Greek Economic Crisis
The economy of Greece is the 27th largest in the world by nominal gross domestic product (GDP) and the 34th largest at purchasing power parity (PPP), according to data by the World Bank for the year 2009. Per capita, it is ranked 24th by nominal GDP and 23rd at PPP according to the 2009 data.
A developed country with the 22nd highest human development and quality of life indices in the world, Greece is a member of the European Union, the eurozone, the OECD, the World Trade Organization and the Black Sea Economic Cooperation Organization.
The public sector accounts for about 40% of GDP. The service sector contributes 78.5% of total GDP, industry 17.6% and agriculture 4%. Greece is the 31st most globalized country in the world and is classified as a high-income economy.
2010-2011 debt crisis
In the first weeks of 2010, there was renewed anxiety about excessive national debt. Some politicians, notably Angela Merkel, have sought to attribute some of the blame for the crisis to hedge funds and other speculators stating that “institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere”.
On 23 April 2010, the Greek government requested that the EU/IMF bailout package (made of relatively high-interest loans) be activated. The IMF had said it was “prepared to move expeditiously on this request”. The initial size of the loan package was €45 billion ($61 billion) and its first installment covered €8.5 billion of Greek bonds that became due for repayment.
On 27 April 2010, the Greek debt rating was decreased to BB+ (a ‘junk’ status) by Standard & Poor amid fears of default by the Greek government. The yield of the Greek two-year bond reached 15.3% in the secondary market. Standard & Poor’s estimates that in the event of default investors would lose 30–50% of their money. Stock markets worldwide and the Euro currency declined in response to this announcement.
On 1 May, a series of austerity measures was proposed. The proposal helped persuade Germany, the last remaining holdout, to sign on to a larger, 110 billion euro EU/IMF loan package over three years for Greece (retaining a relatively high interest of 5% for the main part of the loans, provided by the EU). On 5 May, a national strike was held in opposition to the planned spending cuts and tax increases. Protest on that date was widespread and turned violent in Athens, killing three people.
The November 2010 revisions of 2009 deficit and debt levels made accomplishment of the 2010 targets even harder, and indications signal a recession harsher than originally feared.
Japan, Italy and Belgium’s creditors are mainly domestic institutions, but Greece and Portugal have a higher percent of their debt in the hands of foreign creditors, which is seen by certain analysts as more difficult to sustain. Greece, Portugal, and Spain have a ‘credibility problem’, because they lack the ability to repay adequately due to their low growth rate, high deficit, less FDI, etc.
On a poll published on 18 May 2011, 62% of the people questioned felt that the IMF memorandum that Greece signed in 2010 was a bad decision that hurt the country, while 80% had no faith in the Minister of Finance, Giorgos Papakonstantinou, to handle the crisis. Evangelos Venizelos replaced Mr. Papakonstantinou on June 17. 75% of those polled gave a negative image of the IMF, and 65% feel it is hurting Greece’s economy. 64% felt that the possibility of bankruptcy is likely, and when asked about their fears for the near future, polls showed a fear of: unemployment (97%), poverty (93%) and the closure of businesses (92%).
On 13 June 2011, Standard and Poors lowered the Greek sovereign debt to a CCC rating, the lowest in the world, following the findings of a bilateral EU-IMF audit which called for further austerity measures. After the major political parties failed to reach consensus on the necessary measures to qualify for a further bailout package, and amidst riots and a general strike, Prime Minister George Papandreou proposed a re-shuffled cabinet, and asked for a vote of confidence in the parliament.] The crisis sent ripples around the world, with major stock exchanges exhibiting losses.
Some experts argue that the only sensible option at this stage is for the EU to engineer an “orderly default” on Greece’s public debt which would allow Athens to withdraw simultaneously from the eurozone and reintroduce its national currency the drachma at a debased rate. Economists who favor this approach to solve the Greek debt crisis typically argue that a delay in organising an orderly default would wind up hurting EU lenders and neighbouring European countries even more.