The Greek Debt Crisis

A brief Summary
By: Amal Mohy & Shaimaa
Suleiman
What Went Wrong in Greece?
Spending
Spending
Budget
Defcit
Budget
Defcit
Corruptio
n
Corruptio
n
Massive
Debt
Massive
Debt
Tax
Evasion
Tax
Evasion
Low
Income
Low
Income
Borrowin
g
Borrowin
g
A Sen!ing Sree

Greece lived beyond its means.

After joining the eurozone,

public spending soared.

Public sector wages increased

to 50 between !"""#$00%.

Greece also went on a big debt

including paying for high#
pro&le projects such as the
$00' Athens (lympics, which
went well over its budget.

After years of overspending

coupled with mass ta) evasion
and a low income, Greece*s
public de&cit spiralled out of
control.
"oans & "ies

+o tac,le this large budget

de&cit, the government had
to borrow more.

-eportedly, the Gree,

government withheld
information about debt levels
while forging reports and
statistics about the country*s
economic performance.

.owever, when the global

&nancial downturn hit the
world, Greece*s hidden
borrowings came to light/
the country was ill#prepared
to cope0
Massi#e Debt
$Greece%s Total !ebt reache!
&'()bn in *(+(,- .BBC

1ebt levels reached

the point where the
country was no
longer able to repay
its loans, and was
forced to as, for
help from its
2uropean partners
and the 345 in the
form of massive
loans.
/el 0s Aroun! The Corner
T1o Bailout 2ackages
An! A Write.o3
4#erything /as A
2rice !

3n 4ay $0!0, the 26 and 345,

over fears of a Gree, debt
default and a spiral of the crisis,
provided !!0bn 2uros of bailout
loans to Greece to help the
government pay its creditors.

3n 5ebruary $0!$, a second,

!70bn#euro bailout was agreed
upon.

+he vast majority of Greece8s

private#sector creditors agreed
to write o9 about three#:uarters
of the debts owed to them by
Athens. +hey also agreed to
replace e)isting loans with new
loans at a lower rate of interest.

3n return for all this

help, the 26 and 345
insisted that Greece
embar, on a major
austerity drive
involving;

1rastic spending cuts.

+a) rises.

<abor mar,et and

pension reforms.
2olitical 0nstability

Greece*s &nancial troubles and

the resulting austerity
measures generated waves of
riots and protests.

George Papandreou :uit in

$0!! and was succeeded by
<ucas Papademos.

3n 4ay $0!$ elections, a

majority of voters bac,ed
parties opposed to austerity,
but no group won an overall
majority resulting in political
deadloc,.

5resh elections where called in

=une $0!$. Antonis >amaras
and the ?ew 1emocracy won
that elections.
/anging 0n The Balance

Antonis >amaras insisted

Greece did not need a
further bailout but wanted
a two#year @breathing
space@ to meet the tough
budget targets attached to
the bailout from the 26
and 345.

4eanwhile, the parliament

has passed a tough budget
for $0!7 involving ".'bn
euros of spending cuts.

Accordingly, Greece has

been granted the e)tra
time, but major problems
remain and the &nancial
mar,ets are still nervous.

3f Greece8s economy
continues to contract
sharply, the country may
not be able to cut its
overspending as much as
planned, and may
ultimately be unable to
repay its debts, meaning it
will need further help. 3f
the rest of 2urope is no
longer willing to provide it,
then Greece may be forced
to leave the euro.
What Coul! Go
Wrong?
The Domino 43ect
3f Greece falls, it won*t be
alone this time. >pain, 3taly,
and Portugal will follow suit.

A default would be
embarrassing for
2uropean leaders, who
have pledged to avoid
such a thing, and would
put the 2AB, which has
accepted a lot of Gree,
bonds as collateral for its
lending, in a tight spot.
+he 345 on +uesday also
e)pressed concernC its top
o9icial in Athens, Bob
+raa, said 2uropean
authorities had to be
cautious about any ,ind of
debt restructuring.

@+here is no such thing as

being a little bit
pregnant,@ said 4r. +raa.
@(nce you unleash a
restructuring scenario,
this is not very helpful.D

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1epending on how the e)change

was structured, it would li,ely
cause at least some write#downs
for 2uropean ban,s. German
ban,s were holding about E$$.%
billion of Gree, government debt
as of 1ec. 7!, the most recent
data available, according to data
from the Ban, for 3nternational
>ettlements, while their 5rench
counterparts were sitting on
nearly E!5 billion. F+he &gures
are adjusted to account for
certain hedges the ban,s have.G

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Source: $4uroe Wrestles With Solutions for Greek Debt
Crisis-5 The Wall Street 6ournal,