debt crisis in greece

7/30/2019 Debt Crisis in Greece

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I. Debt crisis in Greece:

(http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB

%A7ng-ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA

%A1p/)

Over the last decade, Greece went on a debt binge that came crashing to an

end in late 2009, provoking an economic crisis that has decimated the

countrys economy, brought down a government, unleashed increasing social

unrest and threatened both Europes recovery and the future of the euro.

- Budget deficits

(Source: Morgan Stanley)


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That chart showed that the budget deficit of some European countries. Greece

and Ireland were two countries which have the largest deficits. While Irelands

budget deficit was mainly debt from the private sector to public sector by

government to execute save the banking system, Greeces budget deficits were

mainly caused by level of management.

- Revenue of tourism and shipping (two industry of Greeces economy) cut

over 15% in 2009. Greeces economy was distressed, tax revenues and

fees were narrowed, while the government had to increase public

spending to support the economy through the crisis. That had pushed

public debt to a huge number. In 2010, the OECD report showed that

Greece's public debt had soared to 330 billion euros, equivalent to 147.8%

GDP. Experts predict that if the Greek implements austerity plan for 3

years, Greece's debt in 2012 will be increased to 172% GDP.

(Source:Morgan Stanley )

So Greece is facing to the serious problems at the same time: public debt is too

high (147,8%), budget deficit is too big (13,6% GDP in 2010) and balance of

payments current account deficit is big (about 9%GDP). Level of 2 budgets is

exceed the prescribed ceiling for the Monetary Union and European Economic

Union (EMU).


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- Government bond yields 2-year period Greece has increased over 60%,

whereas 1-year period exceeded 110%. Therefore, Greece is hard to

mobilize from international capital markets and can only expect the

special aid from the IMF, ECB or some other country.

II. Impacts to Europe:

Top 10 countries have the biggest debt value with Greece

Unit: Billion USD

(Source:Bank of International Settlement)

- Germany and France are the largest creditors of Greece. According to

estimates by the economists, if Greece defaults, the loss of France and


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Germanys banks are respectively 56,9 and 23,8 billion. Moreover, the

Greeces insolvency also cause a great damage to the bank of England,

Portugal, America, Holland and JapanThe banking systems of these

countries will face with the large bad debts, affect to global banking

system.

(http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-ho

%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/)

- Although Greece has 2%GDP in EU, Greece's debt crisis impacted on the

stability of the euro, creating a chain reaction for the regional economy.

Countries that hold large numbers of Greece bonds, such as France,

Germany, Switzerland will loss all of these bonds if the Greece default,

this affects to the budget of the creditor countries. Greece uses the euro,

so financial scandals has weaken their currency and can be made across

the European exchange rate rise. The problems of public debt in Greece,

had triggered for the worst crisis in 11-year history of the Euro area. With

404 billion USD (113%GDP) of Greece, it will affect to Europe,

American and many others countries. This leads to high unemployment.

(http://www.ttnn.com.vn/nuoc-lanh-tho/249/tin-tuc/27134/khung-hoang-no-hy-

lap-va-chau-au.asp x)

- Although Greece's troubles are the most extreme, they highlight problemsin the eurozone that also apply to some other economies. Many other
http://www.ttnn.com.vn/nuoc-lanh-tho/249/tin-tuc/27134/khung-hoang-no-hy-lap-va-chau-au.aspxhttp://www.ttnn.com.vn/nuoc-lanh-tho/249/tin-tuc/27134/khung-hoang-no-hy-lap-va-chau-au.aspxhttp://www.ttnn.com.vn/nuoc-lanh-tho/249/tin-tuc/27134/khung-hoang-no-hy-lap-va-chau-au.aspxhttp://www.ttnn.com.vn/nuoc-lanh-tho/249/tin-tuc/27134/khung-hoang-no-hy-lap-va-chau-au.aspx


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southern European countries ran up huge debts - government debts as wellas household mortgage debts - during the past 10 years. They also enjoyedrapidly-rising wage levels. Now the bust has come, it is very hard forthem to repay the debts. And the high wage levels leave their economiesuncompetitive compared with, for example, Germany. Because they are

inside the euro, these governments cannot rely on their central bank - theECB - to lend them the money. Nor can they devalue their currencies toregain a competitive edge. Meanwhile, they are having to push throughvery painful spending cuts and tax rises to get their borrowing undercontrol. But some analysts argue this is just pushing their economies intorecession, cutting tax revenues. In the meantime, EU leaders arestruggling to enhance the "firewall", in case any further countries proveunable to repay their debts. In October, they agreed that the new EuropeanFinancial Stability Fund would have up to 1tn euros to guard against

future sovereign debt crises. However, the money has yet to be raised.Recently, the IMF said it, too, would have money available.

(http://www.bbc.co.uk/news/business-13798000)

- Political and social instability: Because of austerity package of Greece

and some others countries, this cause wave of protests in the region. In

addition, negotiations of the regional political disagreements are

increasing gradually among countries. Germany is the country which

reacted strongly with the way the Greek aid.

(http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-

ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/ )
http://www.bbc.co.uk/news/business-13798000http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/http://www.bbc.co.uk/news/business-13798000http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/http://pgbankresearch.wordpress.com/2011/09/30/kh%E1%BB%A7ng-ho%E1%BA%A3ng-n%E1%BB%A3-cong-hy-l%E1%BA%A1p/


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Demonstrators in Greece

(source: Internet)

Students in Spain demonstrated in Marid tooppose education budget cuts(source: AFP/TTXVN)


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The protesters gathered in the square Terreiro do Paco, Lisbon (Portugal)

(source: AFP)

III. Solutions:

- Led by Germany's Chancellor Angela Merkel, all 16 countries whichmake up the euro zone have agreed a rescue plan for their ailing neighbor.The package, which would only be offered as a last resort, will involveco-ordinated bilateral loans from countries inside the common currencyarea, as well as funds and technical assistance from the InternationalMonetary Fund (IMF).

According to a joint statement on the EU Web site, a "majority" of theeuro zone States would contribute an amount based on their GrossDomestic Product (GDP) and population, "in the event that Greeceneeded support after failing to access funds in the financial markets."

This means Germany will be the main contributor, followed by France.Although the announcement did not mention any specific figure, asenior European official quoted by Reuters said that the potential

package may be worth around 20 billion euro (US$26.8 billion).

However any European-backed loan package requires the unanimousapproval of European Union members, meaning any euro zone countrywould have effective veto power.

(http://edition.cnn.com/2010/BUSINESS/02/10/greek.debt.qanda/inde

x.html)

- Europe is a 3 step solution packages for Greece. Firstly, providing a loan

worth 110 billion euro, equivalent to 135 billion dollars (80 billion euro

from the EU, 30 billion euro from the International Monetary Fund - IMF)

to Greece is independent on market private, can afford to pay the account

maturity of government bonds and reduce the budget deficit. Secondly,


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Europe and the IMF established EU stabilization fund worth 750 billion

euro, of which 500 billion euro of EU and 250 billion euro by the IMF to

provide a safe point back to Portugal, Spain and Iceland in the case of

individual investors sold government bonds are held. Finally, the

European Central Bank - ECB unlimited commitment to purchase

government bonds of countries with bad debt. To ensure that policy, the

ECB may establish a fund other safety and keeping interest rates low.

However, to deal with dangerous situations of force majeure, the experts

say the best option for Greece and Europe is building and operating order

repayment in case of failure to pay debts in order to Athens at the same

time to withdraw from the euro area and put the money to reduce dracma

on the type of value.

(http://www.tinkinhte.com/the-gioi/chau-au/no-cong-hy-lap-bai-hoc-nhan-tien.nd5-dt.148629.102105.html)

+ In May, 2010 Eurozone and IMF s leaders announced a bailout

package with three-year term valued at EUR 110 billion for Greece. Then

in October, Greece had been loaned 2,5 billion EUR (3,3 billion dollars)

by IMF.

+ During the period from 5/2010 and 6/2011, the European Central Bank

has purchased about 45 billion euro by the Greece government bonds. In

addition, the liquidity assistance that the ECB for Greece banks had

increased from 47 billion EUR in January, 2010 to 98 billion EUR in

May, 2011.
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Top EU officials will gather this week in Brussels to discuss Greece as

European financial markets remain unsettled.

(http://money.cnn.com/2011/07/20/news/international/european_union_su

mmit_greece_debt/index.htm)

debt crisis in greece

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