [Accessed 17 August 2015].
Chrysoloras, N. and Ziotis, C. (2015). Greek Bank Deposits Bleeding Worsens in April [Online]. Bloomberg. Available from: http://www.bloomberg.com/news/articles/2015-05-29/greek-bank-deposits-bleeding-worsens-in-april [Accessed 16 August 2015].
Cohen, B. (2015). Why can't Europe save itself? A note on a structural failure. Contemporary Politics [Online], 21(2), 220-230. Available from: http://dx.doi.org/10.1080/13569775.2015.1030168 [Accessed 26 July 2015].
Consiglio, A. and Zenios, S. (2015). Greek debt sustainability: The devil is in the tails [Online]. CEPR’s policy portal. Available from: http://www.voxeu.org/article/greek-debt-sustainability-devil-tails [Accessed 19 August 2015].
Dixon, H. (2015). The optimist’s guide to Greece [Online]. REUTERS. Available from: http://blogs.reuters.com/hugo-dixon/2015/07/27/the-optimists-guide-to-greece/ [Accessed 18 August 2015].
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...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......

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The Greek Currency Crisis

...been over-borrowing at such staggering levels that even the EU was shocked. With a down world economy, they were no longer able to borrow at such cheap rates and could not pay off their debts (Hoffman, CBS News). Throughout the rest of this paper, I will examine exactly what led Greece into this mess and what policies that the Greek government should put in place in order to try and resolve this issue with the least amount of damage possible. First things first, let’s look at how Greece got into so much trouble. During the good times, the Greek government decided to borrow billions upon billions of dollars to help the country grow. This would have been fine if they were receiving enough tax revenue in order to cover these debts but, of course, they were not. Now they’re stuck with this huge debt burden that equals around 133% of their total GDP (an estimated €300 billion or $413.6 billion) and that number only continues to grow as the economy shrinks even further (Hoffman, CBS News). These numbers have led Greece to the lowest credit rating in the entire Euro zone and has made borrowing for them extremely expensive. Now the fear is that the Greek...

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The Nigerian and Greek Debt Crisis

...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......

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Report - Greek Sovereign Debt Crisis

...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,......

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The Problems and Consequences of Greek Financial Crisis

...1. In Greece the banks didn’t sink the country. The country sank the banks. Discuss this view. Which are the main differences between the Greek crisis and the crisis of Ireland and Portugal? The main cause of the Greek crisis is the ongoing disclosure of statistics that were well hidden from the eyes of the public, leaving people in ignorance about their own country and the future. When the figures started to become revealed, breaking up the shocking news about the forgery that lasted for over 30 years, it left the world in wonder – how is it possible to disclose such a thing for so long, and how is it possible that such action remains unpunished? The problems caused by the global recession were compounded by revelations that national statistics had been altered in order to cover the fact that Greece, in terms of debt levels, exceeded limits set down by the EU. The country's debt is already well over 100 percent of GDP and is still rising. According to euro zone rules, total government debt should not exceed 60 percent of GDP. The country's budget deficit in 2009 was almost 13 percent of GDP, more than four times the 3 percent limit allowed in the euro zone. But beyond the debt there is more deficit. What Greeks did when they got all this borrowed money, they gave away incredible sums to citizens, raised the wages to such an extent that it created a serious budget deficit. Inefficient Government? Corrupted mentality? Call it as you like, but it caused consequences that......

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Hot Spots: Beyond the "Greek Crisis"

...This forum focuses on the debt crisis in Greece (the 2010 EU/IMF “bailout” and subsequent austerity measures), as well as the various challenges that have been posed to the violence of neoliberal “adjustment.” The brief articles presented here have been solicited from observer-participants in the debates and protests, but also in the intimacies and banalities, defining everyday life in crisis Greece. The outlines of the crisis are widely known. Indeed, Greek society and its travails have never before been so visible to the global media eye. The aim of this forum is not so much to fill in this familiar outline of crisis with ethnographic detail as to trouble its parameters. The first section Debt, Responsibility and “Reform” treats debt not as a statistical fact, but anthropologically as a complex discourse on morality, responsibility, obligation and reciprocity. Against the breathless synchronicity of “breaking news” and (endless) speculation on the denouement of the crisis, these pieces insist on historicizing and globalizing. Piercing the blatant Orientalist tropes dominating international and often domestic reporting, they plumb the social, political and economic forces that have led to the current impasse, but also the political efficacy of “crisis” itself in legitimating the agenda of “structural reform.” The second section Precarity and Protest centers on the escalating violence of the crisis and the emergent politics of protest. The December 2008 revolt, which......

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The Problems and Consequences of Greek Financial Crisis

...Brtlt20a.wpd Lesson 20a: The Victorian Novel (Day: 168-170) The Victorian reading public firmly established the novel as the dominant literary form of the era. Virtually the entire literate population consisted of novel-readers. Herbert Spencer, that rigorous apostle of science, exempted George Eliot's works works from his general condemnation of "mere" novels; Newman and Arnold were avid readers of fiction; and Darwin stated in his Autobiography that to him novels were "a wonderful relief and pleasure." Carlyle, however, dourly excluded the novelist from the category of the hero as writer. Amazingly, Tennyson compared the novel to verse drama and gave it higher rating: "I am of the opinion that if a man were endowed with such faculties as Shakespeare's, they would be more freely and effectively exercised in prose fiction with its wider capabilities than when "cribbed, cabined, and confined" in the trammels of verse." Certainly the novel may well be termed the most distinctive and lasting literary achievement of Victorian literature. At the outset of the Victorian period no one, except possibly Thackeray, considered the novel a significant art form. By 1853, however, Clough, writing in the North American Review, recognized that cultured readers had turned their attention from poetry to the novel. By the century's end the novel had completely triumphed over poetry as aesthetic and spiritual nourishment for English readers. The novel by this time claimed......

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