Past conditions of the first bailout of Greece

In 2010, IMF and European Union initiated a bailout package of EUR 110 bn to prevent fallout of
Greek economy !"i# $a# follo$ed by #imilar bailout to Ireland and %ortugal economie# a# $ell
It $a# being believed t"at bailout package# $ill "elp re#tore t"e#e economie# &e $ill begin
analy'ing t"e bailout of Greece In May(2010 IMF and EU propo#ed a bailout plan for Greece
$ort" EUR 110 bn )U*+ 1,- bn. /ut of 110 bn, IMF $ould pay 0111 of t"e fund# implying EUR
00 bn and EU $ould pay remaining 2111 of t"e amount implying EUR 20 bn IMF lent to Greece
under it# *tand(3y 4rrangement# )*34. program allo$# t"e Fund to re#pond 5uickly to
countrie#6 e7ternal financing need# IMF u#ually lend# upto 2008 of 5uota for 12 mont" period
and 9008 of 5uota for total credit out#tanding Greece6# 5uota i# 11 bn *+R and IMF bailout to
Greece $a# around *+R 29, billion )EUR 00 bn. !"i# implied IMF bailout amounted to 02128
of Greece6# 5uota !"e program $a# e7ceptionally large by all mean#
!"e bailout i# ba#ed on certain condition# under $"ic" Greece $ill "ave to improve it# public
finance# and competivene## !"e government6# program al#o include# pro(gro$t" policie# to
reform #uc" crucial #ector# a# ta7 admini#tration, t"e labor market, t"e "ealt" #ector, and t"e
management of public finance# !"e bailout fund# are relea#ed every 5uarter ba#ed on an
a##e##ment report of t"e progre## on Greece economy and $"et"er re#tructuring plan i# on
e7pected line#
In 2010, Greece got EUR 31.5 bn, lesser than the proposed EUR 38 bn. The shortfall
of EUR 6.5 bn has been added to 2011. o o!erall the total ba"lo#t to Greece
re$a"ns sa$e at EUR 110 bn.
In %a&'2010, total borro("ng needs of go!ern$ent for 2010 (as pro)ected at EUR
*3.6 bn. Th"s (as re!"sed lo(er to EUR 55.1 bn "n +ec'10 re!"e( and f#rther re!"sed
#p(ards to EUR 60.1 bn. The r"se (as $a"nl& on acco#nt of Greece $"ss"ng "ts
re!en#e targets. The f"scal def"c"t target (as $"ssed as (ell. ,o(e!er beca#se of
the o!erall decl"ne fro$ %a&'10 est"$ates,
-"nanc"ng gap (as lo(er at EUR 31.5 bn co$pared to pro)ected gap of EUR 38 bn.
How and why it failed?
The refor$s d"d not go as per des"red pace ("th refor$ fat"g#e sett"ng "n !er& earl&
stage. .hat "s (orse "s that th"s sl"ppage fro$ refor$ co$$"t$ent (ent #nnot"ced
for a (h"le and Gree/ debt cr"s"s has aga"n beco$e a $a)or "ss#e. The bas"c
cond"t"ons of E%U entr& spec"f"ed b& tab"l"t& and Gro(th pact ".e. b#dget def"c"t
sho#ld be 30 of G+1 and Gross +ebt sho#ld be 600 of G+1 are not e2pected to be
$et e!en t"ll 2013. 4#dget def"c"t $"ght st"ll co$e lo(er b#t gross debt le!els are
e2pected to re$a"n abo!e 600 of G+1 for a $#ch longer t"$e.
Greece 3ailout +i#tribution )in bn Euro#.
2010 2010 4ctual
IMF 10, 10,
EU 2:9 211
!otal 02 01-
The plan $a/ers had ass#$ed Greece (o#ld be able to borro( fro$ "nternat"onal
$ar/ets b#t th"s has not been poss"ble beca#se of lo( go!ern$ent co$$"t$ent to
p#sh refor$s. Th"s has led to sp"ral"ng bond &"elds $a/"ng borro("ng #n!"able. Th"s
has led to aga"n an #ncerta"nt& "n global $ar/ets and o!er E#ro prospects. The
cred"t rat"ng agenc"es ha!e f#rther lo(ered Greece debt stat#s to near
spec#lat"!e5)#n/ categor& f#el"ng f#rther concerns.
6nother proble$ ("th Greece has been "ts #nderreport"ng of def"c"t and debt data.
Greece off"c"als ha!e al(a&s #nderreported the act#al f"g#res. 6n& act"on #nder
tab"l"t& and Gro(th 1act (or/s on f"rst t"$e reported data and "s not appl"cable to
re!"sed data. Th"s #nderreport"ng has been done desp"te $an& concerns fro$
E#ropean 7o$$"ss"on o!er the sa$e.
E#ropean 4an/s connected to Greece debt. 4an/s "n -rance and Ger$an& hold a
large percentage of Gree/ debt. 8!erall, the "nternat"onal ban/ hold"ngs of Gree/
debt ha!e hal!ed fro$ nearl& EUR 300 bn "n 93 20: to 135.8 bn "n 93 2010. %ost
co#ntr"es ha!e lo(ered the"r Greece e2pos#re co$pared to 93 200:. Th"s "nd"cates
$ost reg"ons do not ha!e conf"dence "n Greece econo$&. Tho#gh, "t "s s#rpr"s"ng to
see U; ban/s "ncreas"ng the"r e2pos#re to Greece debt. It see$s U; ban/s are $ore
conf"dent of Gree/ debt le!els co$pared to other econo$"es. +esp"te decl"ne "n
absol#te le!els, share of -rance and Ger$an& "n Greece debt has "ncreased fro$
310 "n 93 200: to nearl& 620 "n 93 2010. Th"s "$pl"es Greece and -rance ha!e
b"gger sta/es "n Greece debt relat"!e to other econo$"es. ("t<erland ban/s ha!e
c#t the"r Greece e2pos#re re$ar/abl& fro$ EUR *8.6 bn "n 93 200: to )#st EUR 2.:
bn "n 93 2010. E!en U ban/s ha!e an e2pos#re to Gree/ debt $a/"ng "t a ("del&
"nter'connected ban/"ng proble$.
=at"onal 7entral 4an/s connected to Greece debt. =at"onal central ban/s of E%U
econo$"es ha!e been lend"ng to ban/s "n tro#bled econo$"es "nd"rectl&.
In E%U econo$"es, each nat"onal central ban/ >=74? deals ("th "ts ban/s accord"ng
to r#les ad$"n"stered b& the E#ropean 7entral 4an/ >E74?. Under th"s s&ste$ sa& a
reta"l depos"t "s $o!ed fro$ a Gree/ 4an/ to a Ger$an ban/. In case, the Ger$an
ban/ "s #n("ll"ng to accept pa&$ent "n the for$ of a cla"$ on Gree/ 4an/, the debt
"s settled !"a 7entral 4an/s. o, the Ger$an 4an/ no( gets "ts cla"$ fro$
4#ndesban/ and 4#ndesban/ "n t#rn ac@#"res a cla"$ on
7entral ban/ of Greece.
Too $an& EU bod"es res#lt"ng "n poor co$$#n"cat"ons. The nat#re of the Un"on has
led to $an& /"nds of EU bod"es ("th $#lt"ple heads. It "s a proble$ "n nor$al t"$es
and "n cr"s"s "s )#st gets (orse. A"/e (e sa( "n 2010, there are $an& parallel
$essages fro$ d"fferent bod"es. Then there are heads of nat"onal bod"es as (ell
lead"ng to co$plete chaos and conf#s"on o!er poss"ble pol"c& cho"ces. The nat#re of
the #n"on "s s#ch that one cannot reall& accord respons"b"l"t"es for co$$#n"cat"ng to
a fe( chosen agenc"es.
Beffre& -ran/el of ,ar!ard Un"!ers"t& sa&s E%U pol"c&$a/ers $ade three $"sta/esC
' To ad$"t Greece "n the f"rst place.
' To allo( "nterest rate spreads on so!ere"gn bonds "ss#ed b& Greece.
' -a"l#re to send Greece to the I%- earl& "n the cr"s"s, before Gree/ "nterest
rate spreads ("dened sharpl&.
The f"rst and th"rd are $"sta/es of E%U pol"c&$a/ers and second "s a $"sta/e of
$ar/et part"c"pants. 6s both $ar/ets and pol"c&$a/ers erred #nderstand"ng the
"$pl"cat"ons of E%U, both need to resol!e th"s together.
Current scenario of the Bailout of Greece
In %a&'2010, total borro("ng needs of go!ern$ent for 2010 (as pro)ected at EUR
*3.6 bn. Th"s (as re!"sed lo(er to EUR 55.1 bn "n +ec'10 re!"e( and f#rther re!"sed
#p(ards to EUR 60.1 bn. The r"se (as $a"nl& on acco#nt of Greece $"ss"ng "ts
re!en#e targets. The f"scal def"c"t target (as $"ssed as (ell. ,o(e!er beca#se of
the o!erall decl"ne fro$ %a&'10 est"$ates, f"nanc"ng gap (as lo(er at EUR 31.5 bn
co$pared to pro)ected gap of EUR 38 bn.
Greece -"nanc"ng Gap >"n 4"ll"ons of E#ros?
2010 2011
%a& 10 +ec 10 %ar 11 %a& 10 +ec 10 %ar 11
1. Gross
4orro("ng
needed
*3.6 55.1 60 55.1 58.1 58.*
4#dget +ef"c"ts 20.* 22.3 22 18.* 16.8 1*
2. Gross
-"nanc"ng
Reso#rces
35.6 23.6 28.5 15.1 11.6 12.2
1r"!at"<at"on
Rece"pts
0 0 0 1 1 2.5
%ar/et
4orro("ngs
33.3 18.3 16.2 12.3 10.6 11
3. Total Gap 38 31.5 31.5 30 36.5 36.5
>1'2?
EU 2*.6 21.1 21.1 2:.1 35.6 35.6
I%- 10.3 10.3 10.3 10.: 10.: 10.:
4#dget +ef"c"t >0
of G+1?
'8.1 ':.6 ':.6 '*.6 '*.3 '*.5

,o(e!er, the ga"n of EUR 6.5 bn "n f"nances re@#"red "n 2010 has been carr"ed
for(ard to 2011. In 2011, EU (o#ld pa& EUR 35.6 bn to Greece co$pared to EUR
2:.1 bn pro)ect"ons "n %a&'10. Th"s "s beca#se "n 2011 re@#"red borro("ng has been
re!"sed #p(ards and f"nanc"ng so#rces ha!e been re!"sed lo(er. I%- "n "ts %ar'11
re!"e( ra"ses concerns o!er th"s proble$ of #nderach"e!e$ent of re!en#e targets.
%ar/ets are alread& concerned that f"nanc"ng gap "s l"/el& to be h"gher as f"scal
consol"dat"on plans are not go"ng on e2pected l"nes.
2012 ; 2010 in bot" t"e#e year#, borro$ing need# "ave been rai#ed along $it" financing
re#ource# <o$ever, t"ere i# a likeli"ood t"at government mi##e# it# revenue target# in 2012
and 2010 a# $ell leading to need for more finance# !"i# i# leading to furt"er #pike# in intere#t
rate# #een above
8!erall, the e2pectat"ons ha!e aga"n set "n that Greece (o#ld need $ore $one&
than the proposed EUR 110 bn. GreeceDs f"scal balances ha!e entered a !"c"o#s
c&cle and a self'f#lf"ll"ng cr"s"s. -"rst, go!ern$ent f"scal consol"dat"on plans are not
dee$ed as cred"ble. econd, $ar/ets start charg"ng a h"gher &"eld to f"nance the
borro("ng progra$. Th"rd, the h"gher costs of borro("ng, $a/es the progra$ $ore
e2pens"!e lead"ng to a cr"s"s e!en earl"er than pro)ected.
What measures are being taken to realize the amount provided to Greece?
Greece "s h"ghl& "ndebted and lost abo#t 25 percent of "ts co$pet"t"!eness s"nce
E#ro adopt"on. 6t the end of 200:, the general p#bl"c def"c"t reached 13.6 percent
of G+1 and p#bl"c debt had "ncreased to 115 percent of G+1. E!en ("th the lo(er
def"c"ts en!"saged #nder the progra$, the debt as share of G+1 ("ll cont"n#e to
pea/ at al$ost 150 percent of G+1 "n 2013 before decl"n"ng thereafter.
In past &ears, GreeceDs p#bl"c sector spend"ng gre(, (h"le re!en#e fell. Then the
global recess"on h"t and econo$"c act"!"t& slo(ed and #ne$plo&$ent rose. Th"s
e2acerbated the f"scal s"t#at"on.
-"nanc"ng costs for Greece rose rap"dl&, add"ng to the alread& h"gh debt b#rden. To
stop these sno(ball"ng d&na$"cs, the Gree/ go!ern$ent real"<ed that a strong
econo$"c progra$ (as the onl& !"able opt"on. These factors $eas#re the a$o#nt to
be pro!"ded to Greece.
What are the conditions set by E?
!"e bailout i# ba#ed on certain condition# under $"ic" Greece $ill "ave to improve it# public
finance# and competivene## !"e government6# program al#o include# pro(gro$t" policie# to
reform #uc" crucial #ector# a# ta7 admini#tration, t"e labor market, t"e "ealt" #ector, and t"e
management of public finance#
What theories of Trade are being incorporated?
What are the advantages!disadvantages of the Bailout?
4dvantage# of bailout program#
!"i# met"od not only reduce# your credit card bill# but reduce# t"em legitimately !"ere are no
illegitimate factor# attac"ed $it" t"e debt #ettlement procedure
=ou can forget about t"e #um t"at "a# been reduced !"e credit card company can never claim
t"e era#ed #um of money from you
Government debt elimination doe# not re#ult in minor di#count# !"e#e are ma>or reduction#
Mo#t loan taker# reduce t"eir due# by "alf or even more
=ou can find t"e be#t #ettlement organi'ation# to repre#ent you !"e#e firm# do t"e nece##ary
paper$ork and communicate $it" t"e credit card organi'ation
+"sad!antages of ba"lo#t progra$s
*ome di#advantage# of government debt bailout plan# are apparent $"ile mo#t of t"em are
"idden For in#tance, illegitimacy i# a common i##ue &e often #ee debtor# complaining about
it It i# not a $i#e move to tru#t any company =ou cannot believe blindly on $"at you are being
told <ence finding a legal organi'ation i# a toug" a#k
4not"er di#advantage i# t"e lack of commitment Mo#t relief firm# do not fulfill t"e promi#e#
$"ic" are made $"en a deal i# about to be #igned !"eir attitude c"ange# $"en t"e cu#tomer
#tart# paying t"em !"i# doe# not mean t"at legal firm# do not e7i#t *ome companie# "ave
been performing $ell for a long period of time !"e#e companie# are li#ted $it" !4*? )!"e
4##ociation of *ettlement ?ompanie#.
E7aggeration i# yet anot"er problem ?ompanie# providing "elp t"roug" government debt
elimination are not trut"ful !"ey trap t"e client# by providing e7aggerated information =ou can
avoid t"i# problem by confirming all t"e information In t"i# $ay, you $ill kno$ about t"e actual
#tatu# of t"e firm
Getting out of debt t"roug" a debt #ettlement proce## i# currently very popular but you need to
kno$ $"ere to locate t"e be#t performing program# in order to get t"e be#t deal# !o compare
debt #ettlement companie# it $ould be $i#e to vi#it a free debt relief net$ork $"ic" $ill locate
t"e be#t performing companie# in your area for free
Assess whether the relationship between member countries would hampered if the
bailout was cancelled.
.e see ban/s "n other reg"ons connected to Greece debt >and other tro#bled
econo$"es as (ell?. 4an/s "n -rance and Ger$an& hold a large percentage of Gree/
debt. Table loo/s at the "nternat"onal ban/ hold"ngs of Gree/ debt.
Intra(euro #y#tem debt ari#ing from cro##(
border tran#action# )+ec(10, in EUR bn.

Ger$an& 325.5 Ireland 136.1
A#2e$bo#
rg
68 Greece 8*.1
@et"erland# 30.5 1ort#gal 5:.:
-"nland 1:.* pa"n 50.:
Ital& 3.* -rance 28.3
8thers 82.3
Total 35*.1 Total 35*.1
Th"s "nter'connected s&ste$ of go!ern$ent def"c"ts ("th "nternat"onal ban/s and
nat"onal central ban/s "n E%U ha!e $ade the "ss#e e!en $ore co$ple2. The
proble$ "s not l"$"ted to E#ro <one ban/s alone and e2tends to U; and U ban/s as
(ell. These co$ple2 sets of transact"ons ha!e $ade ba"lo#t of these three
econo$"es "ne!"table.
"o you agree with the bailout? "o you think Greece will be able to repay the #oan?
."th a b#dget def"c"t of 13.6 percent, a debt'to'G+1 rat"o of 120 percent, o!er 10
percent #ne$plo&$ent, and one of E#ropeDs (ea/est and $ost corr#pt econo$"es,
the Gree/ econo$& "s certa"nl& "n cr"s"s. 6 ba"lo#t, ho(e!er, "s not the ans(er to th"s
Gree/ traged&. ,ere are f"!e reasons (h&.
Reason E1C 6 4a"lo#t ."ll =ot .or/
In order for a ba"lo#t to be s#ccessf#l, 6thens needs to al"gn the nat"onal (age
str#ct#re ("th "ts prod#ct"!"t&. That $eans "$ple$ent"ng str#ct#ral refor$s,
"ncl#d"ng root'and'branch refor$ of "ts labor $ar/et, ta2 s&ste$, h"gher ed#cat"on,
and pens"ons s&ste$. The& ("ll ha!e to be as far reach"ng as the refor$s
"$ple$ented b& the 1:80s Thatcher Go!ern$ent "n the U.;. and the Aange
Go!ern$ent "n =e( Fealand "n 1:83.
,o(e!er, "n an econo$& do$"nated b& the trade #n"ons, "t re$a"ns #ncerta"n
(hether 1r"$e %"n"ster Georg"os 1apandreo#Ds go!ern$ent can effect"!el&
"$ple$ent s#ch refor$s, (h"ch a"$ to c#t the b#dget def"c"t b& o!er 10 percentage
po"nts b& 2012. 1re!"o#s Gree/ go!ern$ents ha!e pledged refor$ b#t cons"stentl&
fa"led to garner the p#bl"c or pol"t"cal s#pport necessar& to see the$ thro#gh.
Reason E2C 6 4a"lo#t Is Illegal Under EU Treat& Aa(
6rt"cle 125.1 of the Treat& on the -#nct"on"ng of the E#ropean Un"on e2pressl&
forb"ds one $e$ber state ba"l"ng o#t another. It statesC
The Un"on shall not be l"able for or ass#$e the co$$"t$ents of central
go!ern$ents, reg"onal, local or other p#bl"c a#thor"t"es, other bod"es go!erned b&
p#bl"c la(, or p#bl"c #nderta/"ngs of an& %e$ber tate, ("tho#t pre)#d"ce to $#t#al
f"nanc"al g#arantees for the )o"nt e2ec#t"on of a spec"f"c pro)ect. 6 %e$ber tate
shall not be l"able for or ass#$e the co$$"t$ents of central go!ern$ents, reg"onal,
local or other p#bl"c a#thor"t"es, other bod"es go!erned b& p#bl"c la(, or p#bl"c
#nderta/"ngs of another %e$ber tate, ("tho#t pre)#d"ce to $#t#al f"nanc"al
g#arantees for the )o"nt e2ec#t"on of a spec"f"c pro)ect.
Aord Aa$ont, ecretar& of the Treas#r& (hen 4r"ta"n "ll'fatedl& )o"ned the E#ropean
E2change Rate %echan"s$ "n 1::0, po"nted o#t that the %aastr"cht Treat&
spec"f"call& r#led o#t s#ch ba"lo#ts so that respons"ble $e$bers of the E#ro<one
(o#ld not ha!e to s#bs"d"<e "rrespons"ble ones. -o#r Ger$an professors, "ncl#d"ng
."lhel$ =oell"ng, the for$er go!ernor of the 4#ndesban/, are prepar"ng to
challenge the resc#e pac/age "n Ger$an&Ds const"t#t"onal co#rt once "t has passed
thro#gh 1arl"a$ent.

Reason E3C 6 4a"lo#t Is Unpop#lar
It "s not d"ff"c#lt to see (h& Ger$ans and other E#ro<one p#bl"cs are opposed to
ba"l"ng o#t the profl"gate Gree/ go!ern$ent. ,a!"ng "ntrod#ced a const"t#t"onal
re@#"re$ent to balance "ts b#dget, the Ger$an go!ern$ent "s no( as/"ng the
p#bl"c to forego ta2 c#ts "n fa!or of "ts less respons"ble %ed"terranean ne"ghbor. 6
poll b& 4r"t"sh th"n/ tan/ 8pen E#rope "n B#ne 200: fo#nd that *0 percent of
Ger$an !oters (ere opposed to ba"l"ng o#t other E#ro<one co#ntr"es "n f"nanc"al
tro#ble.
Greece "s alread& one of the E#ropean Un"onDs largest rec"p"ents of s#bs"d"es "n the
for$ of str#ct#ral f#nds. In the e&es of $an& Ger$an ta2pa&ers, (ho also
#nder(r"te the largest net contr"b#t"on to the E#ropean Un"on, "t "s #nde$ocrat"c to
transfer !ast s(athes of the"r $one& to a go!ern$ent the& cannot !ote o#t of
off"ce.
Reason E3C 6 4a"lo#t ."ll =ot top the 7ontag"on
The Gree/ cr"s"s str"/es at the !er& heart of the el"te'dr"!en postG.orld .ar II !"s"on
of a cont"nental s#per state. Greece "s "n a f"nanc"al death sp"ral bro#ght on b&
&ears of "rrespons"ble def"c"t spend"ngHspend"ng the EU d"d noth"ng to halt.
Iet no( that cr"s"s has str#c/, accord"ng to Ger$an 7hancellor %er/el, Jnoth"ng less
than the f#t#re of E#rope, and ("th that the f#t#re of Ger$an& "n E#rope, "s at
sta/e.K Under the c"rc#$stances, "f "t (ere a tr#l& #n"@#e, "solated case one co#ld
#nderstand the efforts %er/el and other E#ropean leaders are $a/"ng to sa!e
Greece. Unfort#natel&, Greece "s not #n"@#e b#t onl& the f"rst to go "nto $eltdo(n.
%an& other nat"ons "n the EU are "n fr"ghten"ngl& s"$"lar c"rc#$stances ("th the"r
sclerot"c labor $ar/ets and bloated p#bl"c f"nances. The %ed"terranean contag"on "s
alread& #nder(a&, ("th 1ort#gal, Ital&, and pa"n "n "ts s"ghts. 7red"t $ar/ets l#lled
to sleep for &ears b& sooth"ng off"c"al state$ents are no( ("de a(a/e and are
ha!"ng none of "t, beco$"ng "ncreas"ngl& "ntolerant of an& co#ntr& ("th s#spect
f"nances. .orse, sens"ng ser"o#s e2posed (ea/nesses, spec#lat"!e (ol!es are
gather"ng for the /"ll, dr"!"ng do(n the E#ro and dr"!"ng #p borro("ng costs of the
(ea/. 1#tt"ng o#t the f"res "n Greece cannot stop the contag"on (hen there "s f#el to
b#rn else(here.
Reason E5C U.. Ta2pa&ers ho#ld =ot 1rop Up 1rofl"gate E#ropean pend"ng
.hate!er dec"s"ons are $ade "n 4erl"n, 1ar"s, and 4r#ssels, the& sho#ld not be
#nder(r"tten b& .ash"ngton. Iet that apparentl& "s (hat the 8ba$a 6d$"n"strat"on
"ntends.
6s noted abo!e, the I%- has co$$"tted f#nds as part of the Gree/ ba"lo#t. .h"le
terr"bl& e$barrass"ng to E#rope, th"s pl#s #p "s an "ns#lt to the 6$er"can ta2pa&er.
The I%-, of co#rse, "s tapp"ng f#nds pro!"ded b& "ts o(n $e$ber go!ern$ents to
part"c"pate "n the ba"lo#t. 6s "t happens, the 8ba$a 6d$"n"strat"on con!"nced
7ongress to g"!e the I%- an e2tra L100 b"ll"on "n pla& $one& last &ear.
It (as bad eno#gh (hen the federal go!ern$ent ba"led o#t 6IG, and then -ann"e
%ae and -redd"e %ac, and then $an& of the $ega ban/s, and then G% and
7hr&sler. 6t least these f"r$s had the $odest $er"t of be"ng U.. co$pan"es
e$plo&"ng U.. (or/ers. E!en "f U.. go!ern$ent f"nances (ere "n pr"st"ne shape,
U.. ta2pa&er dollars sho#ld not be #sed to ba"l o#t a perenn"all& d&sf#nct"onal
state. 4#t as spend"ng'dr"!en tr"ll"on dollar b#dget def"c"ts and a pres"dent"al debt
co$$"ss"on star/l& e!"dence, the U.. "s ser"o#sl& r"s/"ng "ts o(n Gree/'st&le
so!ere"gn debt cr"s"s. -ort#natel&, the U.. does not need an I%- ba"lo#tM "t needs
onl& a 1res"dent ("ll"ng to ac/no(ledge that he has led the co#ntr& on a Grec"an
spend"ng b"nge "t cannot afford.
Greece ("ns eas"er repa&$ent ter$s on EU ba"lo#t loans. Greece ("ll no( pa& 10
less "n "nterest and ha!e se!en and a half &ears to repa& "ts debt. If the& $a"nta"n
all the pol"c"es I th"n/ the& can repa& the loan.
What are the initiatives taken by Greece that you agree with?
In"t"at"!es ta/en b& Greece that I a$ agree ("th are descr"bed belo(
6dd"t"onal spec"f"ed ta2 $eas#res a$o#nt to abo#t 3 percent of G+1. The
go!ern$ent "s propos"ng $eas#res to o!erha#l the ta2 s&ste$, "ncl#d"ng a
progress"!e ta2 scale for all so#rces of "nco$e, ta2"ng l#2#r& goods, h"gher ta2es for
the (ealth& and h"gher ta2es on tobacco and alcohol.
The go!ern$entDs act"ons ("ll b#"ld on the"r c#rrent efforts to strengthen re!en#e
ad$"n"strat"on and red#ce ta2 e!as"on G (h"ch "s a s"gn"f"cant dra"n on the
go!ern$entDs f"nances and a so#rce of #nfa"rness "n Gree/ soc"et&.
.h"le the e$phas"s "n the Go!ern$entDs progra$ "s on red#c"ng e2pend"t#res to
s#pport co$pet"t"!eness and gro(th, re!en#e' ra"s"ng $eas#res are )#st as
essent"al to p#t the f"scal f"nances on a so#nd foot"ng. The go!ern$ent has
proposed a range of ta2 $eas#res ("th the a"$ of spread"ng the b#rden of
ad)#st$ent $ore fa"rl&.
The base of the N6T ("ll be broadened and rates "ncreased. Th"s ("ll be
co$ple$ented b& other ta2 $eas#res, for e2a$ple "n those areas (here e2c"se
ta2es are belo( the e#ro area a!erage.
The go!ern$ent plans to address th"s ("th the help of a strong ant"'e!as"on effort
and a s"gn"f"cant strengthen"ng of ta2 ad$"n"strat"on. In add"t"on, re!en#e'ra"s"ng
$eas#res fro$ the h"gher "nco$e gro#ps ("ll "ncl#deC an "ncrease "n ta2at"on on
l"beral profess"ons, an "ncrease "n the ta2at"on of l#2#r& goods, and a te$porar&
s#rcharge on h"ghl& prof"table ent"t"es and h"gh !al#ed propert"es. The
go!ern$entDs o!erarch"ng a"$ "s to "n)ect $ore fa"rness "nto the ta2 s&ste$.
pec"f"ed e2pend"t#re c#ts ("ll &"eld sa!"ngs of 5.2 percent of G+1. The go!ern$ent
"s $a"nl& propos"ng $eas#res that ("ll br"ng Greece "n l"ne ("th other, $ore
co$pet"t"!e, econo$"es. The e2tra t(o $onths salar"esHthe so'called J13th and
13thK pa&$entsHare #ns#sta"nable and do not e2"st "n $an& other co#ntr"es. =or "s
the lo( ret"re$ent age that beg"ns aro#nd 50 for so$e gro#ps "n l"ne ("th l"fe
e2pectanc&.
The go!ern$entDs progra$ recogn"<es, and ta/es "nto cons"derat"on, that the
d"ff"c#lt f"scal ad)#st$ent ("ll "n"t"all& ha!e a negat"!e effect on gro(th.
4#t ("th effect"!e "$ple$entat"on of the f"scal and str#ct#ral pol"c"es and the
s#pport of the Gree/ people, the econo$& ("ll be far better placed to generate
h"gher gro(th and e$plo&$ent than "n the past.
"o you think changes should be made with the policies being applied now?
The Gree/ econo$& "s "n a !"c"o#s c&cleC the ta2 "ncreases to close the b#dget
def"c"t are (orsen"ng a sharp econo$"c contract"on. That contract"on, "n t#rn, "s
lead"ng b#dget re!en#es to co$e "n belo( targets, (h"ch pro$pts o#ts"ders to call
on the go!ern$ent to "ntrod#ce add"t"onal f"scal $eas#res. Those $eas#res f#rther
depress econo$"c o#tp#t and the c&cle goes on. In off"c"al forecasts, the Gree/
go!ern$ent ass#$es that econo$"c gro(th ("ll so$eho( e$erge b& 2012 or G that
ass#$pt"on loo/s $ore and $ore "$pla#s"ble. The proble$ "s that Greece does not
ha!e "nf"n"te t"$e ' E#rope has been !er& pat"ent b#t "ts pat"ence "s be"ng
e2ha#sted. -aced ("th s#ch real"t&, the Gree/ go!ern$ent can e"ther tr& $ore of
the sa$e or "t can tr& to do#ble do(n. .hat "t reall& needs "s a b"gger plan.
Gree/ econo$"c pol"c& has t(o a"$sC f"scal consol"dat"on and str#ct#ral refor$s.
The for$er red#ces o#tp#t "n the short ter$, (h"le the latter ("ll "ncrease o#tp#t "n
the long ter$. The @#est"on "s, ho( long bet(een the Jshort ter$K and the Jlong
ter$K and (hat ("ll tr"gger the "nflect"on po"ntO R"ght no(, there "s !er& l"ttle go"ng
(ell for the Gree/ econo$&C cons#$pt"on "s do(n d#e to h"gher ta2es, lo(er (ages
and h"gher #ne$plo&$entM "n!est$ent "s do(n, as "t has been o!er se!eral &earsM
and state spend"ng "s do(n d#e to the need to lo(er the b#dget def"c"t. 8nl& trade
"s $a/"ng a pos"t"!e contr"b#t"on to G+1, ch"efl& beca#se Greece "s "$port"ng less,
(h"ch "s hardl& case for celebrat"on.
4ased on the go!ern$entDs $ed"#$'ter$ strateg&, the b#dget def"c"t sho#ld shr"n/
fro$ 10.30 of G+1 "n 2010 to 1.10 "n 2015. 4#t the consol"dat"on (o#ld $ostl&
co$e fro$ a red#ct"on "n spend"ng G "n fact, re!en#es (o#ld re$a"n flat as a share
of G+1. o the Gree/ cons#$er cannot reall& e2pect a ta2 brea/ an& t"$e soon. 6nd
s"nce red#ced pr"!ate spend"ng "s dr"!en b& h"gher ta2es, lo(er (ages and lo(er
e$plo&$ent, there "s l"ttle reason to th"n/ that pr"!ate cons#$pt"on ("ll r"se. Th"s "s
a !"c"o#s c&cle ("th no e2"t and no ob!"o#s "nflect"on po"nt.
The f"scal calc#l#s ass#$es a stead& b#t orderl& red#ct"on "n spend"ng. 4#t that
red#ct"on "s too slo( and perpet#ates the !"c"o#s c&cle "n pr"!ate cons#$pt"on. The
Gree/ go!ern$ent has th#s t(o opt"ons. -"rst, "t can place "ts hope on "n!est$ent.
In theor&, str#ct#ral refor$s ("ll &"eld add"t"onal "n!est$ent. 4#t ho( soon ("ll th"s
co$eO Re$e$ber that "n!est$ent pea/ed "n 200* as a share of G+1 so the co#ntr&
faces so$e deep'seated proble$s that ("ll not be ("ped o#t o!ern"ght. 6nd at )#st
150 of G+1, "t $a& too s$all to be a short'ter$ econo$"c dr"!er.
Its second opt"on "s to accelerate f"scal consol"dat"on. The $ed"#$ ter$ strateg&
forecasted spend"ng to go fro$ 500 of G+1 "n 2011 to 33.80 "n 2015, (h"le
re!en#es (ere e2pected to gro( $arg"nall& fro$ 32.60 of G+1 to 33.20 of G+1 "n
2015. .hat "s clear "s that th"s Je@#"l"br"#$K "s "ncreas"ngl& "$pla#s"ble G "t
stab"l"<es re!en#es at too h"gh a share of G+1 and offers no clear path to a
cons#$pt"on's#pported econo$"c reco!er&. To resol!e th"s proble$, the
go!ern$ent needs to slash spend"ng faster pa"red ("th a f"scal st"$#l#s "n the for$
of a ta2 brea/. .hat th"s $eans "s a sharp red#ct"on "n Jless essent"alK go!ern$ent
ser!"ces that (o#ld allo( for the go!ern$ent to $eet "ts b#dget target ("tho#t
ha!"ng to s@#ee<e cons#$ers so f#ll&. That see$s the best (a& o#t at the $o$ent.