Greek Debt Crisis

The Greek government-debt crisis (Greek Depression)

        The Greek crisis started in late 2009 due to previous data on government debt levels and deficits had been undercounted by the Greek. Government had to borrow from European Central Bank.To pay this debt, the government enacted 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which at times triggered local riots and nationwide protests. Instead, to become more competitive, Greek wages fell, reduced income and GDP, resulting in a severe recession, decline in tax receipts and a significant rise in the debt-to-GDP ratio and unemployment rate. Then 2015, Greece’s president asked for perspective from citizen to continue following the policy of ECB and IMF or to reject the bailout terms that will make Greece take risk to exit from the Eurozone ("Grexit"). Which one that you think is a better choice and what was the choice that they voted?

CAUSE

After Greece got an official entry in the European Union (EU) in 2001. Greece legally took the euro as its currency and enjoyed lower interest rates, which helped the country borrow money in excessively high amount. Public debt occurred as Greece increased its employee's salary and meted out pensions instead of investing in the important sectors. Tax evasion also took place at large level. As a matter of fact, Greece's debt raised sharply. Apart from the economic mismanagement in Greece, country had a real difficulty when international rating agencies cut down the country's credit rating to junk status.

IMPACT

Impact on Eurozone

        Financial markets may be panicked If Greece goes bankrupt. Portugal and Ireland may also go bankrupt. And it could have a domino effect on Italy and Spain. This will lead to a major European banking crisis that will affect the entire Eurozone system and could lead to a new global financial crisis.

Impact on EU

       Greece's Eurozone leaving is the biggest failure of European economic integration. The EU is split into two parts, the Eurozone and the non-eurozone. This may be significant for the future evolution of the EU, which is likely to leave the EU in the future, which will have a significant impact on EU integration in the future.

Impact on geopolitics

      The West and Russia are in conflict. Russia looks at Greece debt crisis. It is Russia's chance to extend influence over the Balkans. If Greece is forced to rely on the Russian economy more. Greece's membership of NATO will be shaken.

Impact on Thailand

      If the crisis escalates. It will affect Thailand severely. The Thai exports to Europe will shrink. In the case of worst-case scenario, European investors would reduce their investment in Thailand. Including in the stock market and financial markets. The flow of capital from Europe to Thailand would be greatly reduced.

Impact on people

      First, Greek debt crisis affected directly their citizens and businesses whose savings suddenly plummeted in value. Moreover, the situation was more than economic crisis; it became a humanitarian crisis. The Greek state was unable financially to support the most vulnerable people in society. The austerity measures squeezed the incomes of the poorest and created hikes in utility bills, lower state pensions and civil service salaries, and higher taxes and duties. 

   Second, the crisis causes European companies to be valued less, so shares fall. Falling shares can cause cash flow problems and prevent companies from raising debt. Another is currencies. People might want to get rid of their euro and buy other currencies, so these other currencies become stronger. This makes it harder for companies in these other countries to export their goods. This affects the companies which might go bust and the economy at large (because lower exports means lower GDP). Finally, The crisis impact to other countries in terms of the stock market and foreign exchange.

The possible solutions are

1. Reduce the government's spending, increase the tax rate and live with the consequences that might happen such as complaints from the residence regarding to cutting health care spending.

2. Insist not to conform with the economic reform since it can bring risks in being kicked out from the Euro Zone

Why does Greece need multiple bails-out?

        Since Greece did not collect enough tax money, the country needed to borrow money from other countries in order to operate its country. Before being in the Euro Zone, Greece could not borrow a lot of money because of its incredibility. However, the country, now being in the Euro Zone, is allowed to borrow a decent amount of money because the creditors would expect other euro-zone countries such as Germany to pay back when Greece is not able to. Nevertheless, the growing economy inevitably makes Greece borrow more and more money each year, creating more debts. In order to pay off those debts, the country needs to borrow money from the current year in order to pay the debt for the former year, and the borrowing cycle keeps repeating. This cycle, hence, called Multiple Bailouts.

What option do other countries (e.g., Thailand) have to push its economy out of recession?        

           

     Other countries, such as Thailand, should focus on development of their domestic economy and shouldn’t give priority to foreign investment as much. They should increase rate of employment and focus on income distribution for population so fair. If they can rely on themselves, they will have more power to bargain with foreigner.

What options do Greece have to push its economy out of recession?

     

         For Greece, their economy can recover by raising taxes, cutting expense and

encourage tourism in the country. They should do away with government jobs and spend in other areas instead, like tourism or re-employment.

Greece’s G.D.P. and Unemployment Rates in Europe

First quarter 2015 average; *Britain is the three-month average through February.

KEY MOMENT OF GREEK DEBT CRISIS

        The key moments of Greek debt crisis, it was separated to 6 moments. First, Debt crisis happened between 2009 and 2010, Greece's credit rating downgraded, and Government faces mass protests and strikes. Second was Bailout package, it occurred around 2010-2011, Fears of Greek default prompt eurozone countries to approve $145bn rescue package and Government announces tougher, austerity measures in 2011 draft budget, with new taxes and higher VA. In the same year, it had Crisis deepens, EU leaders agree on major 109BN euro bailout for Greece and cut Greece's rating. Moreover, Greek was facing criticism over referendum plan, Lucas Papademos, former head of the Bank of Greece, becomes interim PM of coalition government to get country back on track in time for spring 2012 elections. Fourth, New bailout plan happened in 2012, Greece reaches debt swap deal with private-sector lenders - a condition of EU bailout package - halving its massive debt load. Next was Anti-austerity protests, trade unions stage 24-hour general protest strike, Police fired tear gas to disperse crowds outside parliament, unemployment rises to 26.8%. Lastly, between 2013-2014 Government shuts down state broadcaster to save money. Mass protests follow and junior coalition partner leaves government. Moreover, Eurozone finance ministers release more than 8BN euros of further bailout funds, Greece raises nearly S4BN from world financial markets in first sale of long-term bonds for four years, seen as important step in the country's economic recovery.