The Greek government debt crisis (also known as Greek Depression ) is the sovereign debt crisis faced by Greece after the 2007-08 financial crisis. Known widely in the country as The Crisis (Greece: ?????), it reaches the people as a series of sudden reforms and austerity measures that lead to impoverishment and loss of income and property, as well as humanitarian crises small scale.
The Greek crisis began in late 2009, sparked by the Great Recession turmoil, structural weaknesses in the Greek economy, and statements that earlier data on the level of government debt and deficits have been reported by the Greek government.
This led to a crisis of confidence, marked by widening spread of bond yields and rising risk insurance costs on credit default swaps compared to other euro zone countries, especially Germany. The government imposed 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which sometimes triggered local unrest and national protests. Despite these efforts, the state required bailout loans in 2010, 2012, and 2015 from the International Monetary Fund, Eurogroup, and the European Central Bank, and negotiated 50% "haircuts" on debt to private banks in 2011, of EUR100bn debt relief. After a popular referendum that rejected further austerity measures was required for a third bailout, and after bank closures across the country (which lasted for several weeks), on 30 June 2015, Greece became the first developed country to fail making IMF repayment loans. At that time, the level of debt has reached EUR323bn or about EUR30,000 per capita.
Video Greek government-debt crisis
Overview
The introduction of the euro in 2001 reduced trade costs among euro zone countries, boosting overall trading volume. Labor costs are rising more (from a lower base) in peripheral countries like Greece relative to core countries such as Germany, eroding Greece's competitiveness. As a result, the current Greek current account deficit has increased significantly.
The trade deficit means that a country consumes more than it produces, which requires borrowing/direct investment from other countries. The Greek trade deficit and budget deficit increased from below 5% of GDP in 1999 to a peak of about 15% of GDP in the 2008-2009 period. One of the drivers of investment inflows is Greece's membership in the European Union and the Euro Zone. Greece is regarded as a higher credit risk than as a member of the Euro Zone, which implies that investors feel the EU will bring discipline to its finances and support Greece in the event of a problem.
When the Great Recession spread to Europe, the amount of funds lent from the core European countries (eg Germany) to the peripheral countries like Greece began to decline. Reports in 2009 of fiscal mismanagement and Greek fraud increase borrowing costs; the combination means that Greece can no longer borrow to finance its trade deficit and budget at an affordable cost.
A country facing a "sudden stop" in private investment and high debt (local currency) burden usually allows its currency to depreciate to encourage investment and to repay debt in cheaper currency. This is unlikely while Greece remains in the Euro. Conversely, to become more competitive, the wages of Greece fell by almost 20% from mid 2010 to 2014, a form of deflation. This significantly reduced revenues and GDP, resulting in a severe recession, a significant decrease in tax revenues and a significant increase in the debt-to-GDP ratio. Unemployment reached almost 25%, from below 10% in 2003. Significant government spending cuts helped the Greek government return to its main budget surplus by 2014 (raise more revenue than paid, excluding interest).
Maps Greek government-debt crisis
Cause
In January 2010, the Greek Ministry of Finance published the 2010 Stability and Growth Program . The report contains five major causes, poor GDP growth, government debt and deficits, budget compliance and data credibility. Causes discovered by others include excessive government spending, current account deficits and tax evasion.
GDP growth
After 2008, GDP growth was lower than expected by the national statistical body of Greece. Greece's Ministry of Finance reported the need to improve competitiveness by reducing salaries and bureaucracy and to divert government spending from non-growth sectors such as the military into sectors that stimulate growth.
The global financial crisis has a huge negative impact on GDP growth rates in Greece. The two largest producers, tourism and shipping in the country are heavily affected by the decline, with revenues falling 15% in 2009.
Government deficit
Fiscal imbalance developed from 2004 to 2009: "output increased nominally by 40%, while central government expenditure increased by 87% compared to a 31% increase in tax revenues." The ministry intends to implement real spending cuts that will allow spending to grow by 3.8% from 2009 to 2013, well below the expected 6.9% inflation. The overall revenue is expected to grow 31.5% from 2009 to 2013, guaranteed by higher new taxes and with major reforms of the ineffective tax collection system. Deficit required to decline to a compatible level with the debt to GDP ratio decreased.
Government debt
Debts increased in 2009 due to higher-than-expected government deficits and higher service debt costs. The Greek government considers that structural economic reforms will not be enough, as debt will still rise to unsustainable levels before positive outcomes of reform can be achieved. In addition to structural reforms, permanent and temporary savings measures (with a relative size to GDP of 4.0% in 2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013) are required. Reforms and austerity measures, in combination with the expected return of positive economic growth in 2011, will reduce the baseline deficit from EUR30.6 billion in 2009 to EUR5.7 billion in 2013, while the debt/GDP ratio will stabilize at 120% in 2010-2011 and decrease in 2012 and 2013.
After 1993, the debt to GDP ratio remained above 94%. The crisis caused debt levels to exceed the maximum sustainable rate (defined by IMF economists to 120%). According to the "Economic Adjustment Program for Greece" published by the EU Commission in October 2011, debt levels are expected to reach 198% in 2012, if the proposed debt restructuring agreement is not implemented.
Budget compliance
Adherence to recognized budgets needs to be improved. For 2009 it was found "far worse than usual, as economic control became weaker in a year with political elections". The government wants to strengthen its monitoring system in 2010, making it possible to track revenues and expenditures, both at the national and local levels.
Data credibility
Problems with unreliable data have existed since Greece applied for Euro membership in 1999. In the five years from 2005 to 2009, Eurostat annually noted the objection about Greek fiscal data. The previously reported figures are consistently revised down. Data defects make it impossible to predict GDP growth, deficit and debt. At the end of each year, all under estimates. Data problems are evident in some other countries, but in the case of Greece, the magnitude of the 2009 revision raises suspicions about data quality.
In May 2010, the Greek government deficit was re-revised and was estimated at 13.6%, the second highest in the world relative to GDP behind Iceland at 15.7% and United Kingdom third at 12.6%. The government estimates public debt to reach 120% of GDP during 2010. The real ratio, after the debt crisis, the 2010 bailout, and the contraction of GDP, ended up close to 150%.
The revised statistics reveal that Greece from 2000 to 2010 has exceeded the Euro Zone stability criterion, with the annual deficit exceeding the recommended maximum limit of 3.0% of GDP, and with debt levels significantly above the 60% limit of GDP.
Government spending
The Greek economy is one of the euro zone's fastest growth from 2000 to 2007, averaging 4.2% per annum, as foreign capital flooded in. This capital flow coincides with a higher budget deficit.
Greece had a budget surplus from 1960-73, but after that experienced a budget deficit. From 1974-1980, the government had a budget deficit below 3% of GDP, while the deficit of 1981-2013 was above 3%.
An editorial published by Kathimerini claims that after the abolition of the right-wing military junta in 1974, the Greek government wanted to bring the left-leaning Greeks into the mainstream of the economy and thus suffered a massive deficit to finance military expenditures, employment the public sector, pensions and other social benefits.
As a percentage of GDP, Greece has the second largest defense spending in NATO, after the US.
Pre-Euro, devaluation of the currency helps to finance Greek government loans. After that the tool disappears. Greece was able to resume lending because of lower interest rates for euro bonds, in combination with strong GDP growth.
Current account balance
Economist Paul Krugman writes, "What we basically see... is a matter of balance of payments, where capital flooded south after the creation of the euro, which led to overvaluation in southern Europe" and "In fact, this has never been a fiscal crisis at its roots it is always a balance of payment crisis that manifests itself partly in budgetary issues, which is then pushed to center stage by ideology. "
Translation of the trade deficit for the budget deficit works through sectoral balances. Greece experienced an average current account deficit of 9.1% of GDP from 2000-2011. By definition, the trade deficit requires capital inflow (mainly borrowing) to fund; this is called a surplus of foreign capital or surplus. This can lead to higher levels of government budget deficits, if the private sector maintains relatively little savings and investments, as the three financial sectors (foreign, government and private) must by definition be balanced to zero.
Greece's large budget deficit is funded by running a large foreign financial surplus. When the flow of money stopped during the crisis, reducing foreign financial surplus, Greece was forced to reduce its budget deficit substantially. Countries facing a sudden reversal in capital flows typically devalue their currencies to continue capital flows; However, Greece could not do this, and instead experienced significant revenue reductions (GDP), another form of devaluation.
Tax evasion
The ability to pay its debts depends heavily on the amount of taxes the government can collect. In Greece, tax revenues are consistently below the expected level. In 2010, the estimated tax avoidance loss for the Greek government amounted to more than $ 20 billion . Estimates show that the government collects less than half of its revenue due in 2012.
Greece scored 36/100 according to Transparency International Corruption Perceptions Index, ranking it as the most corrupt country in the European Union. One bailout condition is to implement an anticorruption strategy. Government activities increased their score 43/100 by 2014, still the lowest in the EU, but close to Italy, Bulgaria and Romania.
Data for 2012 indicates that the Greek "black economy" or "underground economy", from which little or no taxes are collected, is 24.3% of GDP. Also in 2012, Swiss estimates show that Greeks have about 20 billion euros in Switzerland of which only one percent has been declared tax in Greece. By 2015, estimates indicate that the amount of taxes spared saved in Swiss banks is about 80 billion euros.
A mid-2017 report indicates the Greeks are being "taxed to the nipple" and many believe that the risk of punishment for tax evasion is less serious than the risk of bankruptcy. One method of ongoing evasion is the so-called "black market" or "gray economy" or "underground economy": work is done for cash payments not expressed as income; also, VAT is not collected and sent. The January 2017 report by think-tank DiaNEOsis shows that the unpaid taxes in Greece at the time reached about 95 billion euros, up from 76 billion euros by 2015, most of which is not expected to be collectible. Another preliminary 2017 study estimates that the government's losses as a result of tax evasion are between 6% and 9% of the country's GDP, or roughly between 11 billion and 16 billion euros per year.
Disadvantages in the VAT collection (sales tax) are also significant. By 2014, the government collects 28% less than it has on it; this shortfall is approximately twice the average for the EU. The year's uncollected amount was about 4.9 billion euros. The DiaNEOsis 2017 study estimates that 3.5% of GDP is lost due to VAT fraud, while losses due to smuggling of alcohol, tobacco and gasoline amount to about 0.5% of the country's GDP.
Method to reduce tax avoidance
Following similar actions by Britain and Germany, the Greek government is in talks with Switzerland in 2011, trying to force Swiss banks to disclose information in Greek bank accounts. The Ministry of Finance stated that the Greeks with Swiss bank accounts will be required to pay taxes or disclose information such as the identity of the bank account holder to the Greek internal revenue service. The governments of Greece and Switzerland hope to reach agreement on this issue by the end of 2011.
The solution demanded by Greece is still not done in 2015. That year, estimates show that the amount of taxes that were spared is kept in Swiss banks is about 80 billion euros. However, at that time, the tax treaty to resolve the issue was under serious negotiations between the Greek and Swiss governments. The agreement was eventually ratified by Switzerland on 1 March 2016 creating a new tax-transparency law that would allow a more effective battle against tax evasion. Starting in 2018, banks in Greece and Switzerland will exchange information about bank accounts of other citizens to minimize the possibility of hiding unpaid revenue.
In 2016 and 2017, governments encourage the use of credit cards or debit cards to pay for goods and services to reduce cash payments only. In January 2017, taxpayers were only granted tax allowances or withholdings when payments were made electronically, with "paper traces" of transactions that could easily be examined by the government. This is expected to reduce the business issues that receive payments but not issue invoices; The tactic has been used by companies to avoid paying VAT (sales) taxes and income taxes.
On July 28, 2017, many businesses are required by law to install a Point of Sale (POS) device so they can accept payments by credit or debit card. Failure to comply with electronic payment facilities may result in a fine of up to 1,500 euros. These requirements apply to about 400,000 companies or individuals in 85 professions. The use of a larger card is one factor that has achieved a significant increase in VAT collection by 2016.
Chronology
2010 revelation and IMF bailout
Despite the crisis, the Greek government bond auction in January 2010 from EUR8 billion 5-year bonds is 4x over-subscription. The next auction (March) sold EUR5bn in 10-year bonds reaches 3x. However, yields increase, which exacerbates the deficit. In April 2010, it is estimated that up to 70% of Greek government bonds are held by foreign investors, especially banks.
In April, after the publication of GDP data showing an intermittent recession period beginning in 2007, credit rating agencies then downgraded Greece's bond rating to junk status by the end of April 2010. It froze private equity markets, and put Greece in danger of defaulting the government without a bailout.
On May 2, the European Commission, the European Central Bank and the International Monetary Fund (Troika) launched a EUR110 billion bailout loan to save Greece from a government default and cover its financial needs through June 2013, depending on on the implementation of austerity measures, structural reforms and privatization of government assets. Bailout loans are primarily used to pay for maturing bonds, but also to finance a sustained annual budget deficit.
Fraudulent statistics
To remain in the monetary union guidelines, the Greek government for years only misaligned economic statistics was reported. In early 2010, Goldman Sachs and other banks helped the Greek government to hide its debts. Christoforos Sardelis, the former head of Greece's Public Debt Management Agency, said the country does not understand what it bought. He also said he knows that "other EU countries like Italy" have made similar deals.
The most important is the cross currency exchange, where billions of debt and Greek loans are converted into yen and dollars at a fictitious exchange rate, thus hiding the true level of Greek lending. Swaps are not listed as debt because Eurostat statistics do not include financial derivatives. A German derivative agent commented, "The Maastricht rule can be circumvented legally via swap," and "In previous years, Italy used similar tricks to cover its real debts with the help of different US banks." This condition allows Greece and other governments to spend beyond their capabilities, while ostensibly meeting the EU deficit targets.
European statistics agency Eurostat, periodically from 2004-2010, sent 10 delegates to Athens with a view to improving the reliability of Greek statistics. In January issued a report containing allegations of false data and political disruption. The Ministry of Finance accepts the need to restore confidence among investors and correct the methodological shortcomings, "by making the National Statistics Agency an independent legal entity and gradually entering, during the first quarter of 2010, all necessary checks and balances".
The new government of George Papandreou revised the 2009 deficit from an earlier estimate of 6% -8% to 15.7% of GDP, using the standard Eurostat method. The figures for the Greek government debt at the end of 2009 rose from its first November forecast of EUR269.3 billion (113% of GDP) to EUR299.7 billion (130% of GDP revised ). This is the highest for any EU country. After a deep Financial Audit of fiscal year 2006-09. Eurostat announced in November 2010 that the revision figures for 2006-2009 were finally considered reliable.
2011
A year later, the recession deteriorated along with the poor performance of the Greek government in achieving an agreed bailout condition, forcing a second bailout. In July 2011, private creditors agreed to cut their hair voluntarily by 21 percent over their Greek debt, but euro zone officials consider the write-downs insufficient. Especially Mr Schaeuble, Germany's finance minister, and Mrs. Merkel, the German chancellor, "encourage private creditors to receive 50 per cent loss on their Greek bonds", while Mr Trichet of the European Central Bank has long opposed haircuts to private investors, "fearing that can undermine the fragile European banking system ". When private investors agree to receive greater losses, Troika launches a second bailout worth EUR130 billion . This includes a bank recapitalization package worth EUR48bn. Private bondholders are required to receive extended maturities, lower interest rates and a 53.5% reduction in the nominal value of the bonds.
On October 17, 2011, Finance Minister Evangelos Venizelos announced that the government would set up a new fund, aimed at helping those most severely affected by government austerity measures. The money for this agent will come from tax evasion. The government approved a creditor proposal that Greece raise up to EUR50 billion through the sale or development of state-owned assets, but revenue is much lower than expected, while the policy is strongly opposed by Syriza. By 2014, only EUR530m is raised. Some of the major assets are sold to insiders.
2012
The second bailout program was ratified in February 2012. A total of EUR240 billion will be transferred in a regular tranche until December 2014. The recession is worsening and the government continues to flinch over the implementation of the bailout program. In December 2012, the Troika provided Greece with more debt relief, while the IMF extended the additional EUR8.2 billion loan to be transferred from January 2015 to March 2016.
2014
The fourth review of the bailout program revealed an unexpected financing gap. In 2014 the outlook for the Greek economy is improving. The government predicts a structural surplus by 2014, opening access to private lending markets as long as the financing gap for 2014 is covered through the sale of private bonds.
In contrast the fourth recession began in Q4-2014. Parliament called for parliamentary elections in December, leading to a Syrian-led government that rejected the terms of the existing bailout. Troika suspended all remaining aid scheduled to Greece, until the Greek government withdrew or convinced the Troika to accept the revised program. This rift caused a liquidity crisis (both for the Greek government and the Greek financial system), the decline in stock prices on the Athens Stock Exchange and the loss of access to new private financing.
2015
After the January 2004 Greek snap election, the Troika gave a further four months technical extension of the bailout program; expect that the terms of payment will be renegotiated before the end of April, allowing the last financial review and transfer to be completed before the end of June.
Facing a government default, the government made a new proposal in the first and second half of June. Both were rejected, boosting the prospects for capital recession controls to avoid a collapse of the banking sector - and out of the eurozone.
The government unilaterally broke off negotiations on 26 June. Tsipras announced that a referendum would be held on July 5 to approve or reject the June 25 proposal of the Troika. Greek stock market closed on 27 June.
The government campaigned against the proposal, while four opposition parties (Pasok, To Potami, KIDISO, and New Democracy) objected that the proposed referendum was unconstitutional. They petitioned for parliament or the president to reject the referendum proposal. Meanwhile, Eurogroup announced that the existing second bailout agreement would technically end on June 30, 5 days before the referendum.
Eurogroup clarified on June 27 that only if an agreement is reached before June 30 could the bailout be extended until a referendum on July 5. Eurogroup wants the government to take some responsibility for the next program, assuming that the referendum resulted in approval. The Eurogroup has signaled a willingness to uphold their "November 2012 debt assistance pledge", assuming a final agreement. The promise is that if Greece completes the program, but the debt to GDP ratio is then expected to be more than 124% by 2020 or 110% by 2022 for any reason, the Euro Zone will provide sufficient debt relief to ensure that these two the target will still be met.
On 28 June a referendum was approved by the Greek parliament without a temporary bailout agreement. The ECB decided to maintain Emergency Liquidity Assistance to the Greek banks. Many Greeks continue to withdraw cash from their accounts for fear that capital controls will soon be used.
On July 5, the overwhelming majority voted against bailout requirements (61% to 39% decisions with 62.5% voter turnout). This caused worldwide stock indexes to fall, fearing the potential for Greece's exit from the euro zone ("Grexit"). After the vote, Greek finance minister Yanis Varoufakis resigned on July 6 and was replaced by Euclid Tsakalotos.
On July 13, after 17 hours of negotiations, euro zone leaders reached a tentative agreement on a third bailout program, substantially similar to their June proposal. Many financial analysts, including the largest private debt holder of Greece, manager of private equity firm Paul Kazarian, found the problem with its findings, citing it as a deviation of net debt positions.
2017
On February 20, 2017, Greece's finance ministry reported that the government's debt burden is now EUR226.36 billion after increasing by EUR2.65 billion in the previous quarter. In mid-2017, Greek government bond yields begin to approach pre-2010 levels, signaling potential returns to normal economic conditions for the country. According to the International Monetary Fund (IMF), Greece's GDP will grow by 2.8% in 2017. According to Economic Trade estimates, the country's economy will continue to grow by 1.2% per year on average by 2020.
The Medium Term Fiscal Strategy Framework 2018-2021 voted on May 19, 2017 introducing amendments to the terms of the thirteenth 2016 thrift package.
In June 2017, news reports indicated that "devastating debt burden" has not been reduced and that Greece is at risk of default on some payments. The International Monetary Fund states that the country should be able to borrow again "in due course". At that time, the Euro zone gave Greece another credit of $ 9.5 billion, $ 8.5 billion in loans and short details about the possibility of debt relief with the help of the IMF. On July 13, the Greek government sent a letter of willingness to the IMF with 21 commitments it promised to fulfill in June 2018. They include changes in labor laws, plans to limit public sector employment contracts, to change temporary contracts into permanent agreements and to recalculate pension payments to reduce expenses for social security.
Bailout Program
First Economic Adjustment Program (May 2010 - June 2011)
On May 1, 2010, the Greek government announced a series of austerity measures. The next day Euro zone countries and the IMF approved a three-year loan of EUR110 billion, paying 5.5% interest, depending on the implementation of austerity measures. Credit rating agencies immediately lowered Greek government bonds to lower junk status.
The program was met with anger by the Greek public, which led to protests, riots and social unrest. On May 5, 2010, a national strike was held in opposition. Nevertheless, the austerity package was approved on June 29, 2011, with 155 of the 300 MPs voting.
Secondary economic adjustment program (July 2011 -) >
At the July 21, 2011 summit in Brussels, the leaders of the Euro region agreed to extend the repayment period of Greek (as well as Irish and Portuguese) loans from 7 years to a minimum of 15 years and to cut interest rates to 3.5%. They also approve an additional support package EUR109 billion , with the right content to complete later in the meeting. On October 27, 2011, eurozone leaders and the IMF completed an agreement with the banks in which they received a 50% partial removal of (part of) Greek debt.
Greece lowered its primary deficit from EUR25bn (11% of GDP) in 2009 to EUR5bn (2.4% of GDP) in 2011. However, the Greek recession worsened. Overall, Greece's GDP declined 7.1%. The unemployment rate increased from 7.5% in September 2008 to an unprecedented 19.9% ​​in November 2011.
Third Economic Adjustment Program
Differences in effects on GDP compared to programs for other countries that bailout Eurozone
There are major differences in the effects of Greek programs compared to these for other countries that are redeemed Eurozone. According to the program implemented, Greece should achieve by far the largest fiscal adjustment (with more than 9 points of GDP between 2010 and 2012), "a fiscal consolidation of records by OECD standards". Between 2009 and 2014 the changes (increase) in the structural primary balance were 16.1 points of GDP for Greece, compared with 8.5 for Portugal, 7.3 for Spain, 7.2 for Ireland, and 5.6 for Cyprus.
The negative effects of the rapid fiscal adjustment on Greek GDP, and thus the scale of increasing the debt to GDP ratio, have been underestimated by the IMF, apparently due to miscalculations. Indeed, the result is an enlargement of debt problems. Even if the amount of debt will remain the same, the ratio of the Greek Debt to GDP of 127% in 2009 will still jump to about 170% - considered unsustainable - solely because of a decline in GDP (which fell by more than 25% between 2009 and 2014). A much larger scale of the above effects does not allow a meaningful comparison with program performance in other redeemed states.
Recapitalize bank
The Hellenic Financial Stability Fund (HFSF) completed the bank recapitalization of EUR48.2bn in June 2013, in which the first EUR24.4bn was injected into the four largest Greek banks. Initially, this recapitalization was recorded as an increase in debt that increased the debt-to-GDP ratio by 24.8 points by the end of 2012. In return, the government received shares in the banks, which could then be sold (as of March 2012 expected to generate EUR16bn additional "privatization revenues "for the Greek government, which will be realized during 2013-2020).ecb
HFSF offers three of the four major Greek banks (NBG, Alpha and Piraeus) to guarantee to buy back all the HFSF bank shares in the semi-annual training period through December 2017, at certain strike prices set., These banks acquire additional private investor capital contribution of at least 10% of recapitalization made. Eurobank, failed to attract private investor participation and thus became almost entirely financed/owned by HFSF. During the first warrant period, shareholders at Alpha bank bought back the first 2.4% share of HFSF. Shareholders in Piraeus Bank bought back 0.07% of the first HFSF shares. The shareholders of the National Bank (NBG) bought back the first 0.01% of HFSF shares, as the market share price was cheaper than the strike price. Shares that are not sold by the end of December 2017 may be sold to alternative investors.
In May 2014, a second round of bank recapitalization worth EUR8.3bn was concluded, financed by private investors. The six commercial banks (Alpha, Eurobank, NBG, Piraeus, Attica and Panellinia) participated. HFSF does not take advantage of their current EUR11.5bn reserve capital fund. Eurobank in the second round was able to attract private investors. This requires the HFSF to dilute their holdings from 95.2% to 34.7%.
According to HFSF 2014 third quarter financial results, funds are expected to recover EUR27.3bn out of EUR48.2bn early. This amount includes "A EUR0.6bn positive cash balance derived from the previous sale of warrants (sale of recapitalization shares) and asset liquidation, EUR2.8bn expected to recover from liquidation of assets owned by 'bad bank assets', EUR10.9bn of EFSF bonds is still held as a reserve of capital, and EUR13bn from the sale of its future recapitalization shares in four systemic banks. "The latter figure is influenced by the highest amount of uncertainty, as it directly reflects the current market price of the remaining shares held in four systemic banks (66.4% in Alpha, 35.4% in Eurobank, 57.2% in NBG, 66.9% in Piraeus), which for HFSF has a combined market value of EUR22.6bn by the end of 2013 - decreases to EUR13bn on December 10, 2014.
After HFSF liquidates its assets, the total amount of restored capital will be returned to the Greek government to help reduce its debt. In early December 2014, the Bank of Greece allowed HFSF to pay EUR9.3bn first from its EUR11.3bn reserves to the Greek government. Several months later, the remaining HFSF reserves were also approved for repayment to the ECB, generating an exchange of EUR11.4bn in notes during the first quarter of 2015.
Creditor
Initially, European banks had the largest debt holdings of Greece. However, this shifted as a "troika" (ECB, IMF and European government sponsored funds) bought Greek bonds. As early as 2015, the largest individual contributors to the fund are Germany, France and Italy for a total of EUR130bn of EUR323bn debt. The IMF is owed EUR32bn and ECB EUR20bn. By 2015, various European countries still have a large number of loans extended to Greece.
European banks
Excluding Greek banks, European banks have exposure to EUR45.8bn to Greece in June 2011. However, by early 2015 their holdings have declined to around EUR2.4bn.
European Investment Bank
In November 2015, the European Investment Bank (EIB) lent Greece about 285 million euros. This extends the 2014 agreement that the EIB will lend 670 million euros. It is estimated that the Greek government will invest its money in the Greek energy industry to ensure energy security and manage environmentally friendly projects. Werner Hoyer, president of EIB, expects investment to increase employment and has a positive impact on the Greek economy and environment.
Greek public opinion
According to a poll in February 2012 by Public Issue and Channel SKAI, PASOK - which won national elections in 2009 with 43.92% of the vote - has seen its approval ratings drop to 8%, placing it fifth after center-right. Democracy (31%), Left Democratic Left (18%), Communist Party of Greece (KKE) left-far (12.5%) and radical leftist Syriza (12%). The same polls show that Papandreou is the most unpopular political leader with a 9% approval rating, while 71% of Greeks do not believe it.
In the May 2011 poll, 62% of respondents felt that the IMF memorandum signed by Greece in 2010 was a bad decision that injured the state, while 80% had no confidence in the Minister of Finance, Giorgos Papakonstantinou, to handle the crisis. (Venizelos replaces Papakonstantinou on June 17). 75% of those surveyed had a negative image of the IMF, while 65% felt it hurt the Greek economy. 64% feel that the possibility of default (sovereign default). When asked about their fear for the near future, the Greeks highlighted unemployment (97%), poverty (93%) and business closure (92%).
Polls show that most Greeks do not support leaving the eurozone. Nonetheless, other 2012 polls show that nearly half (48%) of Greeks support default, in contrast to minorities (38%) who do not.
Economic effects
The worst Greek GDP decline, -6.9%, came in 2011, a year in which seasonally adjusted industrial output ended 28.4% lower than in 2005. During the year, 111,000 Greek companies went bankrupt (27% higher than the year 2010). As a result, the seasonally adjusted unemployment rate increased from 7.5% in September 2008 to a record high 23.1% in May 2012, while youth unemployment rose from 22.0% to 54.9%.
The main statistics are summarized below, with a detailed table at the bottom of the article. According to CIA World Factbook and Eurostat:
- Greece's GDP fell from EUR242 billion in 2008 to EUR179 billion in 2014, a 26% decline. Greece is in recession for more than five years, emerging in 2014 by a few steps. This decline in GDP dramatically increases Debt to GDP ratio, exacerbating the Greek debt crisis.
- Per capita GDP fell from a peak of EUR22,500 in 2007 to EUR17,000 in 2014, a 24% decline.
- The ratio of public debt to GDP in 2014 is 177% of GDP or EUR317 billion. This ratio is the third highest in the world after Japan and Zimbabwe. Public debt peaked at EUR356 billion in 2011; it was reduced by a bailout program to EUR305 billion in 2012 and then rose slightly.
- The annual budget deficit (income expenditure) is 3.4% of GDP in 2014, considerably increased compared to 15% in 2009.
- The tax revenue for 2014 is EUR86 billion (about 48% of GDP), while spending is EUR89.5 billion (about 50% of GDP).
- The unemployment rate rises from below 10% (2005-2009) to around 25% (2014-2015).
- An estimated 44% of Greeks live below the poverty line by 2014.
Greece failed to pay US $ 1.7 billion in IMF payments on June 29, 2015. The government has requested a two-year bailout of a lender of about $ 30 billion, the third in six years, but did not receive it.
The IMF reported on July 2, 2015 that Greece's "debt dynamics" were "unsustainable" due to high debt levels and "... significant changes in policy since [2014] - at least, a lower primary surplus and weak reform efforts that would weigh on growth and privatization - leading to substantial new financing needs. "The report states that debt reduction (a haircut, in which the lender maintains a loss through debt reduction) will be needed if the reform package under consideration weakens further.
Taxation
In response to the crisis, the Greek government decided to raise tax rates dramatically. A study shows that indirect taxes are almost double between the beginning of the Crisis and 2017. This crisis induced taxation system has been described as "unfair", "complex", "unstable" and, as a result, "encourages tax evasion". The rate of taxation of Greece has been compared to the Scandinavian countries, but without the same reciprocity, as Greece lacks the infrastructure of the welfare state.
By 2016, five indirect taxes have been added to goods and services. At 23%, the value-added tax is one of the highest in the Euro Zone, exceeding other EU countries in small and medium-sized businesses. One researcher found that the poorest households faced a 337% increase in taxes.
The next tax policy is accused of having the opposite effect of what it means, that is reducing rather than increasing income, because high taxation hinders transactions and encourages tax evasion, thus perpetuating depression. Some companies moved abroad to avoid higher tax rates in the country.
Greece not only has some of the highest taxes in Europe, but also has big problems in terms of tax collection. The VAT deficit due to tax evasion is estimated at 34% by early 2017. The tax debt in Greece is now equivalent to 90% of annual tax revenues, which is the worst figure in all industrialized countries. Much of this is due to the fact that Greece has a vast underground economy, which is estimated to be about a quarter of the country's GDP before the crisis. The International Monetary Fund therefore believes in 2015 that Greece's debt crisis could be almost completely resolved if the country's government finds ways to solve the problem of tax evasion.
Tax evasion and avoidance
A mid-2017 report indicates the Greeks have been "taxed to the nipple" and many believe that the risk of punishment for tax evasion is less serious than the risk of bankruptcy. More recent studies show that many Greeks regard tax evasion as a legitimate means of defense against government policy on excessive savings and taxes. For example, many Greek couples in 2017 decide to divorce "virtual" in the hope of paying lower income and property taxes.
In 2010, tax revenues were consistently below the expected level. In 2010, the estimated tax avoidance loss for the Greek government amounted to more than $ 20 billion . Figures 2013 indicate that the government collects less than half of the revenue due in 2012, with the remaining tax payable in accordance with the pending payment schedule.
Data for 2012 put the Greek underground or "black" economy at 24.3% of GDP,
The January 2017 report by think-tank DiaNEOsis shows that the unpaid taxes in Greece at the time reached about 95 billion euros, up from 76 billion euros by 2015, most of which is not expected to be collectible. Another preliminary 2017 study estimates that the government's losses as a result of tax evasion are between 6% and 9% of the country's GDP, or roughly between 11 billion and 16 billion euros per year.
One method of circumvention is the so-called black market, the gray economy or the shadow economy: work is done for cash payments not expressed as income; also, VAT is not collected and sent. Disadvantages in the VAT collection (sales tax) are also significant. By 2014, the government collects 28% less than it has on it; this shortfall is approximately twice the average for the EU. The year's uncollected amount was about 4.9 billion euros. The DiaNEOsis study estimates that 3.5% of GDP is lost due to VAT fraud, while losses due to smuggling of alcohol, tobacco and gasoline account for about 0.5% of the country's GDP.
Social effects
The social effects of austerity measures on the Greek population are very severe. In February 2012, it was reported that 20,000 Greeks became homeless during the previous year, and that 20 percent of shops in historic downtown Athens were empty.
In 2015, the Organization for Economic Cooperation and Development (OECD) reported that nearly twenty percent of the Greeks lack the funds to meet their daily food expenditures. As a result, due to financial shocks, unemployment directly affects the management of debt, isolation, and unhealthy coping mechanisms such as depression, suicide, and addiction. As the economy contracts and the welfare state falls, Greek families traditionally are under increasing pressure, seeking to cope with rising unemployment and homeless relatives. Many Greeks are unemployed cycling between friends and family members until they run out of options and end up at a homeless shelter. This homeless has a wide working history and is largely free of mental health problems and substance abuse.
The Greek government can not afford the necessary resources for the homeless, partly because of austerity measures. A program was launched to provide subsidies to help homeless people return to their homes, but many applicants never received a grant. Various efforts were made by local governments and non-governmental organizations to address the problem. The non-profit newsletter Schedia (Greek: ?????? , "Raft"), sold by street vendors in Athens attracts many homeless to sell newspapers. Athena opened her own shelter, the first being called the Ionis Hotel . In 2015, the Venetis bakery chain in Athens distributes ten thousand loaves of bread a day, a third of its production. In some of the poorest neighborhoods, according to the chain's general manager, "In the third stage of austerity measures, which begin now, it is certain that in Greece there will be no consumers - there will only be beggars."
In a study by Eurostat, it was found that 1 in 3 Greeks lived in poverty by 2016.
Other effects
The racetrack has ceased to operate due to the organizers' liquidation.
Paid football players will receive their salary with the new tax rate.
Responses
Electronic payments to reduce tax evasion
In 2016 and 2017, governments encourage the use of credit cards or debit cards to pay for goods and services to reduce cash payments only. As of January 2017, taxpayers are only granted tax or withholding allowances when payments are made electronically, with a "paper trail" of the transaction. This is expected to reduce opportunities by vendors to avoid paying VAT (sales) taxes and income taxes.
As of July 28, 2017, many businesses are required by law to install devices for sale so they can accept payments by credit or debit card. Failure to comply with electronic payment facilities may result in a fine of up to 1,500 euros. These requirements apply to about 400,000 companies or individuals in 85 professions. The use of a larger card is one factor that has achieved a significant increase in VAT collection by 2016.
Grexit
Krugman suggested that the Greek economy could recover from recession by leaving the euro zone ("Grexit") and returning to its national currency, drachma. It will restore Greek control over its monetary policy, allowing it to navigate the exchange between inflation and national growth, rather than the entire Eurozone. Iceland made a dramatic recovery after filing for bankruptcy in 2008, partly by devaluing krona (ISK). In 2013, it enjoys an economic growth rate of around 3.3 percent. Canada was able to increase its budget position in the 1990s by devaluing its currency.
However, the consequences of "Grexit" can be global and heavy, including:
- Membership in the Eurozone is no longer considered irrevocable. Other countries may be tempted to quit or request additional debt relief. These countries may see interest rates rise on their bonds, complicating debt service.
- Geopolitical shifts, like the closer ties between Greece and Russia, as the crisis worsens relations with Europe.
- Significant financial loss to eurozone and IMF countries, which owes the majority of Greece's national debt of approximately EUR300 billion.
- Adverse impact on the IMF and the credibility of its austerity strategy.
- The loss of Greek access to global capital markets and the collapse of its banking system.
Bailout
Greece can receive additional bailouts and debt relief (ie, bondholders' deductions or principal deductions) in exchange for greater savings. However, austerity has damaged the economy, reduced wages, destroyed jobs and reduced tax revenues, making it more difficult to pay its debts. If further savings are accompanied by sufficient reductions in the balance of the debt, the costs may be justified.
European debt conference
Economist Thomas Piketty said in July 2015: "We need a conference on all European debt, like after World War II.A restructuring of all debts, not only in Greece but in some European countries, is inevitable." This reflects the difficulties faced by Spain, Portugal, Italy and Ireland (with Greece) before ECB chief Mario Draghi signaled the pivot to loosen monetary policy. Piketty notes that Germany received significant debt relief after World War II. He warned that: "If we start kicking out, then.... Financial markets will soon turn the next country."
The role of Germany in Greece
Germany has played a major role in discussions on the Greek debt crisis. Critics accuse the German government of being hypocritical; pursue its own national interests through a reluctance to adjust fiscal policy in a way that will help resolve the eurozone crisis (and cite the benefits enjoyed through the crisis including the reduction of lending rates, investment inflows, and export drives thanks to the Euro depreciation); use the ECB to serve the national interests of their country; and has criticized the nature of Greece's austerity and debt-relief program as part of the conditions inherent in its bailout fund.
Cost of hypocrisy
Hypocrisy has been charged on many bases. "Germany will come as one who knows everything in the debate about aid for Greece", commented Der Spiegel, while his own government did not achieve a budget surplus during the 1970s through 2011, although the budget surplus was indeed achieved by Germany at all the next three years (2012-2014) - with the party spokesman who ruled the CDU commented that "Germany leads by example in the eurozone - spending only money in coffers". An editorial of Bloomberg, which also concluded that "European taxpayers have given as much financial support to Germany as they should be Greece", describes Germany's role and posture in the Greek crisis as follows:
In the millions of words written about the European debt crisis, Germany usually plays responsible adults and Greece as a wasteful child. The cautious German, the narrative, is reluctant to free free Greece, who borrows more than is capable and must now bear the consequences. [...] In December 2009, according to the Bank for International Settlements, German banks have collected claims totaling $ 704 billion in Greece, Ireland, Italy, Portugal and Spain, far more than German banks' aggregate capital. In other words, they lend more than they can afford. [... I am] an irresponsible borrower can not exist without an irresponsible lender. The German banks are Greek enablers.
The German economic historian Albrecht Ritschl describes his country as "king when it comes to debt." Calculated on the basis of the amount of losses compared to economic performance, Germany was the biggest debt offender in the 20th century. " Despite calling on Greeks to comply with fiscal responsibilities, and although German tax revenues are at a record high, with interest to be paid on new debt near zero, Germany still misses its own cost-cutting targets in 2011 and also lags behind the goal for 2012.
Allegations of hypocrisy can be made on both sides: Germany complains of Greek corruption, but arms sales mean trading with Greece becomes synonymous with high-level bribery and corruption; Former defense minister Akis Tsochadzopoulos was jailed in April 2012 ahead of the trial on charges of accepting a $ 8 million bribe from the German company Ferrostaal.
Pursuit of national self-interest
"Partners for Germany living within meaning are others living beyond their means", according to Philip Whyte, senior researcher at the European Reform Center. "So if Germany is worried about the fact that other countries are sinking further into debt, it should worry about the size of its trade surplus, but it is not."
The OECD projection of relative export prices - a measure of competitiveness - shows Germany beating all euro zone members except for Spain and Ireland hit by the crisis in 2012, with the advantage only widening in the following years. A study by Carnegie Endowment for International Peace in 2010 noted that "Germany, now poised to gain the greatest gains from the decline triggered the euro crisis, should increase domestic demand" to help peripherals recover. In March 2012, Bernhard Speyer of Deutsche Bank reiterated: "If the eurozone adjusts, southern countries should be able to run a trade surplus, and that means others have to run a deficit One way to do so is to allow higher inflation in Germany. but I do not see any willingness in the German government to tolerate it, or accept the current account deficit. "According to a research paper by Credit Suisse," Solving the peripheral economic imbalances not only lies on the shoulders of peripheral countries even if these countries have are required to bear most of the burden.A part of the effort to rebalance Europe has also been borne [sic] by Germany through its current account. "At the end of May 2012, the European Commission warned that" the intra-euro intra-euro macro economic discontinuation is essential for sustainable growth and stability in the region euro, "and suggested Germany should" contribute to rebalancing by removing unnecessary and other regulations. obstacles to domestic demand. "In July 2012, the IMF added its call for higher wages and prices in Germany, and to reform the parts of the country's economy to encourage more consumer spending.
Paul Krugman estimates that Spain and other peripherals need to reduce their price level relative to Germany by about 20 percent to be competitive again:
If Germany has 4 percent inflation, they can do it for more than 5 years at a steady price on the periphery - which would imply an overall euro zone inflation rate of 3 percent. But if Germany will only have 1 percent inflation, we are talking about massive deflation on the periphery, which is difficult (perhaps impossible) as a macroeconomic proposition, and will greatly increase the debt burden. This is a recipe for failure, and collapse.
The US also repeatedly asked Germany to loosen its fiscal policy at the G7 meeting, but Germany repeatedly refused.
Even with such a policy, Greece and other countries will face tough times, but at least there will be hope of recovery. EU employment chief Laszlo Andor called for a radical shift in EU crisis strategy and criticized what he described as Germany's practice of "wage-outs" inside the eurozone to gain a larger export surplus.
With regard to the necessary structural reforms of the countries on the periphery, Simon Evenett stated in 2013: "Many promoters of structural reform are quite honestly to admit that it produces short-term pain. (...) If you already in a job where it is difficult to get fired, labor market reforms introduce insecurity, and you may be tempted to save more now there is a bigger jobless prospect.Large labor economic reforms can drive consumer spending cuts, adding another obstacle to a weakening economy. "Paul Krugman opposes structural reforms in accordance with his views on the task of improving the macroeconomic situation to" the responsibility of Germany and the ECB ". "
The claim that Germany has, in mid-2012, provided Greece with the equivalent of 29 times aid given to West Germany under the Marshall Plan after World War II has been contested, with opponents claiming that aid is only a fraction of Marshall Plan aid for Germany and bringing partial removal big German debt with Marshall Plan.
The adjustment version offered by Germany and its allies is that the savings will lead to an internal devaluation, namely deflation, which will allow Greece gradually to regain competitiveness. This view has also been contested. The February 2013 research note by the Economic Research team at Goldman Sachs claims that the recessionary years experienced by Greece "exacerbate fiscal difficulties as the denominator of the debt-to-GDP ratio diminishes".
Strict in terms of reducing wages relative to Germany, Greece has made progress: private sector wages dropped 5.4% in the third quarter of 2011 from a year earlier and 12% since its peak in the first quarter of 2010. The economic adjustments of both programs to Greece call for a reduction in energy costs further work in the private sector 15% during 2012-2014.
In contrast, German unemployment continued its downward trend to a record low in March 2012, and government bond yields fell to repeat record lows in the first half of 2012 (although real interest rates were actually negative).
All this has increased anti-German sentiment in neighboring countries such as Greece and Spain.
When Horst Reichenbach arrived in Athens towards the end of 2011 to lead the new EU task force, the Greek media immediately dubbed him "Third Reichenbach". Nearly four million German tourists - more than any other EU country - visit Greece every year, but they consist of most of the 50,000 canceled bookings within ten days of the Greek election on May 6, 2012, a number of The Observers Called "outstanding". The Association of Greek Tourism Businesses estimates that Germany's visit for 2012 will decline by around 25%. Such was the case, the bad claims, the German history of World War II had been reopened, including "the massive unpaid loan demanded by the state under Nazi occupation from 1941 to 1945."
Error in design Applied program that exacerbates the Greek crisis. "Apology" IMF
Although much attention has been given to the humanitarian aspect of a 25% reduction in the Greek GDP associated with the bailout program, not enough emphasis seems to have been given to the catastrophic effect on the debt crisis itself.
The Debt-to-GDP ratio, a key factor determining the severity of the crisis, will jump from the 2009 level by 127% to around 170%, solely because of a fall in GDP (ie, for the same Debt). Such levels are deemed unsustainable. In the 2013 report, the IMF acknowledged that they had underestimated the impact of the vast increase in taxes and budget cuts on the country's GDP and issued an informal apology.
Indeed, among other measures, the Greek program imposes a very rapid improvement in the main structural balance, at least twice as fast as in Ireland, Portugal and Cyprus. The results of these policies that exacerbate the debt crisis are often quoted, while the Greek President, Prokopis Pavlopoulos, has emphasized the creditor's part in responsibility for the depths of the crisis.
The IMF officially apologized to Greece in 2012 on different issues, after comment by Christine Lagarde indicating the lack of respect for the sacrifices made by the Greeks.
Economic statistics
See also
- The anti-austerity movement in Greece
- Europe's debt crisis
Source of the article : Wikipedia
0 Comments