International creditors are debating Greece’s latest debt-resolution ideas.
What happened to the Greek debt?
Greece defaulted on its debt in 2015. While some have dismissed Greece’s “arrears,” its 1.6 billion payment to the International Monetary Fund (IMF) was the first time a wealthy country has missed such a payment in history. Greece joined the Eurozone in 2001, and some believe the Eurozone is largely to blame for the country’s demise. However, before to adopting the single currency, the Greek economy was experiencing fundamental issues, and the economy was left to collapsealbeit for a variety of causes.
Are Greek government bonds safe?
Greek debts are still rated trash by rating agencies, despite a succession of improvements. They will not be eligible for support once PEPP expires in 2022 unless the ECB granted a waiver.
Who owes money to Greece?
2 The EU emergency funding entities are owing the majority of the outstanding debt. The majority of these are financed by German banks. Governments in the Eurozone: 53 billion euros. 34 billion euros were invested by private investors.
Was money taken from bank accounts by Greece?
ATHENS, Greece (AP) Greek officials said Thursday that limitations on domestic cash withdrawals, which were imposed more than three years ago to avert a bank run by panicked depositors during the country’s debt crisis, will be lifted within days.
Depositors will have no limits on withdrawals from Greek bank accounts starting Oct. 1, according to the finance ministry. Greeks living abroad will be authorized to make monthly withdrawals of up to 5,000 euros ($5,800). Furthermore, the maximum amount of cash that can be carried overseas will be raised from 3,000 euros to 10,000 euros.
Who holds the majority of Japan’s debt?
The Japanese public debt is predicted to be around US$12.20 trillion (1.4 quadrillion yen) as of 2022, or 266 percent of GDP, the largest of any developed country. The Bank of Japan holds 45 percent of this debt.
The collapse of Japan’s asset price bubble in 1991 ushered in a long period of economic stagnation known as the “lost decade,” with real GDP decreasing considerably during the 1990s. As a result, in the early 2000s, the Bank of Japan embarked on a non-traditional strategy of quantitative easing to inject liquidity into the market in order to promote economic growth. By 2013, Japan’s public debt had surpassed one quadrillion yen (US$10.46 trillion), more than twice the country’s yearly gross domestic product and already the world’s highest debt ratio.
Japan’s public debt has continued to climb in response to a number of issues, including the Global Financial Crisis in 2007-08, the Tsunami in 2011, and the COVID-19 epidemic, which began in late 2019 and has consequences for Tokyo’s hosting of the 2020 Summer Olympics. In August 2011, Moody’s downgraded Japan’s long-term sovereign debt rating from Aa2 to Aa3 due to the country’s large deficit and high borrowing levels. The ratings drop was influenced by substantial budget deficits and government debt since the global recession of 2008-09, as well as the Tohoku earthquake and tsunami in March 2011. The Yearbook of the Organisation for Economic Co-operation and Development (OECD) noted in 2012 that Japan’s “debt surged above 200 percent of GDP partially as a result of the devastating earthquake and subsequent reconstruction efforts.” Because of the growing debt, former Prime Minister Naoto Kan labeled the issue “urgent.”
How can I go about purchasing Greek debt?
When it comes to buying Greek bonds, there are only a few options. There are currently no Greek bond ETFs available. There are a few hedge funds that have made major investments in Greek debt, such as Dan Loeb’s Third Point, although these are not pure Greek bond investments. Essentially, the only ways to buy Greek bonds are through a bank or a brokerage firm, and both require a minimum commitment of more than $100,000.
Who bailed Greece out?
The European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF) (the Troika) announced a 110 billion bailout loan on May 2 to save Greece from default and cover its financial needs until June 2013, subject to the implementation of austerity measures, structural reforms, and other conditions.
Is the Greek government stealing money from the people?
Greece is on the verge of collapse. The unemployment rate is at 25%, down from a high of 28 percent, and four out of ten children are poor. During the winter, Athens is engulfed in smog as citizens who cannot afford electricity burn anything and anything to remain warm. When inflation and taxes are taken into account, the wealthy’s income is back to where it was in 1985. The impoverished have returned to their 1980 levels. Fears of a comprehensive financial disaster grew so pervasive over the weekend that Greeks emptied more than a third of the country’s ATMs in a desperate bid to withdraw as much money as possible before the banks collapsed.
The problem has reached a critical juncture, but it has been building for years. Despite what you may have heard, it is not going to happen since the Greek government overspent and is now paying the price. It’s occurring because Europe can’t decide whether it wants to be one country or many, and as a result, policies have been implemented that have resulted in a humanitarian disaster for the Greek people.
What, in as few words as possible, is happening in Greece?
Greece’s budget, which was already in bad health, was blown to bits by the 2008 financial crisis. In 2010, the European Union and the International Monetary Fund gave the Greek government billions of euros in bailout money. Greece’s lenders forced it to make drastic spending cuts and tax hikes, contributing to soaring unemployment and falling living standards.
Since then, Greece has had to choose between sticking with the bailouts and enduring the pain of austerity, or rejecting the bailout terms, which would almost certainly result in default and the country’s exit from the eurozone.
In January, Greeks elected a new government that attempted a third option: renegotiating the bailout terms to mandate less severe austerity measures. However, this failed, partly because Greek leaders have no leverage and partly because European politicians feared that accepting Greece’s demands might encourage other bailout recipients, such as Spain, Portugal, and Ireland, to rebel as well.
This new Greek administration has deferred the decision to the people: on July 5, Greece will have a national referendum on whether to accept the lenders’ newest proposal and continue with austerity, or to reject it and, most likely, quit the euro.
Why has the euro been so bad for Greece?
When Greece joined the euro in 2001, trust in the Greek economy surged, and the country experienced a significant economic boom. Everything changed following the financial crisis of 2008. Every country in Europe went into recession, but Greece suffered the most because it was one of the poorest and most indebted.
Greece might have strengthened its economy by printing more of its own currency, the drachma, if it had not used the euro. This would have made Greek exports more competitive by lowering the drachma’s value in international markets. It would also cut domestic interest rates, promoting local investment and making debt repayment easier for Greek borrowers.
Greece, on the other hand, follows the same monetary policy as the rest of Europe. And the European Central Bank, which is dominated by Germans, has imposed a monetary policy that is about right for Germany but too restrictive for Greece, plunging the country into recession.
As a result, Greece is trapped between a crippling debt burden 177 percent of GDP, nearly twice that of the United States and a profound depression that makes it difficult to raise the funds needed to make debt payments. Any tax increases or budget cuts adopted to help pay off the debt will only exacerbate the depression.
Greece has been negotiating for financial aid with the European Commission, the European Central Bank, and the International Monetary Fund (“the Troika”) for the past five years. Greece has been receiving loans from the Troika since 2010, on the condition that the country raise taxes and slash spending. These measures have resulted to crisis-level unemployment and poverty, resulting in widespread dissatisfaction among Greeks. They’ve also harmed the country’s economy to the point where Greece is unable to raise funds to pay off its debts on its own and will continue to rely on bailout funds.
Without the euro, Greece would be able to handle all of this on its own. However, because of the euro, it is unable to utilize monetary policy to rescue itself, trapping the country in a vicious cycle.
This sounds like a disaster for Greece. So it’s all Europe’s fault?
Although Europe bears the brunt of the burden, Greece is not without culpability. The financial crisis revealed that the government had been borrowing more than it had publicly acknowledged for years, implying that the country was running larger deficits and accumulating more debt than previously assumed. As a member of the EU, it was expected to keep its deficits under 3% of GDP and its debt under 60% of GDP. Greece, on the other hand, solicited the help of banks like Goldman Sachs and JPMorgan Chase to get around the regulations and borrow money under the surface in order to increase spending.
The disparity was enormous. On November 5, 2009, George Papandreou, the newly elected socialist prime minister, announced that the year’s budget deficit would be 12.7 percent of GDP, over double the 3.7 percent anticipated by the previous right-wing government. The country’s finances were in far worse shape than anyone had recognized, particularly those who were subsidizing the Greek government by purchasing its bonds.
Tax avoidance by Greek residents and corporations, on the other hand, was and continues to be a major issue. According to a 2012 study that compared Greek bank account data with official tax data, the average Greek person’s genuine income is around 92 percent higher than the income declared to the government. Tax evasion was responsible for half of Greece’s deficit in 2008 and a third of its deficit in 2009.
All of this being said, the global recession was the primary cause of Greece’s demise, which was severe enough that even nations like Spain, which had been running budget surpluses prior to the crash, found themselves in debt troubles. Greece’s fiscal mismanagement was egregious, and tax evasion is a persistent issue. But don’t be fooled: the true cause of the crisis is that Europe’s economies collapsed, the European Central Bank behaved in the interests of wealthy northern countries like Germany rather than impoverished southern countries like Greece, and the Greek people paid the price.
How has Greece’s new leadership handled the crisis so far?
Following their landslide victory in January 2015, Syriza and its leader, now-Prime Minister Alexis Tsipras, made renegotiating the bailout terms and easing the austerity program a primary priority. This is exactly what they were elected to achieve, but it was a difficult assignment due to Syriza’s lack of clout.
A Greek withdrawal from the euro would have been disastrous just a few years ago. A Greek default would have threatened to ruin foreign banks since they held so much Greek debt. There was also a risk that a default would raise interest rates in other troubled European countries like Portugal, Spain, and Ireland, forcing them to fail as well. But given that foreign banks aren’t holding nearly as much Greek debt as they once did, and European lenders are backing Portugal, Spain, Ireland, and other countries, they have little reason to be concerned. Greece would be the primary beneficiary of a Greek default. That takes away the Greek government’s most potent bargaining chip: the prospect of abandoning the euro.
Despite this, the Syriza government attempted to renegotiate the bailout terms. However, as expected, the Greeks fared poorly in the negotiations, and during a February stalemate, Greek officials made a series of concessions including giving up basic commitments like a minimum wage hike in order to extend the bailout for another four months, austerity and all. Syriza suffered a crushing loss.
It’s time to talk about another extension, but even after Greece made even more significant concessions, European lenders still deem them insufficient. The Greek government eventually gave up trying to reason with its creditors. Tsipras is holding a national referendum on Sunday on the bankers’ new plan, which he considers “unbearable” and German Chancellor Angela Merkel calls “extraordinarily generous.” Voters will decide whether to accept the lenders’ demands and maintain austerity, or to reject them and risk defaulting.
Meanwhile, Greece has indicated that it will not make an IMF payment due on Tuesday. Failure to make the payment, according to the top three rating agencies Fitch, S&P, and Moody’s will not result in a formal default on Greece’s debts. A missed payment, on the other hand, will undoubtedly frighten investors and force bond interest rates to rise, which Greece does not require now, of all times.
Can we get a Greek musical break?
Other Greek musicians, besides Vangelis and Yanni, have recently come to my attention. Diamanda Galás’ version of “I Put a Spell on You” is as follows:
If austerity is so much of the problem, then why is Europe imposing it on Greece? And why are European lenders being so inflexible?
In the opinion of European lenders, the situation is as follows: The IMF and the European Central Bank provide some of the funds that the Europeans are lending to Greece. However, a large portion of it comes from other European taxpayers, mainly Germans. This puts you in a difficult position if you’re a German politician. You don’t want Greece to implode because you believe in the European idea and don’t want to see the eurozone disintegrate, because you don’t want to encourage other nations to leave, and because you’re a human being who despises needless human misery.
But you don’t think it’s fair to use your own people’s money to subsidize a country that has demonstrated a lack of competence in basic state functions like tax collection, has a history of handing out government jobs as political favors, and has engaged in outright fraud to enable reckless borrowing during the boom years of the mid-2000s.
It doesn’t appear to be equitable, and it also doesn’t appear to be sustainable. What’s to stop Greece from building up its debt and causing another catastrophe in the future? From the perspective of European lenders, the only way to achieve this is to make fundamental reforms a condition of receiving bailout funds. This has the added benefit of making selling help to German voters easier. We’re providing the Greeks money, but we’re also forcing them to get their act together.
That’s what the Europeans say, but it’s not quite accurate. Nobody can deny that Greece requires significant reforms. Major reforms, on the other hand, do not have to be accompanied with harmful, economy-wrecking austerity measures. They also don’t need to work with a European Central Bank that hasn’t been ready to do what it takes to help Greece and other European countries grow their economies.
What’s happening here is that Germans and other northern Europeans are behaving in their own self-interest. They believe the European Central Bank’s monetary policy benefits them and are unconcerned about the possibility that it is generating a slump in Greece. Greece is powerless since the ECB is controlled by Germans, and monetary policy is set for Europe as a whole. It must accept the policies of the ECB, which is headed by Germans.
Greece could cope if the Germans decided to pay for this damaging policy regime by providing funds to the Greek people to help them rebuild their economy. But the Germans and their allies will not do so, both because it is unpopular at home (German voters care less about suffering overseas than voters anywhere else) and because of a strong moralistic streak that believes the Greeks have sinned and must atone.
Why is Greece imposing these odd bank rules and ATM restrictions?
To try to contain the economic crisis, the Greek government has officially imposed capital controls. That implies, for example, that all banks have been closed until after the referendum on the bailout accord, and stringent regulations have been imposed on the usage of financial institutions in various ways. Withdrawals from ATMs are limited to 60 per account, per day. Money transfers outside of Greece are prohibited; exceptions must be approved by the Finance Ministry. Pension and wage payments, as well as internet banking and debit card transactions, continue as usual.
The rules are in place primarily to avoid bank runs. If citizens withdraw too much money from the country’s banks, the country’s banks will be unable to issue loans, and the country would enter a financial crisis.
However, if you are a Greek citizen, you have compelling reasons to withdraw your funds. Deposits could be drained to keep banks afloat, as Cyprus experienced. Alternatively, Greece might leave the euro, convert all deposits into its new currency (likely the drachma, the country’s pre-euro currency), and then devalue it sharply.
Is it possible that defaulting and leaving the euro is really Greece’s least-bad option?
It’s worth reiterating what a humanitarian disaster Greece is facing. Twenty-five percent of the population is jobless. Unemployment among young people is approaching 50%. Hunger has become more prevalent among Greek children. This year, the GDP is expected to rise by only 0.8 percent. If austerity does not end, people will continue to suffer greatly for years.
Greece’s leaders must act, and whatever that can be done to ease austerity is desirable. Greece’s social problem would be alleviated if it were allowed to run a budget deficit and spend on initiatives to create jobs and provide relief to the most vulnerable inhabitants. Fiscal stimulus works, and Greece is in desperate need of it right now. However, the terms of Greece’s bailout prohibit this.
If the Europeans do not budge, exiting the euro may be the only viable choice. This would be a difficult road to travel in the short term. To keep banks sustainable, extremely strict capital controls would be required, and if they were insufficient, a full-fledged financial catastrophe would result. The value of drachma-denominated assets would drop, wiping off a lot of wealth. There’s a risk of uncontrollable inflation.
Leaving the euro, on the other hand, gives the country a chance to have a thriving economy in the following decade. The Greek people would regain control of their monetary policy, allowing them to discount their currency, stimulate exports, and reclaim their economic footing.
So what happens now?
If the vote passes, Greece will return to austerity and muddle through as it has in the past, if European lenders adhere to their old promise. However, that may not be a safe assumption to make. It’s unclear whether the Europeans’ previous offer is still on the table.
According to Wolfgang Münchau of the Financial Times, a “yes” vote would result in Greece attempting to maintain capital controls and develop a rival currency to the euro, rather than a bailout extension. Greece is not permitted to create euros, but it may proclaim that the country has two official currencies and begin issuing the other to bolster banks, pay debts, and so on. It wouldn’t technically quit the euro that way. Euros would continue to be accepted as legal tender. However, Greece may be able to reap the majority of the benefits of exiting the eurozone.
Things become considerably less apparent if the referendum fails or if nonpayment of the IMF loan or some other calamity occurs before the referendum, forcing drastic, rapid action.
Emergency loans are currently being provided by the European Central Bank to Greek banks in order to keep them from failing. If Greece refuses to cooperate, it will most likely stop doing so. That implies Greece must take action to prevent its banks from running out of cash and collapsing. At the very least, it will resemble the capital controls that have already been established. Even without European assistance, this may theoretically be enough to keep money flowing in Greece and the banks afloat. It’s also possible to conduct a “bail-in,” in which money is withdrawn from depositors.
The alternative, more extreme option is to reinstate the drachma as a parallel or full replacement currency for the euro (Münchau forecasts full replacement). It would be a difficult adjustment, but it would allow Greece to emerge from its depression in the same way that the United States, Canada, the United Kingdom, Sweden, Israel, and other countries with their own currencies did after the 2008 financial crisis: by implementing large-scale, aggressive monetary policy.
Greece would be the first country to abandon the euro, which would be disastrous for the European integration project as a whole, not least because it would embolden voters in other struggling countries, such as Spain, to elect left-wing or populist right-wing governments and attempt to abandon the euro.
Isn’t there another option here? Maybe something that is at the moment politically untenable but theoretically could really work?
Yes, there is another choice. It’s not something European authorities are really contemplating, but it’s possible: Increase your resemblance to the United States. We have states with poorer economies in the United States, just as we do in Europe, that require inexhaustible financial help. Only in the United States are they referred to as bailouts, and they are not treated as a crisis.
Richer states pay more in federal taxes than they receive in federal expenditure each year in the United States, while poorer states receive more in federal spending than they pay in federal taxes. According to a WalletHub research, South Carolina receives $5.38 in federal spending for every dollar it contributes in taxes. It was $7.87 last year. However, we do not consider this money to be a bailout, and we do not expect South Carolina to implement severe austerity measures. The arrangement is extremely secure; it’s been more than 150 years since South Carolina considered leaving the union legally.
Now, the United States is both a political and an economic union, but the EU is only the latter. However, the purpose of European integration is to get there, and part of that implies true fiscal union, which includes massive, unrestricted, and never-ending transfers from rich to impoverished portions of the union. It’s difficult to swallow politically, but that’s the deal.
Instead of penalizing Greece, if European bankers truly cared about the European cause, they would try to encourage their citizens to move closer to European super-statehood, huge transfer and all. And the more spending and tax policies Europe adopts as a whole, the less it will have to rely on Greece’s inept tax collectors and dishonest bureaucrats. The improvements that the lenders so strongly desire would be self-evident. All they have to do now is provide a helping hand to Greece.
Is Greece considered a third-world country?
In a sense, Greece has already left the European Union and is now a member of the Third World. Other Third World countries’ experiences with debt crises can be instructive in this sense.
Has Greece’s economy recovered?
Greece’s GDP is expected to increase by 2.4 percent in 2020, according to the European Commission (EC), which is significantly higher than the 1.4 percent anticipated for the European Union (EU) as a whole. After losing more than a quarter of its GDP, the bloc’s southernmost country is now recovering “When releasing the findings, European Commissioner for Economy Paolo Gentiloni said, “We’re on track.” This forecast represents a stunning comeback for a country that was just a few years ago mired in one of the worst economic downturns in history. In order to get their country out of financial trouble, the Greek people had to endure a slew of unpopular reforms and severe austerity measures, including pay and pension cuts.
“I don’t think the world really recognizes the immense hardship that the Greek reforms have entailed, or the tremendous sacrifices that you, the Greek people, have made,” Barack Obama said in a speech to the Greek people in 2016, during his final abroad tour as president. The following year, when Greece’s GDP growth became positive, the first visible signs of progress emerged. Since then, the EC’s economy has grown at a rate of 2.2 percent per year, according to the EC.
After being forced to demand an astounding 289 billion in financial aid from the EU, European Central Bank, and International Monetary Fund, known as the troika, Greece successfully concluded its third and last bailout program in 2018. This signaled the start of a return to financial stability. When capital controls were lifted and market confidence began to rise in 2019, the country’s 10-year bond yield fell to 0.9 percent in February, compared to 1.59 percent for the similar U.S. bond at the time.
Consumer confidence has improved as well, thanks to a decline in the jobless rate from 27.8% to 16.6%. The population, eager for more changes to fully embrace a new economic era, chose a government led by Prime Minister Kyriakos Mitsotakis in July to implement broad reforms that are benefiting society, businesses, and investors. “We have slashed taxes, deregulated, and followed a recipe that has also worked here in the United States, and the economy is responding extremely positively,” Mitsotakis admitted to President Donald Trump in Washington in January. The country continues to be burdened by a massive debt and several issues. It remains to be seen if the pro-business administration will be able to overcome these obstacles. The challenge is also for others, as US Ambassador to Greece Geoffrey Pyatt emphasizes “to see the potential that come with Greece’s new path.”