Greek withdrawal from the Eurozone.docx
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GreekwithdrawalfromtheEurozone
GreekwithdrawalfromtheEurozone
Writtenby:
MaMingShiWeimeng
Abstract:
Aftertheinternationalfinancialcrisis,theworldeconomywaspresentingthesignsofrecoveryandinthemarkettheconfidenceofinvestorsisboosting.Butatthistime,bytheendof2009,theGreekdebtcrisisbrokeout.TheoutbreakofthedebtcrisisinGreeceisacontinuationanddeepeningoftheinternationalfinancialcrisis.Itisalsofuelingtheconsequencesoftheinternationalratingagenciesandinternationalinvestmentinstitutions.AnotherreasonistheinevitableresultofthestructuralimbalancesoftheGreeknationaleconomicandtheinstitutionalweaknessesoftheeurozone.Asthefirstgameintheeurozonesovereigndebtcrisis,Greekdebtcrisishadasignificantimpact.ThedebtcrisismakesasharpincreaseinGreekdomesticfiscaldeficit,publicdebtandunemployment.Accordingtostatistics,theeconomicrecessioninGreekisnearly20%.Theoutbreakofthecrisisalsomakestheworld'seconomistsandpoliticalscientistsnotedthattheEuropeanCentraldualitycontradictionbetweenmonetarypolicyanddecentralizedfiscalpolicyonceagain.Inthisarticle,notonlytheevolutioncourse,significantimpactsoftheGreekdebtcrisis,butalsothecountermeasurestakenbytheGreekgovernmentandtheinternationalcommunitywillbeintroduced.
1.Greekgovernment-debtcrisisstart
ThemostimmediatecauseofthecrisisisGreece'snewgovernmentfoundGreece'sdebtproblemsfromlastgovernmentconcealed.ThenTheGreekgovernmentannouncedthatthebudgetdeficittoGDPratioisexpectedtoreached12.7%atNovember2009,andoutstandingdebttoGDPratioisexpectedto113%.Thesetwodatafarexceedsthe"StabilityandGrowthPact",whichtheEUstandardssignedin1997.
ConventionprovidesthatthebalanceofthefiscaldeficitanddebttoGDPratioofmaximumlimitof3%and60%respectively.Worse,accordingtodatareleasedbyEurostatshowedthattheGreekbudgetdeficitshareofGDPaccountedfor13.6%,higherthantheGreekgovernmentexpectedalot.Themarketbegantopanic,asharpriseinGreekbondyieldsandCDS(Creditdefaultswap)prices.
OnDecember2009,thetotalGreekgovernmentdebtis300billioneuros.AccordingtoGreece'sfiscalsituationdeterioratedmarkedly,thethreenationallyrecognizedstatisticalratingorganizationshavestartedtoGreece'ssovereigncreditratingdowngrade.
OnDecember8,2009FitchRatings(It'soneofthethreenationallyrecognizedstatisticalratingorganizations)announcedGreece'ssovereigncreditratingfrom"A-"reducedto"BBB+",outlookisnegative,ThisisGreece'ssovereigncreditratingforthefirsttimefelltoA-levellessinthepast10years.
Affectedbythenews,globalstockmarketsfell,theGreekstockmarketfell6percent,theeurofellsharplyagainstthedollar.
Atthesametime,FitchloweredthecreditratingoffiveGreekbanks.
FitchsaidthedowngradedecisionreflectstheconcernsabouttheGreekmedium-termpublicfinances,coupledwiththecredibilityoftheGreekfinancialinstitutionsandthepolicysideofthenegativefactors,itisdifficulttodeterminewhetherGreececangetabalanced,sustainableeconomicrecovery"
OnDecember16,2009evening,Standard&Poor's(AnAmericanfinancialservicescompany)announcedthatGreece'slong-termsovereigncreditratingloweredonestep,from"A-"reducedto"BBB+".
Standard&Poor'swarnedthatiftheGreekgovernmentcannotimprovethefinancialsituationintheshortterm,thereislikelytofurtherreduceGreece'ssovereigncreditrating.
ThisisthesecondtimetheGreekcreditratingdowngradeinaweek.
AnotherratingagencyMoody'shasincludedinthewatchlistGreece,andpossiblycutGreece'screditrating.
Sovereigncreditratingwasloweredfrequently,resultinginasubstantialincreaseinthecostofGreekgovernmentborrowinginthemarket,borrowingmoredifficult.
And2010istheGreekgovernmenttorepaymaturingdebtconcentratedperiod,theGreekgovernmentneedsatleast54billioneurostomeetitsfundingneeds.
Greecefellintoitsworstdebtcrisisandpanicofothereuro-zonecountries.
Bytheendof2009,Greecehasbeeninsolvent,nearlybankrupt,TheGreekdebtcrisisbrokeout.
2.DevelopmentofGreekdebtcrisis
Aftertheendof2009inGreece'ssovereigncreditratingwasloweredbytheinternationalcreditratingagency,GreekgovernmentbondsCDSpriceshavebeenrising,Itwasupto421basispointsinJanuary,2010.AndTheeuroagainsttheU.S.dollarexchangeratefellby8%in10days.
Atthebeginningof2010,theGreekgovernmenthasannouncedthatin2009thebalanceofthedeficitanddebttoGDPratioincreasedto13.6%and115.1%.
Greece'ssovereigndebtcrisishasnotbeeneased,andmoreserious.
OnApril27,2010,thestandard&Poor'sdowngradedGreece'ssovereigncreditratingtojunk,leadingtoariseinyieldsonGreekgovernmentbonds.
Asthesovereigncreditratingisreduced,thecostofraisingcapitaltogetridofthecrisishasbeengreatlyimproved.
RelevanteconomicdatasuggestthattheseverityoftheGreekdebtproblemhasbeenfarexceededmarketexpectations,theEUandtheeurozonegovernmentrealizedthatthesovereigndebtcrisisinGreecehasgraduallyspread.TheEuropeanUniongovernmentdecidedtostarttheGreekrescuemechanisminMay2ndofthesameyear.
GreeceandtheEuropeanUnionandIMFreachedarescueagreementinMay,Greecetoobtainatotalof110billioneurosinloans(Eurozoneinvested80billioneuros,IMFinvested30billioneuros),
therateis5%.
Asaconditiontoobtainloanassistance,theGreekgovernmentmustbecommittedtothenext3yearsthroughavarietyoffiscalpolicy,tobudgetlose30billioneurosonthebasis,andby2014,thedeficitratedroppedto3%.
TheGreekgovernmentissuedacorrespondingausterityplan,
ThenledtoamajorstrikeinGreeceandthebloodyconflictinMay5,2010
TheGreekdebtcrisishascausedaprofoundimpactonitsnationallife.
AftertheGreekdebtcrisis,investorsbegantopayattentionandconcernabouttheeurozonedebtsituationinothercountries.
AccordingtodatareleasedbyEurostat,Ireland,Portugal,Spain,Italyandothercountriesofthedeficitandpublicdebtarefarmorethantheprescribed"StabilityandGrowthPact",theGreekdebtcrisisbegantospreadtotheeurozone.
May10,EU-27financeministersdecided,jointlywiththeInternationalMonetaryFundissuedatotalof750billioneurosrescueplan,IthopedmighthelpeurozonecountriesintoadebtcrisisandpreventtheGreekdebtcrisisfromspreadingfurtherdiffusion.
ThelargestbailoutinEuropeismadeupof3parts,ofwhich440billioneurosareprovidedbytheeurozonecountriesintheformofguarantees,and60billioneuroswillberaisedbytheEuropeanCommissionfromthefinancialmarkets,andtheremaining250billioneuroswillbeprovidedbytheInternationalMonetaryFund.
June14,2010,oneofthethreeinternationalratingagenciesMoody'sInvestorsServicecutGreece'ssovereigncreditevenlower4,bytheA3leveldroppedtoBa1,Greecebecametheworld'sworstnationalcreditrating.
Moody'ssaidthatalthoughtheeuro-zonecountriesandtheIMFtogethertohelpgetridofthesovereigndebtcrisisinGreece,butGreece'ssovereigndebtoutlookremainsassured.
AstheEUandIMF€110billionfinancialsupportconditions,theGreekgovernmenthadtopursuetightfiscalpolicies,includingwagecuts,increasetaxes,butafterayearofausterity,theeconomicsituationinGreecehasnotbeensignificantlyimproved,cannotrelyontheirowntosolvethefinancingproblem.
UntilMay2011,Greece'sdebtcrisiscontinuedtodeteriorate,inthealreadyacquired110billioneurosofloans,Greecestillneeds22billioneurostodealwiththedebtmaturity.
OnFebruary21,2012,theeurozonefinanceministersmeeting,thesecondroundofGreece's130billionroundofaidprogramssuccessfullyapproved,thecountry'sprivatesectorcreditorshaveagreedtoreducetheirholdingsto53.5%,buttheeurozonefinanceministersdemandedthatGreece'sdebttogrossdomesticproduct(GDP)fellto120.5%by2020.
OnMarch1st,GreeceintheeurozonefinanceministersmeetingwiththeEuropeanfinancialstabilityfund(EFSF)signedanagreementtocompletethedebtrestructuringofGreeceandtomakethecountry'sbankscancontinuetooperateinthisprocesstolaythefoundation,however,the130billioneurozonefinanceministersintheeuroareafinanceministerstoobtainasmoothcompletionofthedebtexchangewillbeissued.
OnApril25,2012,Greececompletedtheplan.TheGreekgovernmentthroughtheprogramtoreducethedebtofabout100billioneuros,thesuccessoftheprogram,butalsotoensurethatGreecereceivedasecondroundofinternationalaidloans,toavoidabreachofcontract.
OnJune2012,thesupportoftheGreekausterityconservativepartyintheparliamentaryelectionvictoryagainsttheausterityoftheleftparty,theGreekpeoplevoteddecidedintheeurozone.
TheGreekfinanceministrysaidinFebruary4,2013thatGreece'sfiscaldeficitin2012wasreducedto6.6%ofGDP,andtheoriginaltargetwascompleted.Inastatement,theTreasurysaidthecountry'sfiscaldeficitin2012fellto12billion900millioneurosfrom19billion700millioneurosin2011,adropof34.6%.In2011,thefiscaldeficitaccountedfor9.4%ofGDP.
3.ThepresentsituationoftheGreekdebtcrisis
AftertheGreekelectionofJanuary2015,theEurogroupgrantedafurtherfour-monthtechnicalextensionofitsbailoutprogrammetoGreece;acceptingthepaymenttermsattachedtoitslasttranchetoberenegotiatedwiththenewGreekgove